The Government Guaranteed Asset Counter

Walking down 6th Avenue yesterday in New York, I ran into that “National Debt Counter” we have seen so many times in the news.

As I walked by I noticed that it breaks down the national debt into a per-person amount, which was $148,763.

The per-person statistic particularly caught my attention. Why? One person’s debt is another person’s asset. What if you were told that, on average, there are $148,763 per US citizen of government guaranteed assets out there in investor portfolios? It sounds a little different, but it is the same statement. One angle references debt and the other references an asset, but they are talking about the same thing.

Maybe $148,763 per person is actually too low! Let’s say a baby boomer has $1,000,000 total in retirement savings, and let’s say they have 50% of this in bonds, which would be a reasonable amount. Let’s assume half of the bond exposure is in US government bonds. This means they own $250,000 of US government debt. Another way to say this – the US government has to rack up $250,000 of debt to accommodate the existence of the $250,000 of government guaranteed assets in this person’s portfolio.

I find it especially interesting that many who complain about the size of US public debt are the same people who complain that the baby boomers haven’t saved enough for retirement. The ideas may initially seem compatible; individuals should be responsible savers, as should the government. But the reality is that the more the baby boomers try to save, the larger the debt will need to grow to accommodate. When they save, what are they buying? Either directly or indirectly, a lot of that savings trickles down to buying government bonds, which increases the national debt. Remember, they don’t have to directly buy US bonds in order to contribute to this. When they buy a fixed annuity, what do you think the insurance company does with most of the money? Answer – they buy US government bonds. If they own money market funds, what does most of the money market invest into? Answer – US government bonds.

I’m not saying everything will end up great. There will definitely be a financial squeeze that occurs. Inflation adjusted returns on US bonds might be slightly negative for the foreseeable future. Baby boomers may have to accept a lower standard of living than that to which they are accustomed. But it won’t be a financial doomsday like many have been predicting. Unfortunately, this debt counter in New York is not doing anything to help most Americans understand the situation. Maybe I should have gone back to Hamilton’s grave today.