National Debt Of The United States
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The national debt of the United States is the total
national debt A country's gross government debt (also called public debt, or sovereign debt) is the financial liabilities of the government sector. Changes in government debt over time reflect primarily borrowing due to past government deficits. A deficit oc ...
owed by the
federal government A federation (also known as a federal state) is a political entity characterized by a union of partially self-governing provinces, states, or other regions under a central federal government (federalism). In a federation, the self-governin ...
of the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
to
Treasury security United States Treasury securities, also called Treasuries or Treasurys, are government debt instruments issued by the United States Department of the Treasury to finance government spending as an alternative to taxation. Since 2012, U.S. gov ...
holders. The national debt at any point in time is the face value of the then-outstanding Treasury securities that have been issued by the
Treasury A treasury is either *A government department related to finance and taxation, a finance ministry. *A place or location where treasure, such as currency or precious items are kept. These can be state or royal property, church treasure or in p ...
and other federal agencies. The terms "national deficit" and "national surplus" usually refer to the federal
government budget balance The government budget balance, also alternatively referred to as general government balance, public budget balance, or public fiscal balance, is the overall difference between government revenues and spending. A positive balance is called a '' ...
from year to year, not the cumulative amount of
debt Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...
. In a deficit year the national debt increases as the government needs to borrow funds to finance the deficit, while in a surplus year the debt decreases as more money is received than spent, enabling the government to reduce the debt by buying back some Treasury securities. In general, government debt increases as a result of
government spending Government spending or expenditure includes all government consumption, investment, and transfer payments. In national income accounting, the acquisition by governments of goods and services for current use, to directly satisfy the individual o ...
and decreases from
tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...
or other receipts, both of which fluctuate during the course of a
fiscal year A fiscal year (or financial year, or sometimes budget year) is used in government accounting, which varies between countries, and for budget purposes. It is also used for financial reporting by businesses and other organizations. Laws in many ...
. There are two components of gross national debt: * "Debt held by the public" – such as Treasury securities held by investors outside the federal government, including those held by individuals,
corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...
s, the
Federal Reserve The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...
, and foreign,
state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * ''The State'' (newspaper), a daily newspaper in Columbia, South Carolina, United States * ''Our S ...
and
local governments Local government is a generic term for the lowest tiers of public administration within a particular sovereign state. This particular usage of the word government refers specifically to a level of administration that is both geographically-loca ...
. * "Debt held by government accounts" or "intragovernmental debt" – is non-marketable Treasury securities held in accounts of programs administered by the federal government, such as the
Social Security Trust Fund The Federal Old-Age and Survivors Insurance Trust Fund and Federal Disability Insurance Trust Fund (collectively, the Social Security Trust Fund or Trust Funds) are trust funds that provide for payment of Social Security (Old-Age, Survivors, and D ...
. Debt held by government accounts represents the cumulative surpluses, including interest earnings, of various government programs that have been invested in Treasury securities. Historically, the U.S. public debt as a share of
gross domestic product Gross domestic product (GDP) is a money, monetary Measurement in economics, measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjec ...
(GDP) increases during wars and
recession In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various ...
s and then subsequently declines. The ratio of debt to GDP may decrease as a result of a government surplus or via growth of GDP and
inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...
. For example, debt held by the public as a share of GDP had peaked just after World War II (113% of GDP in 1945), but has since reached new highs of up to 134.84% of GDP during the second quarter of 2020. In recent decades, aging
demographics Demography () is the statistical study of populations, especially human beings. Demographic analysis examines and measures the dimensions and dynamics of populations; it can cover whole societies or groups defined by criteria such as edu ...
and rising healthcare costs have led to concern about the long-term sustainability of the federal government's fiscal policies. The aggregate, gross amount that Treasury can borrow is limited by the
United States debt ceiling The United States debt ceiling or debt limit is a legislative limit on the amount of national debt that can be incurred by the U.S. Treasury, thus limiting how much money the federal government may pay on the debt they already borrowed. The ...
. As of November 2022, federal debt held by the public was $31 trillion. Debt held by the public was estimated at 96.19% of GDP, and approximately 33% of this public debt was owned by foreigners. The United States has the largest external debt in the world. The total number of U.S. Treasury securities held by foreign countries in December 2021 was $7.7 trillion, up from $7.1 trillion in December 2020. As of February 2022, total US federal government debt breached $30 trillion mark for the first time in history. During the
COVID-19 pandemic The COVID-19 pandemic, also known as the coronavirus pandemic, is an ongoing global pandemic of coronavirus disease 2019 (COVID-19) caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). The novel virus was first identif ...
, the federal government spent trillions in virus aid and economic relief. The CBO estimated that the budget deficit for fiscal year 2020 would increase to $3.3 trillion or 16% GDP, more than triple that of 2019 and the largest as % GDP since 1945. On April 28, 2022, the Congressional Budget Office released a report which stated that in order to stabilize the $30 trillion in national debt (i.e. stop the debt from growing relative to the United States economy), it will require that "income tax receipts or benefit payments change substantially from their currently projected path." In other words, taxes will likely increase and government services will likely have to be reduced.


