I recently wrote about the fact that the forces impacting the U.S. economy’s balance sheet, at about $200 trillion, dominate those affecting GDP (just over $14 trillion) when thinking about interest rates and stock prices. A blog reader wrote to ask me where the $200 trillion figure comes from.
First, I want to point out that it is revealing that we have to ask the question. Why is it that people know so much about something so small (GDP) but so little about something so big (total assets)? I think it is because since the 1930’s macroeconomics has developed into a discipline concerned almost exclusively with who is spending how much money. Very little attention is paid to the capital base, or balance sheet, that makes it possible to produce the goods and services measured as GDP. A glance at a newspaper or any list of data produced by the government will convince you this is the case.
The best source of asset market, or balance sheet, information we have today is the document Z1: Flow of Funds of the United States produced after the end of each quarter by the army of economists working at the Federal Reserve Board.
The most recent (116 page!) flow of funds document, publish March 12, contains information about the balance sheet of the U.S. Economy on 12/31/08. I will warn you that you will have to dig for it–most of the 116 pages are devoted to measuring “flows of funds”, roughly the amount added and subtracted from balance sheets during the quarter. But you can find most of what you need if you hunt for it.
Total Assets by Sector Q4 2009
So what about the $200 trillion? I have constructed the table, above, by pulling figures from the report. The report reports balance sheets for some sectors of the economy but not others (which I find a little strange). They report balance sheets for 1) Households and Nonprofit Organizations, 2) Nonfarm Corporate Business (big companies), and 3) Nonfarm Noncorporate Business (small companies). These balance sheets show that at the end of 2008 housseholds and nonprofits owned $40,814 billion in financial assets like stocks and bonds and $24,905 billion in tangible assets like houses and cars, which adds up to $65,719 billion in total assets. Against that total, households and nonprofits owed debts, or liabilities, of $14,242 billion, which means they had net worth of $51,477. (These last numbers are in the document on p. 102 but not in the chart.)
Adding the three sectors together (Subtotal in row 4) produces a balance sheet with $104,049 in total assets divided between $58,639 in financial assets, and $46,301 in tangible assets.
Now it gets trickier. The Fed does not report complete balance sheets for the other sectors (farms, financial sectors, federal government, state & local governments, or rest of world (foreign owners). Instead, they report statements of financial assets, financial assets and financial liabilities. In other words, they leave out the fact that all these other sectors own tangible stuff like land, buildings, cars and computers, in addition to securities. I think that is a big mistake, reflecting the analytical bias in the macroeconomics community that somehow people consciously manage their portfolios of stocks and bonds but are passive owners of more than $46 trillion of real stuff.
We can use the Fed’s measures of financial assets held by all the sectors to get a pretty good figure for total financial assets in the balance sheet. Adding in farms, financials, governments and foreign owners brings the total financial asset figure up to $141,512 billion, which is reported on p. 115. (I say a pretty good figure because the document reports a $4,922 billion statistical discrepancy in getting to that figure themselves.) They do not report figures for tangible assets held by those “other” sectors, which is unfortunate because the “other” sectors are actually bigger than the ones they report.
That leaves us in an awkward position in trying to derive a total asset figure than makes sense for the overall U.S. economy’s balance sheet. One way to do it is to add up the numbers that we do know. I have done so in line 13. We know there are $141,512 billion in financial assets. We know that just three of those sectors own $46,301 billion in tangible assets. Adding those two numbers together produces a (reported) total asset number of $187,813 billion, pretty close to the $200 trillion number I wrote about at the top of the story. (The number would have been much closer 2 years ago before the recent drop in asset values.) Unfortunately, I have no idea what to call this number because it leaves out so many huge question marks.
If I weren’t so lazy I could dig up numbers to at least approximate the values of some of the question marks in the table. Farms own land and tractors, banks own buildings and ATM machines, governments own all sorts of crap including nearly a billion acres of land and all those cars you see on the highway that don’t have to buy license plates like you and me. And foreigners own a ton of stuff too. For today’s purposes all we have to know is that these things would add up to a very big number. And plugging these figures into the missing cells in the table would produce a total assets number far in excess of $200 trillion.
OK, that’s enough arithmetic. Why does this matter? It is to show you that the balance sheets are so big that almost any analysis of the economy that focuses on spending or saving or budget deficits alone, to the exclusion of the balance sheet, is almost certain to be wrong because balance sheet changes are so big. For example, household financial asset holdings fell from $50.5 trillion in Q3/07 to $40.8 trillion on 12/31/08 due to the collapse of stock and bond prices. And the value of their tangible assets fell by another $3.5 trillion due to falling home prices. Does anyone really think that the impact of this roughly $13 trillion drop in household net worth can be fixed by sending people checks for $700?
