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With all the talk these days about national debts -- the European debt crisis, America's debt-ceiling debacle -- I've been wondering how the U.S.'s debt stacks up against other developed countries'. Are we as indebted as it feels like we are?

The U.S. ranks seventh on Fortune's list of indebted developed countries, behind Japan, Greece, Italy, Iceland and other European nations. But, like so many things in economics, the answers can change based on how you do the math. If you define national debt differently, the U.S. springs to the top of the list. So it's worth digging in a bit more.

When economists discuss national debt, they often focus on one ratio: public debt as a percentage of a nation's gross domestic product. This breaks down into just two components.

Calculating Debt

First, the debt held by the public. As you know, countries borrow money from a lot of different places, including banks, individuals, and foreign lenders. Obviously, the government has to pay that money back.

But countries also borrow money from themselves. Called intragovernmental holdings, U.S. examples include the Social Security and Medicare trust funds. The public isn't responsible for the money the government borrows from itself. Thus, when calculating a nation's debt, some economists remove that financing and instead focus on the money that taxpayers must pay back.

The U.S.'s total debt is $14.3 trillion. However, $6 trillion of that consists of money the government lent to itself, leaving a public debt of $8.3 trillion. That's the first component of the equation.

Weighing in the GDP

The second piece is the GDP, which is the dollar value of all the goods and services that a country produces. In other words, it measures the size of an economy. Currently, America's annual GDP is about $14.8 trillion.

So, what's the relationship between the public debt and GDP? "In some sense, [this equation] tells you about the country's capacity to repay its debts," explains Jim Horney, vice president for federal fiscal policy at the Center on Budget and Policy Priorities. "It's a little bit like looking at the debt a family has when they take out a mortgage. The dollar amount matters, but what really matters is how that amount compares to your income. A family with a very low income could find it hard to repay, where another family with the same debt but a higher income would not have trouble."

If you do the math using America's total debt -- $14.3 trillion divided by $14.8 trillion -- you get 97%. In other words, 97% of America's annual earnings are already committed to debts. No lender in their right mind would want to lend money to a person -- or a country -- who already carries that much debt. But if you only look at the debt held by the public -- $8.3 trillion divided by $14.8 trillion -- the equation comes out to 56%. Owing 56% of your income still isn't great, but it's a huge improvement from 97% and something lenders can work with.

Making Comparisons

So how does America stack up to other indebted developed countries? Going back to Fortune's list, America has the highest total debt out of the top 10 nations that are both "developed" and "indebted." (Japan ranks second, followed by Italy and France).

When calculated as a percentage of GDP, America drops down to No. 7 on the list. (Japan jumps up to the No. 1 position, followed by Greece, Italy and Iceland). It's worth noting, however, that Fortune used total debt, not debt held by the public. That makes the ranking helpful, but not ideal.

As for the debt's significance for America's future, Horney sums it up like this: "There's no question that if we start taking sensible steps, we have the capacity to stabilize the debt-to-GDP ratio, which is what we really have to do to start with. The only real road block is people who say they absolutely won't consider increase in real revenues (i.e. increased taxes). We need a balanced approach that both increases revenues and decreases spending. If we can get that balanced approach, like we had in 1990..., there's no doubt we can get there. But if we can't get agreement on that balanced approach, I do worry about where we're headed."

Loren Berlin is a columnist at DailyFinance. She can be reached at loren.berlin@teamaol.com. You can follow her on Twitter @LorenBerlin, and become a fan on Facebook.

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Derrick Family

Another interesting point on this subject; Clinton claimed that there was a SS Trust Fund "Surplus" when he was in office. Someone help me understand how a "Trust" fund can have a "Surplus" when it is a forward-paying Trust? To me this was nothing short of a scam to justify "borrowing" from the SS Trust...(no wonder it's now claimed to be in arears).

August 26 2011 at 5:42 PM Report abuse rate up rate down Reply
Derrick Family

I find it apalling that American's have no word on spending; but we're suppose to "dig deeper" to bail out Washington's "out of control" spending? This never needs to happen again. As assurance, we should do our best to require Washington to pass a 3-year forward budget plan and make it public. This gives voters and taxpayers an opportunity to scrutinize Washington's spending before it actually is spent. If Washington overspends (exception is for a warranted conflict), then the percentage of debt is deducted (as the same percentage) from the 530-politicians pay. If taxpayers are to be held accountable for debt; so too, should our representatives.

