Debt capacity and the ability to service the public debt: A discerning look at the credit quality of Uncle Sam

Abstract This paper is a case study credit analysis of the U.S. government. It finds that the financial condition of the government is not nearly what is typically believed. It first shows that the debt owed to entities that are not also responsible for it is only about a fourth of the stated debt. Furthermore, the cash flows available to service the debt, the assets owned by the government, and the tremendously underappreciated amount of national wealth that backs the debt reveals a much more accurate picture of the federal fiscal condition. This paper also shows why the focus on debt‐to‐GDP is so misleading.