So, is the U.S. Really Broke?

So, is the U.S. Really Broke?

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With total U.S. government debt at over $14 trillion; budget outlays between $3 trillion and $4 trillion; and a gross domestic product of $14 trillion, the question is, how broke is the United States? In short, the answer is, we really don’t know.

We do know that, according to the Federal Reserve, the U.S. government held a total of $1.4 trillion in financial assets as of the end of the first quarter of 2011. This amount includes, but is not limited to, U.S. official reserve assets; checkable deposits and currency; time and savings deposits; and credit market instruments.

These financial assets are offset by liabilities totaling $11.36 trillion, according to Federal Reserve data. These liabilities are comprised mostly of savings bonds, and other Treasury securities.

Clearly we don’t have the financial assets necessary to pay off the government’s debt. What about real property held by the government? According to the General Accounting Office, there are 45,190 underutilized federal government buildings. These buildings have approximately 314 million square feet. Using a conservative commercial rate of $21 per square foot, this amounts to property value of $7.1 billion. In addition, the GAO estimates that it costs the government $1.7 billion a year to maintain these buildings.

How about land? The Bureau of Land Management administers 245 million acres of surface land, and 700 million acres of sub-surface land or mineral estate. The problem with valuing federal government real estate is two-fold.

First, the federal government has little, if any, documentation, on what these properties are. Can’t sell what you can’t describe or really know about.

Second, to really determine the market value of federal land, you have to put the land up for sale. Only then do we get the information necessary for determining a market price.

The U.S. could close a significant portion of the deficit by selling its liquid financial assets, and getting rid of its underutilized real property. By dumping these assets on to the market, the prices for the assets may fall making the impact of their sale on the deficit less significant.

There is one thing the federal government should consider, however. In order to depict as accurate a picture as possible about its balance sheet, Congress should pass legislation requiring the Federal Reserve to include land and buildings as assets in their flow of funds report. With its focus on monetary policy, the Federal Reserve may hesitate to include land on America’s balance sheet; preferring to emphasize the impact that the supply of money has on the economy.

Given today’s debt and deficit discussion, however; an accurate assessment of America’s wealth may be in order. Knowing the true state of our assets as well as income helps to paint alternative options that can be used to address our mounting debts.

1 COMMENT

  1. The answer depends on how one defines, "broke".

    The deficits and resulting debt have been largely the product of years of poor fiscal policy. Are there some items that the Federal gov't can shed vis-a-vis unused buildings, obsolete equipment, etc.? Sure. But the idea some conservatives have floated for the U.S. gov't to conduct a wholesale liquidation of real property (including gold) is absolutely nutty. It would be like selling your refrigerator and oven to pay the mortgage. Once those assets are gone — and presuming fiscal policy remains the same — the gov't would still head toward insolvency.

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