The most relevant application of this thinking today is how to understand the impact of the massive bailout programs on the economy and to say something meaningful about the impact of government borrowing on interest rates and stock prices. I will write more on these questions later.
You can read an analysis of budget deficits and interest rates using this approach in Chapter 4 of my new book, Lessons from a Road Warrior. You can get it from Amazon or get a signed copy directly from the John’s Book section of our website.
JR
I am not much of an economist, but I figure that there must be a formula that would allow you to calculate an acceptable debt load based on your income and your other assets. I have been most interested in the total amount of money spent on all forms of energy used by our country across all sectors of our society. I have arrived at just over 3 Trillion dollars annually. These numbers came from the Energy Information Agency. EIA, As the author of this conversation has pointed out, it is some times very difficult to come up with good numbers because of the obfuscatory approach they have adopted. I actually believe that is closer to 4 Trillion dollars annually. 95+ Quads per year.
I am an advocate for several mew energy technologies. I believe that if we are smart we can cut that number down to well below 1 Trillion within 5 years. Below are the new technologies that can make that happen
Hello Friend, I’ll get right to it. It took me a while to realize that if there was a particular group of folks that needed to be brought up to date on what is going on in the world of “condensed matter physics”, it is those folks called “ENERGY CONSULTANTS” I advocate for several new energy production paradigms. There are at least 9 new technologies on the rise that have the oil companies very nervous. There are lots of patents, and there are several Open Source devices as well. Here’s a list with a brief description of each of 9 of them. Dennis Bushnell of NASA’s Langley Research Center has said that “it is a broad spectrum phenomenon”, and Oh Boy, is it ever!!
1. Cold Fusion, also known as Low Energy Nuclear Reactions, Lattice Assisted Nuclear Reactions, Controlled Electron Capture Reaction. These technologies are all about forcing Hydrogen or Deuterium atoms into the crystal lattice of a metal such as Nickel. Once the crystal lattice of the metal nanopowder has been sufficently saturated with Hydrogen excess heat is generated. This is not hard to see, as everything is still vibrating, but now all the atoms are in much closer proximity than before. The quanta mechanical explanations are not 100 % understood, but there are several companies and government offices that have operational devices. Good bye oil. Google LENR, NASA, Zawodny, and Bushnell. NASA loves it.
2. Dense Plasma Focus goes something like this. Two cylindrical electrodes are enclosed in a glass tube. One is slipped inside the other. The tube is then filled with Boron gas and high voltage is applied to the electrodes. A plasma is then produced and pulsed by a strong magnetic field. As this pulsing is increased and focused the plasmoids begin to ball up on one another. As pulsing continues a beam of electrons emanates from one end of the tube and a beam of protons from the other, with extremely high amounts of energy being produced. Google Charles Chase, Skunk Works, and Dense Plasma Focus
3. Catalyzed Hydrogen is what will replace Electrolysis. Molybdenum Sulfide is but one of the substances that will trim the Hydrogen right off the water molecule with no energy being expended, releasing it to power a fuel cell and generate electricity directly.
4. Graphene is essentially one atom thick layers of Carbon alternated between layers of insulation, such as mylar. When you get a bunch of these layers stacked up and attach an electroes to the top and bottom of the stack you have created a capacitor of another color. Extremely high values of capacitance can be arrived at. 3000 farads is what I have seen advertised. This material can be used as a capacitor, a spectacular new form of battery, or configured as an extremely efficient solar cell.
5. Zero Point Energy/Energy of the Vacuum used to be a little far out for me, but now I think I’ve got a cursory handle on it. The process on a Quantum level is much like the process that produces Ball Lightening when tectonic plates shift causing an earth quake and occasionallly something called Ball Lightening. Only in Zero Point it is what happens when an Orthorhombic plane from another dimension intersects our dimension and causes a disruption, releasing energy. Google Moray B. King
6. Acoustic Cavitation/Bubble Fusion. I am not sure at all how to say anything about this, but there is a great deal published about the possibility of deriving energy using this phenomenon.
7. Muon catalyzed Fusion another flavor of Cold Fusion.
8. HALOGEN-CATALYSED COLD NUCLEAR FUSION, yet another
When you take into account the amount of money that is spent in just our country annually, approximately $3.04 Trillion dollars. That is 95 Quads at an equivalent of 8 Billion gallons of gas per Quad, it is easy to see how much resistance the oil companies and the Nuclear power folks might muster.
9. Thermionic Power Generation, I heard about this just the other day. It may be that this technology will be a prime player. The devices turn heat from the sun, or anything else directly into electricity, instead of using light as photovoltaic solar cells do.
Much of this may be new to you. I understand that, but please consider these things.
