No, the national debt does not make the United States insolvent

TIME ran a piece this week by economist Jim Grant titled “Make America Solvent Again.” The cover exclaimed that in order to pay off our $13.9 trillion national debt, every American needs to chip in $42,998.12. The alarmist headline likely accomplished its goal of selling magazines in grocery store checkout lines, but the underlying premise of the article is inane.

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Let’s start with the definition of insolvency. An entity is insolvent when debts exceed assets. First off, the U.S. government owns hundreds of trillions worth of assets. The Institute for Energy Research (IER) estimated in 2013 that fossil fuel-related assets owned by the federal government are worth more than $150 trillion, more than ten times the national debt. Add in things like land, real estate and military equipment, and the government’s assets are likely well in excess of $200 trillion. In addition, current U.S. gross domestic product (GDP) is around $18 trillion, on which the government has taxation authority.
 
Another inconvenient fact is that not all U.S. debt is due at the same time. U.S. debt obligations are highly variable in maturity, ranging anywhere from a few days to 30 years. The average dollar is owed by the government in just under six years. By comparison, at current rates the average American worker pays the government income taxes of $43,000 every five years. And income taxes are only less than half of government revenue. Total tax receipts in 2015 were $3.25 trillion.
 
Also, only $5 trillion of U.S. debt is held by foreign creditors. If the world declared economic war on the U.S. and ceased buying Treasury bonds (a far-fetched scenario that would mean mutually assured destruction) our obligations would be a fraction of the headline national debt figure. Even if we were forced to pay it all back at once, it would be possible to do so.
 
Moving past the non-sensical total debt redemption scenario, the premise of all debt being corrosive is a fallacy. Debt for an entity planning to exist in perpetuity, like a company or country, does not become a problem until doubts emerge about its ability to meet interest payments and roll over into new debt. A debtor only has to pay down enough debt to make future interest payments sustainable. A corporate CEO would never consider paying down a debt balance if cash flow could be put to better use. Why would the most powerful economy in the world?
 
While total debt spiked in the wake of the 2008 financial crisis, interest payments as a function of GDP are at historic lows of 1.2% – less than half what they were in the 1990s. Interest on debt takes up only 6% of the federal budget, lower than any time since the 1970s. Grant worries that our approach to debt has become too nonchalant, but while the national debt grows every year (as it generally has and always should) federal deficits have declined steadily every year for the past eight.
 
If demand exists for capital projects like long-term infrastructure improvements, you should borrow more aggressively – especially when interest rates are historically low. If your labor force is simultaneously in need of a jolt, you would be doubly motivated to borrow and spend. Good debt raised during an economic slowdown produces economic growth, reducing the real value of future obligations. Public debts increase as assets and income streams grow, but rising debt does not always equal runaway debt.
 
Excessive sovereign debt becomes a problem only if a country 1) moves to the brink of default and 2) does not control its own currency, as we've seen in places like Argentina and Greece. The U.S. is nowhere near default and has basically unlimited power to print dollars. All of the so-called reckless money-printing from the Federal Reserve in the past seven years has done nothing to cause inflation, significantly devalue the dollar or jeopardize its value as the global reserve currency. In fact, U.S. post-crisis debt-financed stimulus has helped our economy recover much more quickly than those of European nations focusing on austerity. You do not trim deficits and reduce debt during periods of negative or slow economic growth. 
 
The heart of Grant’s argument is more credible than TIME’s alarmist cover, but only slightly. He argues excessive debt, and the need to print new currency, will eventually lead to hyperinflation and a crisis of confidence in the dollar, which would make dollar-denominated debts worthless and cause a strike in the global credit market. Yes, raising debt would become more of a headache if interest rates rose substantially, but one look at the global yield curve tells you that scenario is unlikely. The world economy looks set for a sustained period of slower growth, but that’s simply the new normal. If growth does pick up, the U.S. government has the power raise taxes and/or cut spending.
 
The U.S. government has more than $200 trillion in assets. It has taxation authority on a diverse $18 trillion economy. There is insatiable global demand for Treasury bondseven at historically low yields. And we have our own bank able to print an unlimited amount of currency that happens to be, overwhelmingly, the world’s reserve currency of choice. If we absolutely needed to pay back our national debt in five years, there would be plenty of ways to do so. But such a scenario has a statistically insignificant likelihood of coming to fruition.
 
The premise that “this will all end badly” is inevitably correct. Humans will one day go extinct, but fear-mongering over the economic apocalypse without predicting a doomsday date is a financially ruinous and intellectually bankrupt exercise. Rest easy America, we do not face a national debt crisis, and won’t for a long, long time.