History

The United States federal government has continuously had a fluctuating
public debt A country's gross government debt (also called public debt, or sovereign debt) is the financial liabilities of the government sector. Changes in government debt over time reflect primarily borrowing due to past government deficits. A deficit oc ...
since its formation in 1789, except for about a year during 1835–1836, a period in which the nation, during the presidency of
Andrew Jackson Andrew Jackson (March 15, 1767 – June 8, 1845) was an American lawyer, planter, general, and statesman who served as the seventh president of the United States from 1829 to 1837. Before being elected to the presidency, he gained fame as ...
, completely paid the national debt. To allow comparisons over the years, public debt is often expressed as a ratio to GDP. The United States public debt as a percentage of GDP reached its highest level during
Harry Truman Harry S. Truman (May 8, 1884December 26, 1972) was the 33rd president of the United States, serving from 1945 to 1953. A leader of the Democratic Party, he previously served as the 34th vice president from January to April 1945 under Franklin ...
's first presidential term, during and after
World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposin ...
. Public debt as a percentage of GDP fell rapidly in the post-World War II period and reached a low in 1974 under
Richard Nixon Richard Milhous Nixon (January 9, 1913April 22, 1994) was the 37th president of the United States, serving from 1969 to 1974. A member of the Republican Party, he previously served as a representative and senator from California and was ...
. Debt as a share of GDP has consistently increased since then, except during the presidencies of
Jimmy Carter James Earl Carter Jr. (born October 1, 1924) is an American politician who served as the 39th president of the United States from 1977 to 1981. A member of the Democratic Party (United States), Democratic Party, he previously served as th ...
and
Bill Clinton William Jefferson Clinton ( né Blythe III; born August 19, 1946) is an American politician who served as the 42nd president of the United States from 1993 to 2001. He previously served as governor of Arkansas from 1979 to 1981 and agai ...
. Public debt rose sharply during the 1980s, as
Ronald Reagan Ronald Wilson Reagan ( ; February 6, 1911June 5, 2004) was an American politician, actor, and union leader who served as the 40th president of the United States from 1981 to 1989. He also served as the 33rd governor of California from 1967 ...
negotiated with
Congress A congress is a formal meeting of the representatives of different countries, constituent states, organizations, trade unions, political parties, or other groups. The term originated in Late Middle English to denote an encounter (meeting of a ...
to cut tax rates and increase
military spending A military budget (or military expenditure), also known as a defense budget, is the amount of financial resources dedicated by a state to raising and maintaining an armed forces or other methods essential for defense purposes. Financing milit ...
. It fell during the 1990s because of decreased military spending, increased taxes and the 1990s boom. Public debt rose sharply during George W Bush's presidency and in the wake of the 2007–2008 financial crisis, with resulting significant tax revenue declines and spending increases, such as the
Emergency Economic Stabilization Act of 2008 The Emergency Economic Stabilization Act of 2008, often called the "bank bailout of 2008", was proposed by Treasury Secretary Henry Paulson, passed by the 110th United States Congress, and signed into law by President George W. Bush. It became ...
and the
American Recovery and Reinvestment Act of 2009 The American Recovery and Reinvestment Act of 2009 (ARRA) (), nicknamed the Recovery Act, was a stimulus package enacted by the 111th U.S. Congress and signed into law by President Barack Obama in February 2009. Developed in response to the Gr ...
. In their September 2018 monthly report published on October 5 and based on data from the Treasury Department's "Daily Treasury Statements" (DTS), the Congressional Budget Office (CBO) wrote that the federal budget deficit was c.$782 billion for the
fiscal year A fiscal year (or financial year, or sometimes budget year) is used in government accounting, which varies between countries, and for budget purposes. It is also used for financial reporting by businesses and other organizations. Laws in many ...
2018—which runs from October 2017 through September 2018. This is $116 billion more than in FY2017. The Treasury statements as summarized by in the CBO report that corporate taxes for 2017 and 2018 declined by $92 billion representing a drop of 31%. The CBO added that "about half of the decline ... occurred since June" when some of the provisions of the
Tax Cuts and Jobs Act of 2017 The Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, , is a congressional revenue act of the United States originally introduced in Congress as the Tax Cuts and Jobs A ...
took effect, which included the "new lower corporate tax rate and the expanded ability to immediately deduct the full value of equipment purchases". According to articles in ''
The Wall Street Journal ''The Wall Street Journal'' is an American business-focused, international daily newspaper based in New York City, with international editions also available in Chinese and Japanese. The ''Journal'', along with its Asian editions, is published ...
'' and ''
Business Insider ''Insider'', previously named ''Business Insider'' (''BI''), is an American financial and business news website founded in 2007. Since 2015, a majority stake in ''Business Insider''s parent company Insider Inc. has been owned by the German publ ...
'', based on documents released on October 29, 2018, by the Treasury Department, the department's projection estimated that by the fourth quarter of the FY2018, it would have issued c. $1.338 trillion in debt. This would have been the highest debt issuance since 2010, when it reached $1.586 trillion. The Treasury anticipated that the total "net marketable debt"—net marketable securities—issued in the fourth quarter would reach $425 billion; which would raise the 2018 "total debt issuance" to over a trillion dollars of new debt, representing a "146% jump from 2017". According to the ''Journal'' that is the highest fourth quarter issuance "since 2008, at the height of the financial crisis." As cited by the ''Journal'' and the ''Business Insider'', the primary drivers of new debt issuance are "stagnant", "sluggish tax revenues", a decrease in "corporate tax revenue", due to the GOP
Tax Cuts and Jobs Act of 2017 The Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, , is a congressional revenue act of the United States originally introduced in Congress as the Tax Cuts and Jobs A ...
, the "bipartisan budget agreement", and "higher government spending".


Valuation and measurement


Public and government accounts

As of July 20, 2020, debt held by the public was $20.57 trillion, and
intragovernmental holdings In public finance, intragovernmental holdings (also known as intragovernmental debt or intragovernmental obligations) are debt obligations that a government owes to its own agencies. These agencies may receive or spend money unevenly throughout ...
were $5.94 trillion, for a total of $26.51 trillion. Debt held by the public was approximately 77% of GDP in 2017, ranked 43rd highest out of 207 countries. The CBO forecast in April 2018 that the ratio will rise to nearly 100% by 2028, perhaps higher if current policies are extended beyond their scheduled expiration date. The national debt can also be classified into marketable or non-marketable securities. Most of the marketable securities are Treasury notes, bills, and bonds held by investors and governments globally. The non-marketable securities are mainly the "government account series" owed to certain government trust funds such as the Social Security Trust Fund, which represented $2.82 trillion in 2017. The non-marketable securities represent amounts owed to program beneficiaries. For example, in the cash upon receipt but spent for other purposes. If the government continues to run deficits in other parts of the budget, the government will have to issue debt held by the public to fund the Social Security Trust Fund, in effect exchanging one type of debt for the other. Other large intragovernmental holders include the Federal Housing Administration, the Federal Savings and Loan Corporation's Resolution Fund and the Federal Hospital Insurance Trust Fund (Medicare).


