Federal Debt to GDP

Think of it this way

It is the credit card balance compared with what you earn in a year, not with what you have in your pocket.

What is Federal Debt to GDP?

Total Treasury debt divided by GDP. It is the measure analysts use to judge sustainability, and the reason is simple: what pays a debt is a country's output, not its number of inhabitants. A country that owes twice as much but produces three times as much is better off than before.

How to read Federal Debt to GDP

It rises through two different paths, and they are worth separating: because more debt is issued, or because the economy shrinks. In recessions it shoots up mainly because of the second, with debt almost unchanged, and then eases without anyone having paid anything back. The series low is in the early 1980s, and it crossed one hundred percent in the last quarter of 2012.

What Federal Debt to GDP means for the market

There is no threshold beyond which something happens: countries with very high ratios finance themselves without trouble, and others with low ratios have had crises. What matters is the direction, who buys, and in what currency the debt is issued. For the United States, which issues in the world's reserve currency, the limit is more diffuse than for anyone else.

Where the money flows

No money moves here: it is a ratio between two figures that already exist. What lies beneath does move money —each bond issued left the buyer's account and entered the Treasury's— but this series does not measure that flow; it measures its relative size. It rises whether more debt is issued or the economy shrinks, and that second path explains the sharp jumps during recessions, when debt barely moved.

What to watch in Federal Debt to GDP

It is quarterly and released with a lag, so it is not useful for reading the current week. Look at it on a scale of years and compare it with the other two versions of the same balance: the total tells you how much it is, the per capita version makes it imaginable, and this one tells you whether it is a lot.

Outstanding Treasury debt measured against everything the country produces in a year.