Paul D. Maher
http://www.coldfusionnow.org
Pingback: How Much Money is Out there? | mcgeehome
I’ve always found the discussion of America’s ‘balance sheet’ fascinating, and agree that our current budgetary reporting and practices are so minimalist as to be near useless. Instead of boring you with my own gyrations on our net worth, I’d simply like to add a few comments …
On the matter of the ‘financial weapons of mass destruction’ I typically use a ‘bookie’ analogy. Even if the ultimate worth of the FWoMD is 1 or 2 percent of the aggregate (and I suspect and fear it would be less than that) the tangible value to our financial institutions is in the vigorish. You gotta pay the vig going in, and you are going to pay the vig to get out. Fee-for-service, baby! It keeps our banks and investment houses lubricated but cannot be readily shown on an estimate of net worth.
In regard to the matter of unfunded liabilities, the annual report of the SSA shows in excruciating detail what potential cash-flow issues will arise. With all due respect to our concerned friends, this is not an economic issue. It is an issue of political will, and fear and propaganda (WHOA! $90 trillion!) only exacerbates the problem.
Over the 75-year term of our unfunded liabilities, the cumulative GDP of the United States of America, at 2-2.5% annual growth, will likely exceed $4,000 trillion (whoaaaaa!). A combination of raising the eligbility age, means-testing and a bit of revenue, and the ‘issues’ are gone.
And, if you review, the SSA annual reports from over the last five years, you will find that these unfunded liabilities over the next 75 years have dropped 20% in total as a result of the ACA, or ObamaCare, and that Medicare solvency has been extended 9 years or so into the middle of the next decade. Political will!
What you will also find in the SSA reports is that it is not really a 75 year problem … it’s a 15 to 20 year ‘bubble’ of Boomers that must be worked through the system. We get to the other side of the Boomer Bubble and it’s smooth sailing.
As a final comment for the day, I’m not sure from whom the idea of a ‘net worth tax’ to retire govt debt originally came, but I know I first heard of it in the 1990s …
From Donald Trump, of all people.
Pingback: Continuing on with the US debt, the debt limit and who owns it | hethatwatches
That’s a very good question. I don’t know the answer but will dig around and see if I can come back with something.
By the way on a related matter, I just re-calculated the market value of total assets held in the US as of June 2013 and the number is $234 trillion, not counting the value of land and natural resources held by governments (the Federal government owns more than 700 million acres), corporations, or foreign persons. Pretty big number!
JR
Do you have an idea of what the “value” of the Credit Default Swap Paper is world wide, I have heard estimates of 700 trillion, what portion of that is held in US corporations?
Pingback: Market Monetarism Jumps the Shark | Unlearning Economics
Pingback: High Debt Risk in US - Page 3
Some say that US infrastructure worth around 8 trillion. So the valuation of assets by government is kind of understated. Then there is a military…Numbers seems a bit silly…
Pingback: What Cypress Portends for America | Free Markets Free People
Pingback: A Look into America’s Future
in terms of tangible assets (physical) cars computers phones are crap maybe for today but not for the long run ( I m all set with an 88 Toyota camry) gold and silver have been #1 for 5000 years ( beat that track record fiat currency) (100% failure rate) gold is wealth cash is debt. problary has a little to do with the fact that it cant be created its fungible and its a noble metal that will never corrode erode or disappear.
if our country and the fiat system really worked how normal borrowing really works ( or if we played our cards the right way) it should of looked like this…..
like any startup company we (U.S.) borrow the money- build, invest, trade (create capital) , pay off debt from profits get in the green (+$) repeat and prosper….just like any real functioning hard working company.
NOW WE HAVE TO GO INTO MORE DEBT JUST TO KEEP THE MUSIC PLAYING, RUN THE PRINTING PRESSES AND DEBASE THE DOLLAR EVEN MORE.
IF DEMOCRACY WAS FOR REAL AND FOR THE PEOPLE BY THE PEOPLE WE ARE TO BLAME FOR ELECTING THIS INTO EXISTENCE. TRUTH IS DEMOCRACY IS A SHAM
POLITICAL CONTRIBUTIONS MAKE A CANIDATE NOT POPULAR VOTE
THEREFORE THE RICH (MINORITY) COLTROLS THE POOR (MAJORITY)=DICTATORSHIP
no winners in the dollar game only losers exchange your cash for real assets
some day soon a penny will be worth more than a $100 dollar bill just because of that little bit of copper will be worth more than that piece of paper already written on.
Pingback: Taxes, Democrats & Intentions » Duffy's Political Soapbox
As a CMC Economics Graduate and friend of Dr. Rutledge over 35 years, my comment revolves around a more esoteric concept. The “I” word in the economy. Incentive is the driving force behind wealth creation. Take it away or stifle it with extreme taxation, and the plant will wither and die. Increase it and the economy gains steam like a well-fertilized plant yielding a large bounty for harvest.
It doesn’t really matter what the actual “number” of true assets in the USA is. What really matters is the direction of the economy. Do people have an increase in the work ethic or a decrease? Is the risk taking of productive “players” in the economy on the boom or the wane? That will spell the ultimate answer to the real question of what is the future wealth prospects for our great country.