Accounting treatment

Only debt held by the public is reported as a liability on the consolidated financial statements of the United States government. Debt held by US government accounts is an asset to those accounts but a liability to the Treasury; they offset each other in the consolidated financial statements. Government receipts and expenditures are normally presented on a
cash In economics, cash is money in the physical form of currency, such as banknotes and coins. In bookkeeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-imm ...
rather than an
accrual Accrual (''accumulation'') of something is, in finance, the adding together of interest or different investments over a period of time. Accruals in accounting For example, a company delivers a product to a customer who will pay for it 30 days l ...
basis, although the accrual basis may provide more information on the longer-term implications of the government's annual operations. The United States public debt is often expressed as a ratio of public debt to GDP. The ratio of debt to GDP may decrease as a result of a government surplus as well as from growth of GDP and inflation.


Fannie Mae and Freddie Mac obligations excluded

Under normal accounting rules, fully owned companies would be consolidated into the books of their owners, but the large size of
Fannie Mae The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a United States government-sponsored enterprise (GSE) and, since 1968, a publicly traded company. Founded in 1938 during the Great Depression as part of the N ...
and
Freddie Mac The Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Freddie Mac, is a publicly traded, government-sponsored enterprise (GSE), headquartered in Tysons Corner, Virginia.government-sponsored enterprise A government-sponsored enterprise (GSE) is a type of financial services corporation created by the United States Congress. Their intended function is to enhance the flow of Credit (finance), credit to targeted sectors of the economy, to make tho ...
(GSE) debt into the budget because of the temporary nature of the conservator intervention. As the intervention has dragged out, pundits began to question this accounting treatment, noting that changes in August 2012 "makes them even more permanent wards of the state and turns the government's preferred stock into a permanent, perpetual kind of security". The federal government controls the
Public Company Accounting Oversight Board The Public Company Accounting Oversight Board (PCAOB) is a nonprofit corporation created by the Sarbanes–Oxley Act of 2002 to oversee the audits of public companies and other issuers in order to protect the interests of investors and further t ...
, which would normally criticize inconsistent accounting practices, but it does not oversee its own government's accounting practices or the standards set by the
Federal Accounting Standards Advisory Board The Federal Accounting Standards Advisory Board (FASAB) is a United States federal advisory committee whose mission is to improve federal financial reporting through issuing federal financial accounting standards and providing guidance after c ...
. The on- or off-
balance sheet In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...
obligations of those two independent GSEs was just over $5 trillion at the time the conservatorship was put in place, consisting mainly of mortgage payment guarantees and agency bonds.Barr, Colin (September 7, 2008)
"Paulson readies the 'bazooka'"
CNN.com; retrieved January 17, 2011.
The confusing ''independent but government-controlled'' status of the GSEs resulted in investors of the legacy common shares and preferred shares launching various activist campaigns in 2014.


Guaranteed obligations excluded

U.S. federal government guarantees were not included in the public debt total as they were not drawn against. In late 2008, the federal government had guaranteed large amounts of obligations of mutual funds, banks, and corporations under several programs designed to deal with the problems arising from the late-2000s financial crisis. The guarantee program lapsed at the end of 2012, when Congress declined to extend the scheme. The funding of direct investments made in response to the crisis, such as those made under the
Troubled Asset Relief Program The Troubled Asset Relief Program (TARP) is a program of the United States government to purchase toxic assets and equity from financial institutions to strengthen its financial sector that was passed by Congress and signed into law by President G ...
, was included in the debt totals.


Unfunded obligations excluded

The U.S. federal government is obligated under current law to make mandatory payments for programs such as Medicare,
Medicaid Medicaid in the United States is a federal and state program that helps with healthcare costs for some people with limited income and resources. Medicaid also offers benefits not normally covered by Medicare, including nursing home care and pers ...
and Social Security. The
Government Accountability Office The U.S. Government Accountability Office (GAO) is a legislative branch government agency that provides auditing, evaluative, and investigative services for the United States Congress. It is the supreme audit institution of the federal govern ...
(GAO) projects that payouts for these programs will significantly exceed tax revenues over the next 75 years. The Medicare Part A (hospital insurance) payouts already exceed program tax revenues, and social security payouts exceeded payroll taxes in fiscal year 2010. These deficits require funding from other tax sources or borrowing. The present value of these deficits or unfunded obligations is an estimated $45.8 trillion. This is the amount that would have had to be set aside in 2009 in order to pay for the unfunded obligations which, under current law, will have to be raised by the government in the future. Approximately $7.7 trillion relates to Social Security, while $38.2 trillion relates to Medicare and Medicaid. In other words, health care programs will require nearly five times more funding than Social Security. Adding this to the national debt and other federal obligations would bring total obligations to nearly $62 trillion. However, these unfunded obligations are not counted in the national debt, as shown in monthly Treasury reports of the national debt.


