Note to AFP, Gross Debt Is Not the Same as Public Debt
by Gary Therkildsen*, 8/5/2011
An Agence France-Presse (AFP) piece making its way around the interwebs states, “US [sic] borrowing tops 100% of GDP: Treasury,” and goes on to explain, "US debt shot up $238 billion to reach 100 percent of gross domestic [product] [GDP] after the government's debt ceiling was lifted" earlier this week. The problem with this story is that our debt is nowhere near 100 percent of GDP, at least not the debt that matters.
The AFP story makes the elementary mistake of conflating public debt – the money the federal government owes individuals and institutions, both at home and abroad – with gross debt, which is the public debt combined with the money the federal government owes itself. As Chad Stone of the Center on Budget and Policy Priorities (CBPP) explains, this includes the common example of "money the Social Security trust fund has lent to the Treasury in years when Social Security’s earmarked revenues exceeded expenditures."
A separate CBPP analysis makes clear that no credible economic study looking at "the effect of rising deficits and debt on the budget and the economy" would use gross debt figures. The analysis points to a recent Congressional Budget Office (CBO) report that states, "Gross debt is not a good indicator of the government’s fiscal condition" or its "future obligations," as the Treasury securities held by trust funds "represent internal transactions of the government and thus have no direct effect on credit markets."
Not surprisingly, several conservative and libertarian blogs have picked up the AFP story and reported it verbatim, handing down rectitudinous judgment on the fiscal imprudence of Democrats in general and the Obama administration in particular. It's a shame these bloggers couldn't take a moment to research AFP's claim before racing off to reduce a complex fiscal issue into black-and-white conservative palaver.
I'm sure it would be news to AFP and the above mentioned bloggers that our public debt-to-GDP ratio is actually somewhere in the mid 60s, and that the ratio isn't expected to approach 80 percent for another couple of decades, which is unfortunate for these publications' misinformed readers.