As the federal government approaches another debt ceiling showdown, we can expect politicians and those with political axes to grind to claim that the country is bankrupt and we are passing an unconscionable debt onto our grandchildren. How should informed citizens respond to such a claim? The simple truth is that government accounting does not allow citizens even to evaluate the claim that the government is bankrupt.
The burden of any debt requires a comparison with the value of corresponding assets. A parent’s million dollar mortgage debt could have been incurred in buying a two million home, in which case an heir receiving both would be extremely fortunate. On the other hand, the debt could have been incurred in unsuccessful trips to casinos, in which case the heir is extremely unfortunate.
The federal government’s debt is about $16 trillion, an extraordinarily large number. But how does that number compare with the total value of the nation’s highways, buildings, national parks, military equipment, oil reserves, air rights, coastal waters, taxing power, and on and on? Surprisingly, no one knows. It has been estimated that the total value of all U.S. assets is on the order of $200 trillion, not counting the value of the government’s tangible assets. We have no system for determining the value of those assets, but the number, whatever it is, must be very large. A recent study estimated that the government’s energy reserves are worth about $150 trillion or about nine times the government’s debt. The State of Indiana recently leased its toll road for 75 years for about $24 million a mile. Assuming that this short stretch of mostly rural road is of average value, the 47,000 miles of the Interstate highway system alone could be worth more than $1 trillion. And, as the toll road lease shows, almost any government asset can be given a value, from what the world would pay the U.S. for continued protection of world shipping lanes to the value of timber in national forests.
Of course, no one wants to sell the national parks or the Interstate highway system. But a homeowner seeking a value of its house during re-financing usually isn’t interested in selling its house. The question is what the house is worth compared to the value of the debt. Without determining that value, a lender has no idea whether or not to make the loan. Similarly, without determining the value of the government’s assets, a claim that the government is bankrupt can’t be evaluated.
What we do know is that many governments, institutions and individuals are perfectly happy to loan the United States government trillions of dollars at interest rates near zero. That itself should suggest that claims that the government is bankrupt or that we are passing unconscionable debts onto our children may be motivated by something other than economics.
Donald E. Knebel is a partner in Barnes & Thornburg LLP, resident in the Indianapolis, Indiana office. He is a member of the firm’s Intellectual Property Law Department. Mr. Knebel serves as adjunct professor and senior advisor to the Center for Intellectual Property Research at the Indiana University Maurer School of Law. He frequently posts his observations here at Civic Blog. The views expressed do not necessarily reflect the views of Barnes & Thornburg LLP or the IU Maurer School of Law.
Image courtesy of Sura Nualpradid and freedigitalphotos.net.