Measuring debt burden

GDP is a measure of the total size and output of the economy. One measure of the debt burden is its size relative to GDP, called the "
debt-to-GDP ratio In economics, the debt-to-GDP ratio is the ratio between a country's government debt (measured in units of currency) and its gross domestic product (GDP) (measured in units of currency per year). While it is a "ratio", it is technically measured i ...
." Mathematically, this is the debt divided by the GDP amount. The Congressional Budget Office includes historical budget and debt tables along with its annual "Budget and Economic Outlook." Debt held by the public as a percentage of GDP rose from 34.7% GDP in 2000 to 40.5% in 2008 and 67.7% in 2011. Mathematically, the ratio can decrease even while debt grows if the rate of increase in GDP (which also takes account of inflation) is higher than the rate of increase of debt. Conversely, the debt to GDP ratio can increase even while debt is being reduced, if the decline in GDP is sufficient. According to the ''
CIA World Factbook ''The World Factbook'', also known as the ''CIA World Factbook'', is a reference resource produced by the Central Intelligence Agency (CIA) with almanac-style information about the countries of the world. The official print version is available ...
'', during 2015, the U.S. debt to GDP ratio of 73.6% was the 39th highest in the world. This was measured using "debt held by the public." However, $1 trillion in additional borrowing since the end of FY 2015 raised the ratio to 76.2% as of April 2016 ee Appendix#National debt for selected years Also, this number excludes state and local debt. According to the OECD, general government gross debt (federal, state, and local) in the United States in the fourth quarter of 2015 was $22.5 trillion (125% of GDP); subtracting out $5.25 trillion for intragovernmental federal debt to count only federal "debt held by the public" gives 96% of GDP. The ratio is higher if the total national debt is used, by adding the "intragovernmental debt" to the "debt held by the public." For example, on April 29, 2016, debt held by the public was approximately $13.84 trillion or about 76% of GDP. Intra-governmental holdings stood at $5.35 trillion, giving a combined total public debt of $19.19 trillion. U.S. GDP for the previous 12 months was approximately $18.15 trillion, for a total debt to GDP ratio of approximately 106%.


Calculating the annual change in debt

Conceptually, an annual deficit (or surplus) should represent the change in the national debt, with a deficit adding to the national debt and a surplus reducing it. However, there is complexity in the budgetary computations that can make the deficit figure commonly reported in the media (the "total deficit") considerably different from the annual increase in the debt. The major categories of differences are the treatment of the Social Security program, Treasury borrowing, and supplemental appropriations outside the budget process. Social Security payroll taxes and benefit payments, along with the net balance of the
U.S. Postal Service The United States Postal Service (USPS), also known as the Post Office, U.S. Mail, or Postal Service, is an independent agency of the executive branch of the United States federal government responsible for providing postal service in the U. ...
, are considered "off-budget", while most other expenditure and receipt categories are considered "on-budget". The total federal deficit is the sum of the on-budget deficit (or surplus) and the off-budget deficit (or surplus). Since FY1960, the federal government has run on-budget deficits except for FY1999 and FY2000, and total federal deficits except in FY1969 and FY1998–FY2001. For example, in January 2009 the CBO reported that for FY2008, the "on-budget deficit" was $638 billion, offset by an "off-budget surplus" (mainly due to Social Security revenue in excess of payouts) of $183 billion, for a "total deficit" of $455 billion. This latter figure is the one commonly reported in the media. However, an additional $313 billion was required for "the Treasury actions aimed at stabilizing the financial markets," an unusually high amount because of the
subprime mortgage crisis The United States subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010 that contributed to the Financial crisis of 2007–2008, 2007–2008 global financial crisis. It was triggered by a large decline ...
. This meant that the "debt held by the public" increased by $768 billion ($455B + $313B = $768B). The "off-budget surplus" was borrowed and spent (as is typically the case), increasing the "intra-governmental debt" by $183 billion. So the total increase in the "national debt" in FY2008 was $768B +$183B = $951 billion. The Treasury Department reported an increase in the national debt of $1,017B for FY2008. The $66 billion difference is likely from "supplemental appropriations" for the
War on Terror The war on terror, officially the Global War on Terrorism (GWOT), is an ongoing international Counterterrorism, counterterrorism military campaign initiated by the United States following the September 11 attacks. The main targets of the campa ...
, some of which were outside the budget process entirely until President Obama began including most of them in his FY2010 budget. In other words, spending the "off budget" Social Security surplus adds to the total national debt (by increasing the intragovernmental debt) while the "off-budget" surplus reduces the "total" deficit reported in the media. Certain spending called "supplemental appropriations" is outside the budget process entirely but adds to the national debt. Funding for the
Iraq Iraq,; ku, عێراق, translit=Êraq officially the Republic of Iraq, '; ku, کۆماری عێراق, translit=Komarî Êraq is a country in Western Asia. It is bordered by Turkey to Iraq–Turkey border, the north, Iran to Iran–Iraq ...
and
Afghanistan Afghanistan, officially the Islamic Emirate of Afghanistan,; prs, امارت اسلامی افغانستان is a landlocked country located at the crossroads of Central Asia and South Asia. Referred to as the Heart of Asia, it is bordere ...
wars was accounted for this way prior to the Obama administration. Certain stimulus measures and earmarks were also outside the budget process. The federal government publishes the total debt owed (public and intragovernmental holdings) daily.


Reduction


Negative real interest rates

Since 2010, the U.S. Treasury has been obtaining negative real interest rates on government debt, meaning the inflation rate is greater than the interest rate paid on the debt. Such low rates, outpaced by the
inflation rate In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...
, occur when the market believes that there are no alternatives with sufficiently low risk, or when popular institutional investments such as insurance companies,
pension A pension (, from Latin ''pensiō'', "payment") is a fund into which a sum of money is added during an employee's employment years and from which payments are drawn to support the person's retirement from work in the form of periodic payments ...
s, or bond, money market, and balanced
mutual fund A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV i ...
s are required or choose to invest sufficiently large sums in Treasury securities to hedge against risk. Economist
Lawrence Summers Lawrence Henry Summers (born November 30, 1954) is an American economist who served as the 71st United States secretary of the treasury from 1999 to 2001 and as director of the National Economic Council from 2009 to 2010. He also served as pre ...
states that at such low interest rates, government borrowing actually saves taxpayer money and improves creditworthiness. In the late 1940s through the early 1970s, the U.S. and UK both reduced their debt burden by about 30% to 40% of GDP per decade by taking advantage of negative real interest rates, but there is no guarantee that government debt rates will continue to stay this low.Carmen M. Reinhart and M. Belen Sbrancia (March 2011
"The Liquidation of Government Debt"
National Bureau of Economic Research working paper No. 16893
Between 1946 and 1974, the U.S. debt-to-GDP ratio fell from 121% to 32% even though there were surpluses in only eight of those years which were much smaller than the deficits.