We are not liquidating the USA….I hope. But we might be turning off the spigot of Incentive.
Thanks,
Howard
Awesome article and the total debt of the US does not really look so bad now. In fact its very small compared to our assets!
Pingback: U.S. Total Debt....60 Trillion - Page 3 - US Message Board - Political Discussion Forum
Thank you for this, I was wondering about this the other day and searched to see if someone had done the analysis. This info increases my disgust regarding the TARP “bailout”, when it was obvious these companies could have bailed themselves out. Now that I consider the even bigger picture, it becomes even clearer how corrupt our financial system is.
Pingback: Quora
-In the US, what percentage of insurnace premiums are invested (median over the industry)?
-What are the approxximate total assets held by US insurance industry in 2010?
The more I look at aggregate US financial information, the more I attempt to simplify the principles that best describe our economy. The best measures I come up with involve, not money, but the thought we can or can not continue living at the level we live today. For the last 50 years, it might be fair to say we each consumel “1%” or so more goods and services each year as measured against a steady input of human labor. Public and private investment in productive assets, R&D, and quality education seem to be fundamentals of growth. All the numbers that float through our economy ultimately need to preserve and maintain the before mentioned investments in productivity drivers.
Converting these various forms of investments into percentages of GDP, we get 13% or so when it comes to physical assets, 3% in R&D, and 8% in education. Independent of our fascination with debt and equity, assets and liabilities, etc., the quality of the 25% of GDP (human hours) spent on the above productivity enhancers is key. In a follow-up email, I’ll provide a thought or two on the initial thread of this conversation concerning financial and tangible assets.
Since the gold standard was removed in 1971, the old balance sheet equation is obsolete today.
The old equation is:
Assets – Liabilities = Owner’s Equity
The new equation is:
Assets = Liablities or Assets – Liabilities 0
Therefore, the discussion about the assets is a moot point. If anyone wants to buy the tangible assets, it requires debt somewhere in the system to increase.
When we removed the gold standard in 1971, then today isn’t the owner’s equity approach obsolete?
The old balance sheet formula is: assets – liabilities = equity
But isn’t it true that the new accounting formula is: assets = liabilities?
Isn’t it true that in 1971 we removed the owner’s equity in a 100% fiat system?
As such, the discussion of net worth in this thread becomes a moot point.
With “owner’s equity” no longer supported by the gold standard, being a 100% fiat system, haven’t we by definition handed the “total” assets over to the bank debt evenutally at a national level? You or I may have all cash in the bank and no debts, but to balance out the fait equation, *someone else* has to have more debt than cash to make the owner’s equity zero. Assets – liabilities = 0
Doesn’t that make our country a Communist nation at the top now, with zero owner’s equity? By definiton, we need to have a positive owner’s equity as a nation to be free, right?
Hmmm…interesting we opened trade with China *immediately* after 1971.
If this is correct, wouldn’t the Federal Reserve be motivated to make it confusing for us to see the trend toward less and less equity–like removing the old format that used to provide the US balance sheet as someone mentioned above? We can’t see the equity disappearing, unless we see the trend. The current information in Z1 is to make it impossible to reconcile to the totals as illustrated in the first article. Although, in spite of the difficulty for us, we can be assured the Fed still has the information it used to present to us 20 years ago. It no doubt has the nation’s equity positon clearly before its insider eyes.
Food for thought.
Finally, even if we wanted to buy or sell the “tangible assets” with fiat money, one has to create the cash to do it in a 100% fiat no-fractional-gold reserve system…right? And that means, you need to create debt to create the fiat cash *somewhere* in the system to buy some of those “tangible” assets—uh…increasing the debt–increasing the interest payments to the banks.
Slick system for the banks, isn’t it?
Unless, of course, we use the old bartering system.
Right?
Please let me know your thoughts. I’ve been toying with these ideas for some time, working through the numbers, and it appears the 1971 decision has a huge impact on our nation’s finances, favoring the banks, of course. I believe the banks have tricked us. Nixon didn’t have a clue.
If this reasoning is incorrect, can someone out there *please* correct me. I don’t want to believe this. It smells awful. I want a better answer. It’s like I found dog poop in my living room that I can’t remove. The banks created a robot dog that poops everyday on our carpet no matter what we do. In fact, the poop piles up automatically every day because of the fiat math, and we can’t stop it. I don’t like what I discovered. Please help. I’ve been racking my brains to find a better answer, but I can’t. Or confirm that I’m not wrong. Thank you.
that $200 trillion is the otal value of all the land, real estate, businesses,… owned by all citizens and government in all 50 states and abroad. the $14 trillion is the money the US government
Good point Julian. The Fed board of governors published estimates of government balance sheets until 1994 but then stopped. The GAO has information in some of their publications but you have to dig it out of the footnotes. I would love to see any estimates anyone has of the value of government tangible asset holdings, especially land and mineral rights, if anyone knows of any.
