$40 Trillion National Debt (And Some Important Context)

**Morgan Housel** (0:06)
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And on one hand, it's insane as a share of GDP, which is the way that you want to measure how much debt we're in. This chart shows federal debt as a share of GDP, and you can see now it's higher today than it was just after World War II, which is unbelievable because we're not in a world war right now. And we had COVID, we had the financial crisis, but a relatively strong economy to have this much debt without any kind of immediate crises feels insane.
$40 trillion in debt. Now I want to add a little bit of context to this without minimizing it, because it is a big issue. The government will spend over a trillion dollars on interest payments this year, which is more than we spend on defense.
It's a huge issue. That's a lot of money any way you spend it. I don't want to minimize any of this, but I want to put a little context around this. Over the last 20 years, the federal government has gone into ever increasing amounts of debt, even as a share of GDP. It's gone up and up and up. That's what the last chart showed.
Something else happened at the same time that was very important and almost completely ignored because we love bad news more than we love good news. I have almost never seen this chart or this topic discussed in a major news outlet. At the same time, the federal government was going into more debt. Households and corporations and the private sector of the economy was shedding debt relative to its income.
This chart that I want to show you is household debt across America as a share of household income. And as you can see, it has declined every year since 2008 And it is the lowest by far that it has been in more than 20 years.
Household debt as a share of GDP has gone from about 100% to less than 70%.
We have shed 30% of household debt relative to GDP over the last 20 years. That's a very big deal.
Now, part of this, the reason that household debt to GDP has gone down so much is because young people in particular can't afford homes, which means they don't have mortgages relative to what they would have in previous generations. So this is not all explicitly good news that you might think, but it happened. Household debt to GDP has gone down. And yes, interest rates have gone up a little bit, but even when you look at household debt payments, as this chart shows here, it's about the lowest that it's been in more than 20 years, and it's gone down a lot. Now, I want to bring this back to the conversation about $40 trillion of government debt, because the financial system is one big machine. It's one system.
And it doesn't make a ton of sense all the time to desegregate one part of that system and say, look how much debt the government's in. Or if this was 20 years ago, look how much debt households are in. It's one big system that is financing all of this. And so this next chart that I'm going to show you, this chart is all debt throughout the economy, federal debt, household debt, government debt, state debt, municipal debt, every bit of debt throughout the economy as a share of GDP. And it is about flat over the last 20 years. And down fairly considerably from where it was in 2008 Because what has happened is when the federal government went into a lot of debt, households were shedding it at the same time in about the same amounts.