Gross and net debt are terms used when discussing government debt and a country's financial situation. The global economic crisis of the late 2000s has increased the debt for many countries, resulting in the largest national debts seen since the end of World War II, according to Wall Street Pit.
Gross Debt Definition
Gross debt is the general amount of debt a government has. It does not factor in assets or any other aspects of financial debt; it is simply the amount of money a government owes to itself and/or to another country. As of the date of publication, the gross debt for the U.S. is about $14.3 trillion. See Resources for a real-time U.S. debt clock.
Net Debt Definition
Net debt subtracts financial assets a government holds from the gross debt amount. Therefore, net debt is usually less than the total gross debt. Common assets that are subtracted include the value of gold, debt securities, loans, insurance, pension and other account receivable items. In 2010, the net debt for the U.S. was about 65 percent of the gross debt, according to Economy Watch.
When Gross Debt is a Better Measuring Tool
Gross debt is a good measurement of a country's debt in the big picture or long term. It is essentially the balance sheet for a country's Treasury department, and is good to measure in the long term because in theory, all the gross debt will eventually need to be paid off or forgiven for the balance sheet to become even or positive.
When Net Debt is a Better Measuring Tool
According to Clear on Money, net debt is typically the better number to look at when evaluating a country's budget impacts on a wider economy. Gross debt is intragovernmental, so it has no direct impact on a single government's economy. Net debt, on the other hand, affects a country's interest rates, so it is more significant to measure when evaluating a country's economy and how it affects its citizens directly.
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