JR
The Federal Reserve posts quarterly estimates of flow-of-funds data going back to at least 1996. You have to make guesses about valuation of government assets, which they do not cover, but it is much better than nothing.
Pingback: Is It Time to Flog the Public…Again? | geckogomez.com
Pingback: Is It Time to Flog the Public…Again? | geckogomez.com
You make a good point, Robert. Until 1994, the Federal Reserve Board published a report called “Balance Sheet of the United States” that contained detailed expositions of the balance sheets of all the sectors including both the federal government and state and local governments. The reports showed that, in addition to mountains of equipment (ships, tanks, vehicles, etc.) the federal government owned more than 700 million acres of land! The oil and mineral rights to all that land, of course, should be reported as part of its market value. I have written articles in the past in Forbes, the Wall Street Journal, and in a recent book (“Road Warrior”) that argue we should be looking at the total government balance sheet–including the value of all tangible assets–when we think about debt issues. In particular, the net worth figures for the government should account for its total asset holdings. when I advise a company having balance sheet issues (solvency) I first start by looking for balance sheet solutions–selling assets. We should be looking at those ideas now for the national debt.
Interestingly, the Fed stopped publishing the balance sheet report in 1994. I contacted the research department at the Board of Governors at the time asking why they did this; they said they didn’t think the information was very useful. I have always wondered if there were people involved who did not want the information widely disseminated. After all, selling government assets is politically controversial. Since that time you will only find the government assets listed in GAO reports where they appear as footnotes and are described as “assets held in trust for future generations.” (In other words, they don’t want you to suggest they sell them.) In one of my articles I reported that, from now on, I am going to refer to my house, my car, and my IRA account as “assets for future generations” when preparing my financial statements for the IRS because they are all going to my children (and the government) anyway when I die. Should save me a lot of taxes!
JR
Your not including the biggest asset that the US owns.
It’s the 4-6 trillion BBLS of oil that lie under our country.
Do the math !!!!!
The oil is worth more than our entire country!!!
And it’s all under land and not offshore!
It’s mostly under federal lands which belong to all of us!!!
Pingback: Cullen/Frost Reports 4th Quarter, Annual 2011 Results | The Street Mirror
After reviewing the Z1 tables in-depth myself, I understand why this article is confusing everyone on the difference between Financial Assets and Tangible Assets. In short, Financial Assets ALREADY include Tangible Assets; therefore, you need to look at the National Balance Sheet the exact same way the Federal Reserve Bank does at the very bottom of their Z1 report in what they call the Flow of Funds Matrix for 2010 (Billions of dollars; All Sectors — Assets and Liabilities). That number, all the way to the right, called All Sectors, is the Total National Assets, which is $151.9 trillion, not $181 trillion. However, the FRB should break down Total National Assets into one web-based drill-down Tree of Business & Government which I’m creating by: (1) breaking down the Total National Assets (or Financial Assets, with data from the Federal Reserve Bank) into (2) Financial Assets by Industry (with data from the Bureau of Economic Analysis, including Household Financial Assets by Industry, the largest group), and then break that down into (3) Financial Assets by Occupation (with data from the Bureau of Labor Statistics), and then break that down into (4) Financial Assets By Business Establishment (or Stores & Offices, with data from the Census Bureau). Given all that drill-down information tied to Business Plans By Industry from the Small Business Administration, you can then create 1 Tree of Business & Government, and from that, my ultimate goal, an Online Business Game that simulates reality before actually doing reality as a “new” National Bank & Local Business Owner-Voter. Thanks for this primer though — good work.
Pingback: The Best Summary Ever......... - US Message Board - Political Discussion Forum
After reviewing the tables myself, I see why everyone, including me, is confused by use of the terms financial and tangible assets. However, in order to eliminate confusion in the future, I think it would be better if your called them current assets (instead of financial assets) and non-current assets (instead of tangible assets); that is, in accordance with generally accepted accounting principles.
According to Generally Accepted Accounting Principles, Total Financial Assets always equal Total Tangible Assets (called a Balance Sheet). Therefore, your chart, while greatly appreciated, seems to be mixing apples (financial assets, which seem to be known) with oranges (tangible assets, which seem to be unknown). Consequently, it would be greatly appreciated if you, along with your most influential fellow experts, asked the Bureau of Economic Analysis, and related Bureau of Labor Statistics, to prepare an accurate: (1) National Balance Sheet, (2) National Income Statement, and (3) National Flows Statement. Furthermore, these 3 Statement must be based on actual financial and tangible asset data required to be obtained from all households, businesses, and banks by the IRS, not these kinds of statistical guesswork tables. Why? Because, the public, as individual and business investors, can’t make rational investment decisions based-upon such statistical guesswork, but need drill-down charts according to their world, nation, state, county, town, business, and individual data. I know, it’s a lot to ask the government to do, but the government’s real job is not just auditing (in the form of today’s IRS), but also accounting, in support of public and private budgeting and investing. Without accurate auditing, accounting, budgeting, and investing data, it’s difficult for any investor (or economist) to make even remotely accurate predictions (or business plans).
