Hidden Debt Crisis

Off books, off balance


The official U.S. debt has exploded in recent years, from $5 trillion in 2007 to an estimated $12 trillion by the end of 2013. Potentially worse for the U.S. economy, though, are future obligations that are not part of the official debt count. According to a new National Bureau of Economic Research study by James D. Hamilton, an economist from the University of California, San Diego, these so-called "off-balance-sheet" commitments amounted to $70 trillion in 2012-six times the size of the official debt.

Included in that potentially crippling number are government programs supporting or guaranteeing housing, education loans, bank deposit insurance, Federal Reserve holdings, Social Security and Medicare promises, and civil service and military retirement obligations. (Hamilton specifically excludes private pension guarantees, veterans' medical benefits, and flood insurance, though those may also prove costly.)

Hamilton notes that off-balance-sheet obligations can hurt the government's balance sheet in real time: Losses at savings and loans in the 1980s, for example, "ended up dwarfing the capabilities of the now-defunct Federal Savings and Loan Insurance Corporation to honor its promise to guarantee depositors" and likely resulted in $124 billion in federal payouts. Hamilton figures that housing and education, and obligations to the elderly and sick, seem most likely to haunt us with future real costs.