Raising reserve requirements and full reserve banking

Two economists, Jaromir Benes and Michael Kumhof, working for the
International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster globa ...
, published a working paper called ''
The Chicago Plan Revisited The Chicago plan was a monetary and banking reform program suggested in the wake of the Great Depression by a group of University of Chicago economists including Henry Simons, Garfield Cox, Aaron Director, Paul Douglas, Albert G. Hart, Frank ...
'' suggesting that the debt could be eliminated by raising bank
reserve requirement Reserve requirements are central bank regulations that set the minimum amount that a commercial bank must hold in liquid assets. This minimum amount, commonly referred to as the commercial bank's reserve, is generally determined by the centra ...
s and converting from
fractional-reserve banking Fractional-reserve banking is the system of banking operating in almost all countries worldwide, under which banks that take deposits from the public are required to hold a proportion of their deposit liabilities in liquid assets as a reserve, ...
to
full-reserve banking Full-reserve banking (also known as 100% reserve banking, narrow banking, or sovereign money system) is a system of banking where banks do not lend demand deposits and instead, only lend from time deposits. It differs from fractional-reserve bank ...
. Economists at the
Paris School of Economics The Paris School of Economics (PSE; French: ''École d'économie de Paris'') is a French research institute in the field of economics. It offers MPhil, MSc, and PhD level programmes in various fields of theoretical and applied economics, in ...
have commented on the plan, stating that it is already the ''status quo'' for coinage currency, and a
Norges Bank Norges Bank / Noregs Bank is the central bank of Norway. The bank shall promote economic stability in Norway. Norges Bank also manages the Government Pension Fund of Norway and the bank’s own foreign exchange reserves. History The history of ...
economist has examined the proposal in the context of considering the
finance industry Financial services are the economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, accountancy companies, ...
as part of the
real economy The real economy concerns the production, purchase and flow of goods and services (like oil, bread and labour) within an economy. It is contrasted with the financial economy, which concerns the aspects of the economy that deal purely in transac ...
. A
Centre for Economic Policy Research The Centre for Economic Policy Research (CEPR) is an independent, non‐partisan, pan‐European non‐profit organisation. Its mission is to enhance the quality of policy decisions through providing policy‐relevant research, based soundly in e ...
paper agrees with the conclusion that "no real liability is created by new
fiat money Fiat money (from la, fiat, "let it be done") is a type of currency that is not backed by any commodity such as gold or silver. It is typically designated by the issuing government to be legal tender. Throughout history, fiat money was sometime ...
creation and therefore public debt does not rise as a result."


Debt ceiling

The debt ceiling is a legislative mechanism to limit the amount of national debt that can be issued by the Treasury. In effect, it restrains the Treasury from paying for expenditures after the limit has been reached, even if the expenditures have already been approved (in the budget) and have been appropriated. If this situation were to occur, it is unclear whether Treasury would be able to prioritize payments on debt to avoid a default on its debt obligations, but it would have to default on some of its non-debt obligations.


Debt holdings

Because a large variety of people own the notes, bills, and bonds in the "public" portion of the debt, the Treasury also publishes information that groups the types of holders by general categories to portray who owns United States debt. In this data set, some of the public portion is moved and combined with the total government portion, because this amount is owned by the Federal Reserve as part of United States monetary policy. (See
Federal Reserve System The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...
.) As is apparent from the chart, a little less than half of the total national debt is owed to the "Federal Reserve and intragovernmental holdings". The foreign and international holders of the debt are also put together from the notes, bills, and bonds sections. To the right is a chart for the data as of June 2008:


Foreign holdings

As of October 2018, foreigners owned $6.2 trillion of U.S. debt, or approximately 39% of the debt held by the public of $16.1 trillion and 28% of the total debt of $21.8 trillion. In December 2020, foreigners held 33% ($7 trillion out of $21.6 trillion) of publicly held US debt; of this $7 trillion, $4.1 trillion (59.2%) belonged to foreign governments and $2.8 trillion (40.8%) to foreign investors. Including both private and public debt holders, the top three December 2020 national holders of American public debt are
Japan Japan ( ja, 日本, or , and formally , ''Nihonkoku'') is an island country in East Asia. It is situated in the northwest Pacific Ocean, and is bordered on the west by the Sea of Japan, while extending from the Sea of Okhotsk in the north ...
($1.2 trillion or 17.7%),
China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's most populous country, with a population exceeding 1.4 billion, slightly ahead of India. China spans the equivalent of five time zones and ...
($1.1 trillion or 15.2%), and the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and North ...
($0.4 trillion or 6.2%). Historically, the share held by foreign governments had grown over time, rising from 13% of the public debt in 1988 to 34% in 2015. In more recent years, foreign ownership has retreated both in percent of total debt and total dollar amounts. China's maximum holding of 9.1% or $1.3 trillion of U.S. debt occurred in 2011, subsequently reduced to 5% in 2018. Japan's maximum holding of 7% or $1.2 trillion occurred in 2012, subsequently reduced to 4% in 2018. According to
Paul Krugman Paul Robin Krugman ( ; born February 28, 1953) is an American economist, who is Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for ''The New York Times''. In 2008, Krugman was th ...
, "America actually earns more from its assets abroad than it pays to foreign investors." Nonetheless, the country's
net international investment position __FORCETOC__ The net international investment position (NIIP) is the difference in the external financial assets and liabilities of a country. External debt of a country includes government debt and private debt. External assets publicly and privat ...
represents a debt of more than $9 trillion.


