National Assets = National Debt + Taxpayer Equity

The basic accounting equation doesn’t necessarily apply to a nation. But while many people are concerned by the national debt, it’s not necessarily a bad thing if it’s offset by corresponding assets.

I’m expecting rough estimates at best, since a calculation of the US’s assets would be near impossible. But, if the US Federal Government’s equity (assets - liabilities) were calculated, then divided up among the citizens of the US, how much of a share would each of us own?

This is saying that an increase in debt implies an increase in assets, which seems dubious.

Well, the equation does hold in corporate accounting, where the two sides of the balance sheet (assets on one side, equity plus liabilities on the other) are, by necessity, balanced (hence the name). If assets < liabilities, then the corporation is insolvent. If assets > liabilities, the remainder is equity.

No it doesn’t. From an accounting standpoint, new debt can be balanced by either an increase in assets (a mortgage incurred to buy a building, say) or a decrease in equity (money that’s just spent, such as on wages).

Speaking as someone who is paid by Uncle Sam, I would find it very puzzling to argue that the country is solvent because everything I’ve bought using my salary is a “national asset.”

As if my cat needed any boost to her ego… that “national asset” can go scoop her own litter for a while.

Since the majority of new debt incurred today is being used to pay interest on the old debt, not sure that translates into an increase in assets, but more of an increase in National Debt and a reduction in Taxpayer Equity, our share of the government assets is now going to the Chinese or whoever is buying the new debt.

Okay, phrased this way the equation makes sense:
Taxpayer Equity = National Assets - National Debt

One trouble with this is that a lot of assets are of a type that can never be used to offset debt. For example, Yellowstone Park is no doubt extraordinarily valuable. But there’s absolutely no way this can ever be sold, and it’s an open question whether it actually pays for its upkeep year-to-year*.

What’s the right way to account for that sort of asset?

  • Actually, YNP (being extremely popular) probably does. But there are surely a whole bunch of National Parks and Monuments that don’t earn enough to pay for themselves.

I’m not sure there’s an answer to this question.

The most important “asset” that the government has is its ability to tax. For a normal income stream, we could see how valuable the asset is by doing a net present value calculation. For the income stream that is taxation, we could do something similar, and calculate the net present value of expected future tax receipts out several decades in the future, but that doesn’t really get us an honest answer to the value because the size of that income stream isn’t fixed contractually. The bank can’t just arbitrarily tell me that it wants a larger stream of payments from me for my mortgage, but the government can totally do this. They just bump the tax rate.

That taxation comes out of the national income. Its size depends on how large the national income is now, and is expected to be in the future, versus how much spending the government needs/wants to maintain. And all of that, in turn, is based on the services that we as people expect.

And all of that is going to vary wildly country to country.

The UK topped out with their debt at around 200% of GDP from the Napoleonic Wars. Modern Japan has reached that and is sailing past it. But plenty of other countries have defaulted on their debts with a lower percentage because the interest burden of their debt was higher. People perceived that the country wouldn’t be able to pay, which increased interest rates, which meant the country wasn’t able to pay. The asset of taxation, stemming from the national income, is riddled with impossible-to-calculate idiosyncrasies from the cultural, political, and financial situations of individual countries. It’s case by case guesswork for creditors to determine national credit-worthiness. So I don’t personally see any clear way to calculate the value of our national ability-to-tax asset in order to calculate our individual portion of the “equity” of the nation. We just look at the numbers we have, compare historically and internationally, and just do our best to manage things properly. But we’re not going to get any number, not even an unclean estimate.

This really isn’t true.

Total debt service was $197 billion in 2010 (cite). Interest on the debt was just 6% of federal expenses in 2012, or $212 billion (cite).

New debt was about 1.1 trillion in 2012, 1.3 trillion in 2011 and 1.65 trillion in 2010 (cite). So debt service was 19% of new debt in 2012, and 12% in 2010. When you say “a majority” you’d need those numbers to be at least 51% and you can see that you’re not even in the ball park.

And who holds that debt? (cite) 53% is held by citizens/entities within the United States. In other words, a lot of that interest is funding your 401k. 47% is foreign held, but foreign governments are only 25% of it - all foreign governments (in 2007). As of 2012, China holds 1.16 trillion out of a total debt of 16 trillion or just 7%.

Businesses differentiate assets and current assets, the latter being defined as what can be liquid within the year. But businesses suffer the same balance sheet problem.

If I own Joe’s Auto Repair, my garage and tools are assets on my balance sheet, but I sure can’t sell them unless I don’t want to make any more money.

Why do you think Yellowstone could not be sold? The Federal government has sold land in the past, and they could do so in the future.

Do you mean that there’s no political will to change the laws about National Parks? That may be true now, but I wouldn’t bet on it being true forever.

Sure - but all federally owned land is not equal in this regard. The most famous and valuable (e.g. Yellowstone, the White House) is also the least likely ever to be sold.

“Forever” is a long time. But, barring drastic societal collapse (which no doubt wrecks the value of nearly all land) I can see nothing that brings the selling of YNP within the realm of what’s politically possible for the next hundred years.

All of this is assuming the government needs money. In the last couple of years the Fed funded the governmment to the tune of about two trillion dollars. It can go on doing that, indefinitely. So can Japan, or the UK, or any country with its own central bank. Taxes create a demand for currency, but the government can fund itself, if it has to.

It would be very hard to calculate “National Assets.” It would have to include the present value of its taxation authority. What about the value of our military? Should we include the potential returns from seizing Middle East oil?

Note that Coca-Cola Co. has a “value” approaching $200 billion, a huge portion of which is simply the value of its brand names Coke® and Coca Cola®. If these simple names have such a huge value, how could you put a price-tag on the respect people [del]have[/del] had for the U.S. economy, freedoms, military prowess, etc.?

I’ve wondered whether [del]if[/del] when the Party That Loves Freedom So Very Very Much forbids government bond selling, the Administration might respond by selling assets. It would seem a way to rub the noses of the Hannity-Bachmann-Ryan faction in their own shit.