Don't worry about US debt because household wealth is 4 times bigger, former Fed economist says
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- US debt worries are overblown, former Fed economist Claudia Sahm wrote in Bloomberg.
- Household wealth stands at $142 trillion, a massive resource to fund debt, she said.
- "Politics is the real threat, not the level of borrowing. A country that prioritizes the size of the federal debt has bad priorities."
US national debt recently topped a record $34 trillion, but worries over its size are misguided, former Federal Reserve economist Claudia Sahm wrote in a Bloomberg op-ed.
Although concerns now abound among both politicians and consumers, pessimists are overlooking the amount of money potentially available.
"Yes, $34 trillion is big number, but $142 trillion is even bigger and much more important because it represents the total wealth of Americans —a massive resource that helps fund government debt and deficits," she said.
Sahm also noted that some borrowing can provide economic benefits and advance societal goals, such as programs that lower child poverty and the development of COVID vaccines.
US debt skeptics have also warned that the threat comes more from the fact that interest rates have sharply increased, meaning that borrowing costs associated with federal debt will also rise.
Those costs will boost debt higher, feeding a cycle that some have warned could eventually lead to some form of default in as little as 20 years.
But debt servicing costs, though at a record $882.6 billion, make up a smaller percent of GDP than in the prior decades, Sahm noted. Today, it stands at 3.4% of GDP, below the late-1990s level of 4.3%.
"The government can easily service its debt because of its unlimited taxing authority and ability to issue more US Treasury securities to repay maturing securities," she wrote.
Still, more long-run outlooks anticipate this metric to worsen. By 2053, the Congressional Budget Office expects the ratio to reach 6.7%.
Meanwhile, Sahm warned that "political gamesmanship" over US debt is a far greater risk to the economy.
Congressional headbutting over debt has earned Washington a reputation for irresponsibility, which resulted in both S&P Global and Fitch Ratings to downgrade US credit.
"Those in Congress creating high drama over the nation's borrowing and budgets have caused some to question whether Treasuries are really the world's safest assets," she said, adding "Politics is the real threat, not the level of borrowing. A country that prioritizes the size of the federal debt has bad priorities."
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