August 26 2011 at 5:35 PM Report abuse rate up rate down Reply

The two different viewpoints expressed in the article regarding what really constitutes our national Debt / GDP Ratio are truly scary. More specifically: One of the two components of our national debit is identified as "public debt"; the other is identified essentially as "monies that MUST be repaid". The implication one could draw from this distinction is that our "public debt" is not perceived as a part of the national "debt that MUST be repaid", then almost by definition this "public debt" is debt that does NOT require repayment ... or at least it's recognized that in the view of certain people at presumably high levels, this public debt doesn't require repayment. However ... this "public debt" portion of the national debt consists of the monies that have been borrowed from such "buckets" as the Social Security Trust Fund, the Medicare Trust Fund, and other similar types of funds. Furthermore ... and almost by defiinition!!! ... the monies within these various types of trust funds et al are "owed" to the intended beneficiaries of these funds as surely as the monies in the "non-public debt" portion of the national debt are owed to the countries, banks, etc. from which these monies have been borrowed. If that's the case, then why should the monies that comprise the "public debt" portion of the national debt not be included in the "debt that MUST be repaid" category. In short, it should be evident that ALL of the national debt should be viewed as "debt that MUST be repaid" ... and this in turn says that we are indeed looking at a debt-to-GDP ration of 97% ... and that's unconscionable!!!!! Bottom LIne: Given the 97% debt / GDP ratio that clearly exists, we're truly in DEEP YOGURT!!!!!

August 11 2011 at 4:00 PM Report abuse rate up rate down Reply

I love how the picture for the article on AOL shows a sign with the national debt and then included is a "Your Family Share" portion like each family owes $100k+ towards the debt - pfft yeah right! Unlike those morons in Washington who can't seem to control their horrible spending habits, I actually pay my bills every month. I don't consider one cent of that debt "my portion"! Jerks!

August 11 2011 at 2:09 PM Report abuse rate up rate down Reply

Entitlement my a**. I have paid for my Social Security! Our benefits aren't some kind of charity or handout! Congressional benefits - free health care, outrageous retirement packages, 67 paid holidays, three weeks pd vacation, unlimited pd sick days - now THAT'S welfare. And Congress has the nerve to call our retirement an Entitlement? I am really disgusted with the way Government is run, Locally, Statewide, Nationally.We need to fight for our rights,too much abuse in Government,all levels!
People, we need to write to state reps, congress and the president to get a money manager who knows what they are doing! Stop spending on other countries, get all our troops back home, we are teaching these nations! THis is BS. We are the ones who will suffer in the end while these countries are being built and our own deteriorating and while they attend their lavish parties and go on lavish vacations while we work without a vacation to repay for the debt they have caused. They say America the land of the free? Free for some not for all. I hope this does not offend anyone but there is much abuse with freebies to people who should not be on public assistance. I cant even get unemployment benefits because I own a small business and struggle to make ends meet but there are people who use public assistance that shouldnt. I cant afford to buy Health Insurance yet will be penalized for it while some get this for free! Just not fair! THis needs to stop!

August 11 2011 at 10:08 AM Report abuse rate up rate down Reply

And then they tell us the solution is to tax US more instead of having the help cut back on their squandering.

August 11 2011 at 9:58 AM Report abuse rate up rate down Reply

Deceptive. "Just take out the Social Security debt and it's so much better" No need to pay back all those suckers who paid in to SS. Also while ignoring the SS loans they ignore the unfunded liabilities up to $100Trillion depending on the calculation. Even after all that they still say 97% instead of the 100% of GDP we hit the day the help got their credit extension and spent 60% of it.

August 11 2011 at 9:57 AM Report abuse +1 rate up rate down Reply

This is good to know. We aren't the "worst" country in the entire world when it comes to national debt. Just one of the worst. What a relief. I thought it was a serious issue. Now we can all go back to sleep and trust in politicians to do the right thing.

August 11 2011 at 9:34 AM Report abuse rate up rate down Reply

I'm a little confused by the GDP vs debt thing. If the GDP is the market value of all final goods and services produced in a country in a given period (from Wikipedia), that has nothing to do with our Government's earnings and the ability of our Government to repay its debts. Comapring the debt to GDP is sugarcoating the issue a bit. That would be like me calculating my ability to pay back debt based on the earnings of the company I work for. The best way to expose the real problem is to relate the debt to what the government actually takes in through taxes and whatever else they do to raise capital. The US Government's revenues would be a much smaller number than the GDP and hence make the ratio against debt much more scary. Am I missing something here?

August 11 2011 at 9:22 AM Report abuse rate up rate down Reply

You didn't answer a key question you rose when it comes to analyzing the debt. What is the debt as it compares to our income? The gov't, IMHO does not manage it's money well, has a cockeyed tax system that requires a huge IRS organization to oversee and service it, spawned an accounting practice to understand it and has an incredible amount of entitlements to select industries that it boggles the mind. It's mismanagement plain and simple and the WORST thing you can do is give them more tax money.

August 11 2011 at 9:15 AM Report abuse rate up rate down Reply