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Debt As A Percentage Of GDP

 September 13, 2008 01:43 PM

We consistently hear about record US government debt levels, but we rarely hear them in context. Since both inflation and economic growth have been consistently positive over the years, it's only natural that nominal debt would be higher than ever. What really counts is the debt level as a percentage of GDP. This tells us how serviceable current debt is from an historical perspective.

Here's a look at US debt levels as a percentage of GDP:

Surprisingly (considering the alarm bells we hear from the media), US debt as a percentage of GDP is actually lower now than it was in the early 90s! Over time, we can see from the chart that debt levels were most cumbersome as a result of World War II. Since then, while annual deficits have often been higher both in frequency and magnitude than surpluses, GDP growth has made debts more manageable.

There is, however, a major caveat to this chart. Gross debt levels are actually much higher than what is presented, but the amounts in the chart are public debt. This is an important distinction since public debt levels does not include the Social Security Account. Social Security obligations continue to balloon, and something will have to be done to solve this problem which is currently simply being postponed.
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