National Debt, Smashional Debt. Who Cares? | Hn 258

**Bob Murphy** (0:07)
Hi, Bob.

**Adam Haman** (0:08)
Hey, Adam.
I got to tell you, buddy, I went on a little bit of an emotional rollercoaster earlier, because the Haman family, we needed to make a purchase, and so I got a credit card, and we bought a thing, and I started to kind of really sweat, you know. Do I really want to be carrying debt? That's a bad thing. And just sort of feeling like a loser. Then I looked around and noticed a well-loved institution that's darn near $40 trillion in debt. And like, compared to that, the heck do I have to worry about, right?

**Bob Murphy** (0:41)
Yeah, it's the US federal government, folks.

**Adam Haman** (0:45)
Your US federal government, most likely, given the demographics of our little show.

**Bob Murphy** (0:52)
You might know me from such hits as The Warren Ran, Vietnam.

**Adam Haman** (0:58)
Yeah, that's a very famous and well-loved institution. And it's, well, you tell us, Mr. Economist Guy, is this debt a problem or what?

**Bob Murphy** (1:09)
I think it is. So the context here, folks, is I just finished a draft for a big article for the New American magazine.
I'm a regular contributor there, so go ahead and give a plug to them. And since I have all this knowledge jammed in my head, I said to Adam, you know what? Why don't we go ahead and talk about this on the podcast? So yeah, the news hook was over the last several months. And it's funny because it came out, I think, in April, and then it came out again just a couple of weeks ago, where they were saying, ah, US debt exceeds GDP, first time since World War II. And so I was looking back, and I think partly the reason it happened in April, and then they announced it again as if it was a new thing a few months later, it's just the accounting periods. Like, you know, previously it was like, oh, using this quarter, and then now this was like the prior 12 months, you know, that kind of deal. But in any event, yeah, big picture.
If you use the metric of federal debt held by the public, then that figure was, I'm rounding, was $32 trillion, and that's what GDP is. And hence, the debt held by the public has finally pushed through. Maybe I will share a screen.

**Adam Haman** (2:24)
I'd like to see that screen. But before, I mean, everyone sees the number ticking, especially if you have a Thomas Massey US. National Debt Badge, like I do. Everyone sees the number rolling along about 39.6.

**Bob Murphy** (2:37)
Yes.

**Adam Haman** (2:38)
So who is holding that extra 7.6 trillion if 32 is only the amount, quote, held by the public?

**Bob Murphy** (2:46)
Yeah, great question. I'm glad you brought that up. So yeah, let's go ahead and clarify that because we're here to educate.
So the gross debt, the total, for example, this is what the debt ceiling applies to. Like this is just saying the US. Treasury issues bonds that are held by various entities on planet Earth. And that number can't be higher than such and such. And then every time they get close to it, then the Treasury raises the debt. Well, you know, the Congress raised the debt ceiling with after much nagging of cheating. Okay, now this time you guys better get your act together. No more Mr. Nice Guy.

**Adam Haman** (3:20)
It makes the philosophical minded say to themselves what is a ceiling exactly when you think about it.

**Bob Murphy** (3:27)
Yeah.
So, sound of one hand clapping. So, that's the total, and as you say, right now, that's 39-ish, almost 40 trillion.
But economists typically talk about debt held by the public, which again, is the lower figure of about 32 trillion. So, that gap obviously means, oh, so it's debt held by government entities, like it's intra-government debt of about 7 trillion rounding. And it's funny, you might think, oh, it's the Federal Reserve holding, but no. The way they do this accounting, it doesn't, that's not it. It's partly because, remember, the Federal Reserve is completely independent things. Like during the Obama years, when they ran four years in a row of trillion-dollar-plus deficits, and Bernanke was doing QE programs and creating money out of thin air to go buy treasuries and add to the Fed's balance sheet. Those are two completely separate, they had nothing to do with each other. What are you talking about, you nutjob? So I think partly because of that mentality, what the Fed is doing over there in terms of monetary operations has nothing to do with our fiscal stuff over here. If the Federal Reserve creates new money and buys treasuries and holds it, that's not, those bonds, those treasury bonds are still considered part of the debt held by the public. So you say, well, what's the 7 trillion? It's various trusts, the two biggest ones, the Social Security Trust Fund, such as it is, is like 2.5 trillion now, and so that's part of it, right? So over the years, historically, this hasn't been true for a few years at this point, but it used to be for the mid-80s onward, worker payroll quote contributions into Social Security were higher than outgoing benefit checks to Social Security recipients. And so the difference, the government still spent the money, but kind of like in Dumb and Dumber, when they wrote up the IOUs and said, you're going to want to hold on to that as a keeper, the Treasury would issue bonds formally and give more to the Social Security Administration and say, there you go, we're good, we owe you that, you know? And so they say, yep, yep, because Social Security Administration's, you know, running a tight ship here, we're not in trouble fiscally. So that's like 2.5 trillion, they're burning through that fast now because there is a mismatch ever since financial crisis.