U.S Net Worth Goes Down

The Mercatus Center has a nifty new way of assessing our country’s financial health. It’s called the ‘net position’ and it’s calculated by subtracting government assets from liabilities. The result is something similar to what you would see on the financial statement for a company. Not surprisingly, the United States doesn’t come out looking so good by this measure. According to the Mercatus Center, our net position was minus $11.5 trillion in 2009. And this does not take into account a number of other liabilities such as Medicare and Social Security. The total present value of these deficits is $45.8 trillion. Below is a graph showing how the net position has deteriorated since 2000. At the bottom of the post, we include more commentary from the Mercatus Center.

The above chart compares the year-over-year change in the United States’ end-of-year net position.  Net position is calculated by netting the government’s assets against its liabilities, as recorded in the United States Government Balance Sheet.  Just as in the financial statement of a company, this metric provides a general picture of the fiscal situation in the United States.  This situation has been steadily declining since 2000; while the image depicted above is dramatic, the true situation is far worse.

Assets are primarily comprised of United States’ property, TARP assets, plants and equipment while liabilities are mainly debt held by the public, accrued interest, and federal employee benefits.  In FY 2009, the federal government held $2.7 trillion in assets and $14.1 trillion in liabilities. As a result, the net position of the government was -$11.5 trillion, a 12% deterioration from 2008. While the United States’ net position is certainly daunting at -80.5% of GDP, this position does not capture the US government’s full exposure.  Exposures for future liabilities such as the Government Sponsored Enterprises (GSEs), Medicare, and Social Security expenditures are not taken into account in the nation’s net position.

Over the next 75 years, United States social insurance accounts are projected to run large deficits; the net present value of these deficits is $45.8 trillion. In addition, the financial risks of Fannie Mae and Freddie Mac are also off-balance sheet and are therefore not factored into the calculation of the United States’ net position.  In the final quarter of 2009, Fannie Mae and Freddie Mac’s balance sheets represented liabilities of $885 billion and $842 billion respectively.   Estimates of the United States’ fiscal situation which considered these formidable exposures, in addition to the liabilities as defined by the law which are currently taken into account, would certainly show much greater deficits both now and into the future.

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