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In an interview with Fox News on Wednesday, Donald Trump seemed to suggest that his administration has already wiped out all the government debt incurred by the US under the Obama presidency.
He said: "In eight years they [the Obama administration] borrowed more than it [the government] did in the whole history of our country. They borrowed more than $10 trillion, right? And yet we picked up $5 trillion just in the stock market, possibly the whole thing in terms of the first nine months [of my presidency] in terms of values. So in one sense you could say we're really increasing values and maybe in a sense we're reducing debt."
Are these figures true? Does the value of the of the stock market have anything to do with government borrowing? And is the Trump administration really 'reducing' American debt?
Did the US national debt really rise by $10 trillion under Obama?
In January 2009, when Obama took office the value of the US public debt was $10.6 trillion. When he left office in January 2017 it was $19.9 trillion.
But this measure includes liabilities owed to the arm of the US government that administers state pension payments. This arm of the state has built up cash surpluses over the years, as incoming social security payments from the working public have outstripped payments to the retired. It has invested these surpluses in special non-marketable US Treasury bonds.
A stricter interpretation of US government borrowing would strip these intra-government liabilities out and limit it to public debt securities held by the public.
By this measure US government debt rose from $7.5 trillion in 2008 to $15 trillion in 2016, an increase of $7.5 trillion.
Yet it's broadly justifiable for Donald Trump to claim the national debt rose by roughly $10 trillion while Obama was in the White House since this does relate to a recognised measure of US government debt.
As a share of GDP, the national debt rose under Obama from around 73 per cent to 105 per cent on the broad measure and from 51 per cent to 81 per cent under the narrower measure.
However, some context is needed. The US economy was in recession when Obama took office. In recessions government borrowing tends to rise sharply as tax revenues plunge.
Most economists also believe that if the Obama administration had borrowed considerably less in the wake of the global financial crisis, and failed to support aggregate demand, the US economy would have been significantly weaker, meaning that the country's debt today might have actually been even greater as a share of GDP.
Has the US stock market actually increased by $5 trillion under Trump?
The market capitalisation of all the companies on the S&P 500, the US’s main stock market index, on 20 January 2017 when Trump took office was $20.5 trillion.
On Wednesday its value was $23 trillion, so a gain of $2.5 trillion.
However, since 4 November, when Trump unexpectedly beat Hillary Clinton in the US presidential election, the value of the S&P 500 has grown by $4.1 trillion. So Trump is correct if one generously allows him to round up by $900bn.
Is all this value attributable to Trump?
It does seem that market valuations picked up sharply when Trump won the election.
This was explained by Wall Street analysts as a response to Trump’s campaign promises of major infrastructure spending and tax cuts on firms – which were expected to be good news for US corporate profits.
Yet Trump has, so far, been unable to deliver on these pledges.
This could imply the US stock market is due a correction.
Or it could be that other factors, such as GDP growth expectations, are just as important as Trump policy pledges in boosting company valuations.
The global economy has picked up surprisingly strongly this year and the IMF this week revised up its international GDP growth forecast to 3.6 per cent in 2017 and 3.7 per cent in 2018.
It's relevant that European stock markets are also up strongly since the US election, something that cannot credibly be attributed to Trump.
So is Trump reducing US debt?
In money terms, no. The value of the US national debt in September was $20.2 trillion, up from $19.9 trillion in January.
As a share of GDP, however, there was a fall from 105 per cent of GDP in the final quarter of 2016 to 103 per cent in the second quarter of 2017.
But the US government is still projected to run a deficit of $693bn, or 3.6 per cent of GDP, in 2017 by the independent Congressional Budget Office.
There's red ink projected over the next decade too, meaning that the debt in money terms and as a share of GDP the national debt will continue to rise under Trump.
Moreover, Trump is pushing a massive tax cut plan for US firms and wealthy individuals with no offsetting spending reductions, something independent experts say, if enacted, would explode the US government deficit in the medium to long term.
What has the national debt got to do with the stock market anyway?
Nothing. There is no relation between the value of US listed companies and the gross debt pile of the US government.
The change in the value of one cannot be said to offset the other. Trump is comparing apples and oranges.
Under Obama the value of the US stock market also rose in value by around $10 trillion.
By Trump’s logic that means Obama should also be considered not to have added to America's national debt.
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