I try hard to trust, but no matter what part of government I make inquiries into it only reinforces my suspicions. My understanding is that the Federal Reserve was created because of panics in the financial sector. With in two decades this great institution did so much to prevent the great depression that we gave them more power. Oh, and the same year they created the Federal Reserve they constitutionally changed the way we elect senators. What I don’t get is why the solution to a government agency’s incompetence is more money and power?
It’s about time this discussion started. What can we do to get financial reporters on CNN or CNBC to address our massive assets?
Any resources to compare this data to other countries? I’ve looked around a bit but haven’t found any info on underlying assets for other economies.
Pingback: Occupy Wall Street Ends Capitalism's Alibi - Page 11 - TheNewTopical.com - current events, politics, culture, ethics, economics discussion forum
Quite fascinating blog here… many good minds and thinkers. However… like mirrors and card tricks, economics depends on perception, winners/losers, and those who can pull the strings and start the printers… very relativistic. The comment about “production,” i.e., “what would happen if we stood still was a very sentient comment. Balance sheet might drop slightly while we fall on our collective butts.
Please ponder this… why hasn’t anyone above mentioned our unfunded “promises” of services… medicare, retirements, military. Finally, largely thanks to David Walker this accounting is being carried (see it on the USdebtclock.org at bottom. Over $115T, counting and doesn’t really carry the liability of all the military disabilities (e.g., many “lifetime” partial disability claims for mental and other distresses), which will drop many trillions more onto this ledger…
And the BIG one not discussed here is the relative value of USD if dropped as world trading currency… which is likely if we don’t back the dollar, which we could with
1) National Balanced Budget Amendment
2) Pledge (backing of all national resources… e.g. Alaskan Oil, etc, those “funny faces in SD” National Parks… why not? We’re selling off our assets to pay interest … is it not better to “risk” our resources and truly balance our liabilities and to maintain the value of our currency, vis a vis the rest of the world.
Main question is WHY are not these UNFUNDED promises considered… the national numbers do not hypothecate the staggering delta between municipal funds held and promised (retirement shortages… daunting liability w/ huge personal implication for shortages and people dropped on to public services (more shortages not hypothocated)… ANY of this bother you or make sense? Look forward to thoughts from the good minds here.
Hello Dr. John:
Love your work …keep it coming! However, you do have a a typing error as follows”
::
Adding those two numbers together produces a (reported) total asset number of $187,813 billion, ………(actually that $187,813 billion should read trillion )…….pretty close to the $200 trillion number I wrote about at the top of the story. (The number would have been much closer 2 years ago before the recent drop in asset values.) Unfortunately, I have no idea what to call this number because it leaves out so many huge question marks.
John Visser says:
May 27, 2010 at 3:04 am:
“1) One person, company or government’s financial asset is someone else’s liability, so at least when we are talking about debt, the effect on net worth is a wash (even thought debt can make the economy much more productive when it gets money into the hands of the most productive people/entities)..>”
Stunning and best example yet I have seen of The Debt Culture and the addiction to debt.
Assets are only a liability if they are ENCUMBERED.
The OP assumes that all assets are bought on credit and owed money.
This is a stunning world-view – to John Visser no one can buy anything unless it is on credit and surpluses are impossible. He assumes all PM, free and clear land, anything paid for in full with cash are a liability when they most certainly are not. If I save $30,000 USD and purchase a new auto, there is no debt associated with it.
A very telling post.
oh, and remember the value of the debt subtracted must also be market value (bond valuation method)
I like Sunil discount cash flow method, makes sense, but you must subtract from the present value of GDP (minus trade deficit) all debt owed to our entities besides the US owned. Who knows what that adds up, foreign claims on the national debt, corporate debt, house goods, etc. I know the corporate entities have about 20 trillion in debt, not sure how much is foreign owned.
Pingback: Our National Debt Too Large? | blogpedagogical
Pingback: AcademyHealth Report – What just happened? 26 June 2011 « Contented Cow’s Politics and a Pint
I wonder about the pie chart. About 75% of it is financial assets. But a financial asset is really nothing but an option to claim something tangible. Further, if tangible assets are only about a third of financial assets, then what good really are about two thirds of the financial assets aside from ensuring the ongoing trade of what is tangible? IOW, what does it really mean to have $141T of financial assets chasing $46T of tangible assets? Thanks.
