America's Precarious Net Position

By Veronique de Rugy

Our financial future is darker than generally expressed through deficit numbers—way darker.

Credit rating agency Moody's just issued a warning that the United States is risking its AAA credit rating. Unless we have the political will to cut spending and raise taxes, the agency warned, our debt levels are reaching the risk level for a downgrade.

— San Francisco Chronicle, March 19, 2010

The budget numbers we hear about most frequently are how much the federal government spends in a given year and how much it taxes. As a result, we know what the deficit that year is. However, we rarely hear about the true financial position of the United States, the one that takes under consideration all of its assets and all of its liabilities.

Using the data for the Department of Treasury’s Financial Report of the U.S. Government for fiscal 2009 and previous years, the chart below compares the year-over-year change in the United States’ end-of-year net position. Net position is calculated by netting the government’s assets against its liabilities, as recorded in the U.S. Government Balance Sheet. Just as in the financial statement of a company, this metric provides a general picture of the fiscal health of the United States. This situation has been steadily declining since 2000.

Assets are primarily comprised of United States’ property, Troubled Asset Relief Program assets, physical structures, facilities, and equipment, while liabilities are mainly debt held by the public, accrued interest, and federal employee benefits. In fiscal 2009, the federal government held $2.7 trillion in assets and $14.1 trillion in liabilities. As a result, the net position of the government in 2009 was –$11.5 trillion, a 12 percent deterioration from 2008.

While the United States’ net position is certainly daunting at –80.5 percent of GDP, this position does not capture the nation’s full exposure. Exposures for future Medicare and Social Security expenditures are not taken into account in the nation’s net position. Over the next 75 years, U.S. social insurance accounts are projected to run large deficits; the net present value of these deficits is $45.8 trillion.

In other words, our financial future is darker than generally expressed through deficit numbers. Way darker.

Veronique de Rugy is a senior research fellow at The Mercatus Center at George Mason University.