Forecasting


CBO ten-year outlook 2018–2028 (pre–COVID-19 pandemic)

The CBO estimated the impact of the Tax Cuts and Jobs Act and separate spending legislation over the 2018–2028 period in their annual "Budget & Economic Outlook", released in April 2018: * The budget deficit in fiscal 2018 (which runs from October 1, 2017 to September 30, 2018, the first year budgeted by President Trump) is forecast to be $804 billion, an increase of $139 billion (21%) from the $665 billion in 2017 and up $242 billion (39%) over the previous baseline forecast (June 2017) of $580 billion for 2018. The June 2017 forecast was essentially the budget trajectory inherited from President Obama; it was prepared prior to the Tax Act and spending increases under President Trump. * For the 2018–2027 period, CBO projects the sum of the annual deficits (i.e., debt increase) to be $11.7 trillion, an increase of $1.6 trillion (16%) over the previous baseline (June 2017) forecast of $10.1 trillion. * The $1.6 trillion debt increase includes three main elements: 1) $1.7 trillion less in revenues due to the tax cuts; 2) $1.0 trillion more in spending; and 3) Partially offsetting incremental revenue of $1.1 trillion due to higher economic growth than previously forecast. * Debt held by the public is expected (Congressional Budget Office Outlook) to rise from 78% of GDP ($16 trillion) at the end of 2018 to 96% GDP ($29 trillion) by 2028. That would be the highest level since the end of World War II. * CBO estimated under an alternative scenario (in which policies in place as of April 2018 are maintained beyond scheduled initiation or expiration) that deficits would be considerably higher, rising by $13.7 trillion over the 2018–2027 period, an increase of $3.6 trillion over the June 2017 baseline forecast. Maintaining current policies for example would include extending the individual Trump tax cuts past their scheduled expiration in 2025, among other changes. * The debt increase of $1.6 trillion represents approximately $12,700 per household (assuming 126.2 million households in 2017), while the $3.6 trillion represents $28,500 per household.


CBO ten-year outlook 2020–2030 (during the COVID-19 pandemic)

The CBO estimated that the budget deficit for fiscal year 2020 would increase to $3.3 trillion or 16% GDP, more than triple that of 2019 and the largest as % GDP since 1945, because of the impact of the
COVID-19 pandemic The COVID-19 pandemic, also known as the coronavirus pandemic, is an ongoing global pandemic of coronavirus disease 2019 (COVID-19) caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). The novel virus was first identif ...
. CBO also forecast the debt held by the public would rise to 98% GDP in 2020, compared with 79% in 2019 and 35% in 2007 before the
Great Recession The Great Recession was a period of marked general decline, i.e. a recession, observed in national economies globally that occurred from late 2007 into 2009. The scale and timing of the recession varied from country to country (see map). At ...
.


CBO long-term outlook

The CBO reports its ''Long-Term Budget Outlook'' annually, providing at least two scenarios for spending, revenue, deficits, and debt. The 2019 Outlook mainly covers the 30-year period through 2049. The CBO reported:
Large budget deficits over the next 30 years are projected to drive federal debt held by the public to unprecedented levels—from 78 percent of gross domestic product (GDP) in 2019 to 144 percent by 2049. That projection incorporates CBO’s central estimates of various factors, such as productivity growth and interest rates on federal debt. CBO’s analysis indicates that even if values for those factors differed from the agency’s projections, debt several decades from now would probably be much higher than it is today.CBO The 2019 Long-Term Budget Outlook
cbo.gov; accessed June 25, 2019.
Furthermore, under alternative scenarios:
If lawmakers changed current laws to maintain certain major policies now in place—most significantly, if they prevented a cut in discretionary spending in 2020 and an increase in individual income taxes in 2026—then debt held by the public would increase even more, reaching 219 percent of GDP by 2049. By contrast, if Social Security benefits were limited to the amounts payable from revenues received by the Social Security trust funds, debt in 2049 would reach 106 percent of GDP, still well above its current level.
Over the long-term, the CBO projects that interest expense and mandatory spending categories (e.g., Medicare, Medicaid and Social Security) will continue to grow relative to GDP, while discretionary categories (e.g., Defense and other Cabinet Departments) continue to fall relative to GDP. Debt is projected to continue rising relative to GDP under the above two scenarios, although the CBO did also offer other scenarios that involved austerity measures that would bring the debt to GDP ratio down.


Risks and debates


CBO risk factors

The CBO reported several types of risk factors related to rising debt levels in a July 2010 publication: * A growing portion of savings would go towards purchases of government debt, rather than investments in productive capital goods such as factories and computers, leading to lower output and incomes than would otherwise occur; * If higher marginal tax rates were used to pay rising interest costs, savings would be reduced and work would be discouraged; * Rising interest costs would force reductions in government programs; * Restrictions to the ability of policymakers to use fiscal policy to respond to economic challenges; and * An increased risk of a sudden fiscal crisis, in which investors demand higher interest rates.Huntley, Jonathan (July 27, 2010)
"Federal debt and the risk of a fiscal crisis"
Congressional Budget Office: Macroeconomic Analysis Division; retrieved February 2, 2011.


