IN THIS ISSUE

1. The Media’s Argument Over the Size of the National Debt

2. Is Our National Debt Really $26+ Trillion or Only $20 Trillion?

3. Why Do Media & Liberals Mischaracterize Our National Debt?

4. Maybe There’s No Limit to How Much Debt We Have – NO!

Overview – The Argument Over the Size of the National Debt

Since we got the horrible news at the end of July that US Gross Domestic Product plunged by almost one-third in the second quarter (-32.9%), more and more economists and financial writers have been warning that our debt-to-GDP ratio has exploded to levels many have long believed would lead to a collapse of the economy and soaring inflation.

Graph showing real GDP drop in Q2

I think we can all agree that the 35+% plunge in GDP in the first half of the year certainly qualifies as an economic collapse, but inflation continues to be tame, and most forecasters continue to expect at least a fairly strong economic rebound in the remainder of 2020 and next year.

As a result, more and more forecasters are coming to the conclusion that their long-held worries about the debt-to-GDP ratio sinking the country – if debt rose above 100% of GDP – were probably unfounded. And increasingly they are now saying we can take on even more debt if we want.

We can debate that conclusion, of course, but today I want to point out (as I have for decades) that the national debt level cited by most economists and financial writers is grossly UNDERSTATED, thus making the debt-to-GDP ratio also understated.

The issue is whether our total national debt of $26.7 trillion currently is the correct metric we should use for such calculations, or whether we should only consider the “debt-held by the public,” which was considerably lower at only about $20.6 trillion at the end of June, or about 106% of GDP. While many forecasters and the media prefer to cite only the debt held by the public, every few years I feel compelled to remind my clients and readers that such thinking is just plain WRONG.

That’s what we will talk about today.