John –
A reasonable tack to estimate the networth of the nation is to use our traditional financial technique of discounting the future predictable cash flows, using a ‘elected’ rate for discounting the cash flows. Use a rate of 2% over predictable inflation – so say perhaps 4% is tenable. A term of 25-years is a reasonable term to predict as the ‘useful’ life of our tangible assets – with some residual value to the underlying non-depreciable assets. Now we discount this data set.
At the base level – GDP is a proxy for our ‘production’. This production comes from the use of physical (tangible assets), the virtual (financial assets) and the application of labor (either the US labor force or in our practical context, cheaper foreign labor). And some goods are produced off-shore.
At last count the US Government reports our GDP is about $15T, and potentially grows at 2% per year, or near zero if count we also inflate our money-supply at about the same rate (the “real” rate).
So using this DCF discipline, we can posit that our net worth is about $234T.
Of course this needs to be adjusted for what is US-Domiciled GDP – i.e. relating ONLY to GDP from US-based resources. A reasonable approximation here is our current annual net trade deficit – which seems to be running about $0.7T per year – thus this number should ideally be knocked off the reported US GDP – and/or netted against US-net assets in other countries – and if we did the same math our Net Worth is close to $218T.
We also need to further tweak this for GDP delivered around or from “services” only – as there is real value delivered off “services”. Maybe you have a way to condition and determine this value.
To your trained economic mind – does that make sense?
John, thank you for the article.
You still have not addressed John Visser’s comments that financial assets are merely claims on someone else (e.g., equity is claim on company’s tangible assets, IP and workforce, debt is simply someone else’s liability, cash is a claim on the central bank of the country). Since we are focusing on the US, I suppose foreign financial assets should count as assets (they are claims on non-US entities), while foreign holdings of US financial assets should be subtracted or treated as liabilities. To add to this, suggesting, as someone did, that we can “tax” wealth and repay our “debt” is basically equivalent to printing money. You print money, send it to the debt holders, and now they have cash instead of bonds. The balance sheet of the US however, in the sense you are using it, is not changed. We simply exchanged one type of claim (debt) for another (cash). In the current account view of the world, this will cause inflation, as the flood of cash will push wages and prices of other assets up, and all sorts of issues. But in the balance sheet view of the world, financial assets are irrelevant–the tangible assets, IP and workforce do not change if you print money or issue bonds. Will printing massive amounts of cash have an effect? I would argue that the answer is yes, which is why the current account view of the world predominates macroeconomics today. Plus, this view is key to the economic life. What matters is how much we produce each year. If the entire country stopped working and sat on our “balance sheet,” what do you think the US would be worth? Something, perhaps even the same amount is USD. But relative to the rest of the world, a LOT less (check out Zimbabwe or Somalia).
To circle back to the title of the article. The other way to look at the question of the US balance sheet is to calculate its financial value. In this case, you would count the financial assets held by US private and public sectors, land and other property owned by the private sector (excluding publicly owned companies, which should already have been counted in the financial assets), and all land and property owned by the public sector. However, you’d have to now subtract US assets owned by foreign entities (including such US debt). All US-held debt, I believe is a wash, as it is also someone’s asset in the US. I am not sure what to do with the money supply. Do we count both money and value of government assets? Or do we consider money as claims on US government assets? My instinct is to exclude the money supply from the calculation completely.
Would appreciate your thoughts.
I agree with your premise that most, if not all, the discussion is in regards to the liability side (National Debt) and the cash flow (taxes vs spend) deficits.
If you just focus on the US Gov’t balance sheet, then what are the total assets of US Gov’t.
I ask this question to set up a follow-up discussion.
* Why does the sovereign nation of USA have to borrow from anyone to spend ? (hint: it doesn’t)
* We have a system where a cartel of banks is more credit worthy than the US ?
Other than the fact that the system was set up by said cartel to ensure a perpetual flow of cash (interest on debt), there is no justification for the US Gov’t to borrow from anyone to spend.
— The simple equation for the deficit is DEFICIT = FISCAL (spend) – TAXES (received).
— The National “Debt” is simply the ACCRUALS of DEFICITS.
Since the FRA 1913 creation of the FED, the banking cartel in collusion with congress set in law the mandate for the US Treasury (UST) to sell bonds to account for deficit spending. Given there is absolutely no reason that the USA borrow to spend ( in fact the spending occurs unabated before Bonds are sold).
Given the premise that the US Gov’t does not need to borrow to spend, the game needs to end with a new structure moving forward.
* We the People, need to demand that the current monetary/fiscal systems be changed to stop the institutional crime and corruption.
1) End the borrow to spend doctrine — US Gov’t spends “money” into existence. All new spend is in US Dollars (FRNs collected and destroyed over time)
2) Set up an account at the UST to track the accumulated deficits “TAXES DUE” e.g. Accounts Receivable, increases with deficit spend, decreases with taxes received.