Concerns over Chinese holdings of U.S. debt

According to a 2013
Forbes ''Forbes'' () is an American business magazine owned by Integrated Whale Media Investments and the Forbes family. Published eight times a year, it features articles on finance, industry, investing, and marketing topics. ''Forbes'' also re ...
article, many American and other economic analysts have expressed concerns on account of the People's Republic of China's "extensive" holdings of United States government debt"... Should Americans be concerned that China has started dumping some of its Treasury holdings? After all, it raises serious questions about whether China will keep lending Washington money to help finance the federal deficit in the future.": Fro
"China is dumping U.S. debt"
CNN.com, September 11, 2015.
as part of their reserves. The
National Defense Authorization Act The National Defense Authorization Act (NDAA) is the name for each of a series of United States federal laws specifying the annual budget and expenditures of the U.S. Department of Defense. The first NDAA was passed in 1961. The U.S. Congress o ...
of FY2012 included a provision requiring the Secretary of Defense to conduct a "national security risk assessment of U.S. federal debt held by China." The department issued its report in July 2012, stating that "attempting to use U.S. Treasury securities as a coercive tool would have limited effect and likely would do more harm to China than to the United States. An August 19, 2013
Congressional Research Service The Congressional Research Service (CRS) is a public policy research institute of the United States Congress. Operating within the Library of Congress, it works primarily and directly for members of Congress and their committees and staff on a c ...
report said that the threat is not credible and the effect would be limited even if carried out. The report said that the threat would not offer "China deterrence options, whether in the diplomatic, military, or economic realms, and this would remain true both in peacetime and in scenarios of crisis or war."Report
on "China's Holdings of U.S. Securities: Implications for the U.S. Economy" by Wayne M. Morrison & Marc Labonte,
Congressional Research Service The Congressional Research Service (CRS) is a public policy research institute of the United States Congress. Operating within the Library of Congress, it works primarily and directly for members of Congress and their committees and staff on a c ...
, 19 August 2013
A 2010 article by
James K. Galbraith James Kenneth Galbraith (born January 29, 1952) is an American economist. He is currently a professor at the Lyndon B. Johnson School of Public Affairs and at the Department of Government, University of Texas at Austin. He is also a Senior Schol ...
in ''
The Nation ''The Nation'' is an American liberal biweekly magazine that covers political and cultural news, opinion, and analysis. It was founded on July 6, 1865, as a successor to William Lloyd Garrison's '' The Liberator'', an abolitionist newspaper tha ...
'', defends deficits and dismisses concerns over foreign holdings of United States government debt denominated in U.S. dollars, including China's holdings.:"... What about indebtedness to foreigners? ... To acquire .S. gov't bonds China must export goods to us, not offset by equivalent imports. That is a cost to China. It's a cost
Beijing } Beijing ( ; ; ), alternatively romanized as Peking ( ), is the capital of the People's Republic of China. It is the center of power and development of the country. Beijing is the world's most populous national capital city, with over 21 ...
is prepared to pay, for its own reasons: export industries promote learning, technology transfer and product quality improvement, and they provide jobs to migrants from the countryside. But that's China's business. For China, the bonds themselves are a sterile hoard. There is almost nothing that Beijing can do with them; ... its stock of T-bonds will just go on growing. And we will pay interest on it, not with real effort but by typing numbers into computers. There is no burden associated with this; not now and not later." Fro
"In Defense of Deficits"
by
James K. Galbraith James Kenneth Galbraith (born January 29, 1952) is an American economist. He is currently a professor at the Lyndon B. Johnson School of Public Affairs and at the Department of Government, University of Texas at Austin. He is also a Senior Schol ...
, ''
The Nation ''The Nation'' is an American liberal biweekly magazine that covers political and cultural news, opinion, and analysis. It was founded on July 6, 1865, as a successor to William Lloyd Garrison's '' The Liberator'', an abolitionist newspaper tha ...
'', March 4, 2010.
In 2010,
Warren Mosler Warren Mosler (born September 18, 1949) is an American hedge fund manager and entrepreneur. He is a co-founder of the Center for Full Employment And Price Stability at University of Missouri-Kansas City. and the founder of Mosler Automotive. Mosl ...
, wrote that "When
ver Ver or VER may refer to: * Voluntary Export Restraints, in international trade * VER, the IATA airport code for General Heriberto Jara International Airport * Volk's Electric Railway, Brighton, England * VerPublishing, of the German group VDM P ...
the Chinese redeem those T-securities, the money is transferred back to China's checking account at the Fed. During the entire purchase and redemption process, the dollars never leave the Fed.""... The Chinese buy U.S. T-securities by transferring U.S. dollars (not yuan) from their checking account at the Federal Reserve Bank to China's T-security account, also at the Federal Reserve Bank. When
ver Ver or VER may refer to: * Voluntary Export Restraints, in international trade * VER, the IATA airport code for General Heriberto Jara International Airport * Volk's Electric Railway, Brighton, England * VerPublishing, of the German group VDM P ...
the Chinese redeem those T-securities, the money is transferred back to China's checking account at the Fed. During the entire purchase and redemption process, the dollars never leave the Fed.
"What Policies for Global Prosperity?"
by
Warren Mosler Warren Mosler (born September 18, 1949) is an American hedge fund manager and entrepreneur. He is a co-founder of the Center for Full Employment And Price Stability at University of Missouri-Kansas City. and the founder of Mosler Automotive. Mosl ...
, September 23, 2010.
Australian economist Bill Mitchell argued that the United States government had a "nearly infinite capacity...to spend." Mitchell, Bill,
University of Newcastle (Australia) The University of Newcastle (UON), informally known as Newcastle University, is a public university in Newcastle, New South Wales, Australia. Established in 1965, it has a primary campus in the Newcastle suburb of Callaghan. The university als ...

"The nearly infinite capacity of the US government to spend"
(March 28, 2012)
"The US government can buy as much of its own debt as it chooses"
(August 27, 2013)
An August 2020 ''
Kyodo News is a nonprofit cooperative news agency based in Minato, Tokyo. It was established in November 1945 and it distributes news to almost all newspapers, and radio and television networks in Japan. The newspapers using its news have about 50 millio ...
'' report from Beijing, says that, against the backdrop of an escalation in Sino-U.S. tensions, financial markets are concerned that China might weaponize its holdings of over a $1 trillion of United States debt. If China undertakes a massive sales of its U.S. Treasury bonds, it would result in a decrease in the price of debt and an increase in interest rates in the United States, that would stifle American domestic "investment and consumer spending." However, a massive Chinese selloff, resulting in a drop in the price of debt, will also adversely impact China's proceeds on sale as well as the value of its remaining holdings.


