It is called the NIIP (Net international investment position), the amount a country owes if they were to “cash in” and “pay out”. In the case of the United States, according to the BEA (Bureau of Economic Analysis) the net debt of the United States is 4 trillion dollars.
Lets hear something good for a change. We just got rid of ~12 trillion dollars in debt, just like that!
Okay, we didn’t. But I’m sure most of you haven’t heard that our debt is only estimated at 4 trillion dollars, and accounts for a little as 25% of our GDP. The reason you haven’t is probably largely political, it sounds much more dire and grave when we say we owe 16 trillion dollars, and that is more than our entire economy makes in a single year.
The reality is, yes we owe a lot of countries, a LOT of money. But flip the coin around, there is another side. Lets make cents. It turns out, a lots of other countries also owe us LOTS of money. So much in fact, that 75% of our debt is knocked off by it. Meet our NET debt, assets – liabilities, a general accounting rule used in every form of finance.
Now is this important? Yes and no. The debt is a serious problem, and when we continue running these high deficits, our net debt is spiking and getting larger and larger. You can join in the discussion on whether the debt is important by clicking here.
But if we are afraid of countries “cashing in” on us, well we can also “cash out” and our debt doesn’t look so bad. Of course, if this happened, on a worldwide scale it would be catastrophic but don’t worry it will never happen because no one would get paid that way.
The United States has a lot of safe guards in place to ensure we can finance our debt, this includes a diverse portfolio of debtors who pay a rate of return far greater than we pay on our treasury bills. What we have to worry about is continuing stagnant growth and increasing deficits, these will hit us hard and could spell major trouble.
And lets not mention entitlements, which will balloon the debt to levels that are multiple times larger than we have now. I will write more about entitlements later on, so stay tuned.