3) Repeal the FRA 1913, End the FED as there will no longer be a need for a CB to perform monetary policy. FED operations, clearing, research, economy monitor and statistics functions can be absorbed into the UST.
4) Repeal the 16th amendment, end the income tax — replace with a consumption tax (e.g. fairtax.org) — This will eliminate the “Franken-tax” with perverse incentives which is loaded with special interest deductions, credits and loopholes. IRS can be downsized enormously and reduce the special interest lobby influence. A consumption tax would put in place a dynamically adjustable tax flow that tracks the variability of the GDP with a counter or pro cyclical feature to moderate the inflation/deflation forces. The tax flow would be working systematically 24×7 reflecting market dynamics which is far superior to the few inherently flawed humans that are trying to do this today (FOMC).
5) End the TBTF doctrine, ending US Gov’t backstops and/or bailouts. Allow a competitive free market to operate and return business risk back to each individual business. The owners and investors will retain the risk maintaining a more strict risk management process. Allow failure to be resolved by the market and bankruptcy processes for ALL businesses. This would reduce the special interest lobby influence.
6) Phase out and End all Gov’t subsidies, end the “pick winner and loser” doctrine to restore competitive free market dynamics.
Our current system has put us on a path of continued destruction (wealth transfer to the top) of the middle and lower class, pushing the upper middle and higher income thresholds higher. The income/wealth gap widens with the top 1% (top .1%) continuing to suck wealth from the 99%-ers. A significant structural change must be made to reverse the trend and restore America back to We the People.
People need to demand structural and fundamental changes and return to Constitutionally sound processes. The rest of the political wrangling over budgets, social policy, defense and security is a distraction and perpetuates the tangled mess of tax code, legislative process and usurping of our Constitutional rights and liberty.
Thank you for your comment and question. The best source is the Federal Reserve Board statistical release Z1 called Flow of Funds Accounts of the United States. The most recent is December 9, 2010 for the 3rd quarter of 2010 available by clicking on this link. They report total financial assets in Table L.5 Total Liabilities and its Relation to Total Financial Assets which is on page 62 in this release. In the last line of the table you will see that they report Totals identified to sectors as assets of $146,892.3 billion, i.e., about $147 trillion.
In interpreting this figure, remember that these are only financial assets, i.e., they exclude any tangible assets such as land, houses, factories, machinery, automobiles and other durable goods. These tangible assets add up to another $50 trillion or so. You can find their values in the balance sheet tables for the sectors.
best,
John
So, do we have liabilities, other than the national debt, to put against the assets of the USA. If so, what is the total net worth of the USA, including assets/debts of individuals and assets/debts of the people of the USA as a whole (national net worth)? Thanks.
someone mentioned liabilities@ 164t. i assume they would are the unfunded ones that stretch out 30-50 yrs. the fact is we 200-400t in real wealth right here/right now. david stockman has an interesting proposal to tax the top 5% of wealth holders a one time 15% tax on the 40-80t in assets they have. If the average person new how much wealth existed the revolution would be well underway.
great mind blowing article… shows what we could do as a nation if we had the political will to do so. I’ve seen estimates go as high as 300-400t.
what is the value of the assets owned by the U.S. Government?
what is the value of U.S. government property owned in foreign countries?
is it true that we could pay the national debt if we sold the land we owned in hong kong?
Pingback: To the United States of America, were you aware of the fact that you owe $13,169,998,142.09+ @ 14.05.2010? | Economic theory
Pingback: American Banks Dumping Dollars for the Yen
Excellent. I’m working on this stuff. Specifically about “financial deepening” of the economy. Since i need a long time series, is there a way to get immediately the economy’s total financial assets, without painfully summing up the specific sectors’ componenents?
John:
Thank you. I like what you are doing and I think it is important work. But I wonder if your numbers are too big because
1) One person, company or government’s financial asset is someone else’s liability, so at least when we are talking about debt, the effect on net worth is a wash (even thought debt can make the economy much more productive when it gets money into the hands of the most productive people/entites), and
2) Companies hold real assets (and financial assets) on the left side of their balance sheets, but the value of these assets is captured in the value of the companies’s stock since going concern value will generally be greater than book value. Hence it would seem that we should not count tangible assets owned by companies if we are already including the value of stocks when computing the financial assets of households. Since It seems to me you would want to value companies as going concerns, perhaps it would be best just to leave the tangible assets of these kinds of intermediaries out of the total.
Hope you find these comments helpful.
Pingback: Our Government: A Business Without Assets? | Brucenomics
Pingback: Principles of Circular Valuation « A Reasonable Life
Pingback: We Owe it to Ourselves « A Reasonable Life
Pingback: Bret Swanson - Maximum Entropy » Blog Archive » Don’t forget asset markets