Question

Today’s national debt is larger than in the past, and it continues to grow. How might we best measure the burden of this debt?

Answer 1

First lets see what national debt is and then we will see how its burden can be best measured.

National debt is the total debt (borrowed funds which have not been repaid) carried by a national government. The nominal value of it is measured by calculating the value of national securities issued by the federal government. Since the debt is borrowed against these securities, the nominal value of these securities is the national debt. There are 2 parts of the national debt-

• Debt held by public- these are the securities that are with general public, corporations, federal reserve and the government of other nations.
• Intragovernmental debt- Debt held by government agencies such as social securities fund etc.

Now lets see the best way to measure the burden of the debt.

To measure the burden, we need to see it in context and relative size. A 1 trillion debt can be large for an economy like Pakistan, but it is not for US. To measure its true burden, we need to compare it with the GDP of that nation. Hence, we need to see the debt to GDP ratio to see its true burden. If the debt is approaching a very high percentage of the GDP, lets say above 90%, then the debt to GDP ratio would be higher than .9. This way we can see that the burden is high.

So, debt to GDP ratio is the best way to measure this burden.