Understanding Federal Deficits and Mortgage Debt

A day or so has passed since the White House unveiled its new budget, and the way things stand it looks as though Uncle Sam will spend $1.6 trillion more this year than it takes in. Now, if a mortgage applicant ran his/her household that way, you (as an underwriter) might say: "This looks horrible. Maybe that hard money lender across the street will give you a loan." But keep in mind that when it comes to borrowing money (whether the debtor is a person or a government) the key is the balance sheet. Maybe an applicant (such as Uncle Sam) is bleeding red ink, but how many assets does he own? The federal government has a balance sheet (which is that thing the Federal Reserve has been trading on since the fall of 2008), but it also owns plenty of land, which might be viewed as collateral. In other words, when rates starting rising and China – the largest foreign buyer of our debt – begins to get antsy, perhaps we can offer them Alaska in exchange to keep lending us money.