Sustainability

In 2009 the
Government Accountability Office The U.S. Government Accountability Office (GAO) is a legislative branch government agency that provides auditing, evaluative, and investigative services for the United States Congress. It is the supreme audit institution of the federal govern ...
(GAO) reported that the United States was on a "fiscally unsustainable" path because of projected future increases in Medicare and Social Security spending.Congress of the United States, Government Accountability Office (February 13, 2009)
"The federal government's financial health: a citizen's guide to the 2008 financial report of the United States government", pp. 7–8
gao.gov; retrieved February 1, 2011.
According to the Treasury report in October 2018, summarized by ''
Business Insider ''Insider'', previously named ''Business Insider'' (''BI''), is an American financial and business news website founded in 2007. Since 2015, a majority stake in ''Business Insider''s parent company Insider Inc. has been owned by the German publ ...
s Bob Bryan, the U.S. federal budget deficit rose as a result of the Tax Cuts and Jobs Act of 2017 signed into law by President
Donald Trump Donald John Trump (born June 14, 1946) is an American politician, media personality, and businessman who served as the 45th president of the United States from 2017 to 2021. Trump graduated from the Wharton School of the University of Pe ...
on December 22, 2017 and the
Consolidated Appropriations Act, 2018 The Consolidated Appropriations Act, 2018 () is a United States omnibus spending bill for the United States federal government for fiscal year 2018 enacted by the 115th United States Congress and signed into law by President Donald Trump on M ...
signed into law on March 23, 2018.


Risks to economic growth

Debt levels may affect economic growth rates. In 2010, economists
Kenneth Rogoff Kenneth Saul Rogoff (born March 22, 1953) is an American economist and chess Grandmaster. He is the Thomas D. Cabot Professor of Public Policy and professor of economics at Harvard University. Early life Rogoff grew up in Rochester, New York. ...
and
Carmen Reinhart Carmen M. Reinhart (née Castellanos, born October 7, 1955) is a Cuban-American economist and the Minos A. Zombanakis Professor of the International Financial System at Harvard Kennedy School. Previously, she was the Dennis Weatherstone Senior Fe ...
reported that among the 20 developed countries studied, average annual GDP growth was 3–4% when debt was relatively moderate or low (i.e., under 60% of GDP), but it dips to just 1.6% when debt was high (i.e., above 90% of GDP).U.S. House of Representatives Republican Caucus (May 27, 2010)
"The perils of rising government debt"
budget.house.gov; retrieved February 2, 2011.
In April 2013, the conclusions of Rogoff and Reinhart's study came into question when a coding error in their original paper was discovered by Herndon, Ash and Pollin of the
University of Massachusetts Amherst The University of Massachusetts Amherst (UMass Amherst, UMass) is a public research university in Amherst, Massachusetts and the sole public land-grant university in Commonwealth of Massachusetts. Founded in 1863 as an agricultural college, it ...
. Herndon, Ash and Pollin found that after correcting for errors and unorthodox methods used, there was no evidence that debt above a specific threshold reduces growth. Reinhart and Rogoff maintain that after correcting for errors, a negative relationship between high debt and growth remains. However, other economists, including
Paul Krugman Paul Robin Krugman ( ; born February 28, 1953) is an American economist, who is Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for ''The New York Times''. In 2008, Krugman was th ...
, have argued that it is low growth which causes national debt to increase, rather than the other way around.Krugman, Paul (May 27, 2010)
"Bad analysis at the deficit commission"
''The New York Times'': The Opinion Pages: Conscience of a Liberal Blog. Retrieved February 9, 2011.
Commenting on
fiscal sustainability Fiscal sustainability, or public finance sustainability, is the ability of a government to sustain its current spending, tax and other policies in the long run without threatening government solvency or defaulting on some of its liabilities or promi ...
, former Federal Reserve Chairman
Ben Bernanke Ben Shalom Bernanke ( ; born December 13, 1953) is an American economist who served as the 14th chairman of the Federal Reserve from 2006 to 2014. After leaving the Fed, he was appointed a distinguished fellow at the Brookings Institution. Durin ...
stated in April 2010 that "Neither experience nor economic theory clearly indicates the threshold at which government debt begins to endanger prosperity and economic stability. But given the significant costs and risks associated with a rapidly rising federal debt, our nation should soon put in place a credible plan for reducing deficits to sustainable levels over time."


Interest and debt service costs

Despite rising debt levels, interest costs have remained at approximately 2008 levels (around $450 billion in total) because of lower than long-term interest rates paid on government debt in recent years. The federal debt at the end of the 2018/19 fiscal year (ended September 30, 2019) was $22.7 trillion. The portion that is held by the public was $16.8 trillion. Neither figure includes approximately $2.5 trillion owed to the government. Interest on the debt was $404 billion. The cost of servicing the U.S. national debt can be measured in various ways. The CBO analyzes net interest as a percentage of GDP, with a higher percentage indicating a higher interest payment burden. During 2015, this was 1.3% GDP, close to the record low 1.2% of the 1966–1968 era. The average from 1966 to 2015 was 2.0% of GDP. However, the CBO estimated in 2016 that the interest amounts and % GDP will increase significantly over the following decade as both interest rates and debt levels rise: "Interest payments on that debt represent a large and rapidly growing expense of the federal government. CBO's baseline shows net interest payments more than tripling under current law, climbing from $231 billion in 2014, or 1.3% of GDP, to $799 billion in 2024, or 3.0% of GDP—the highest ratio since 1996." According to a study by the
Committee for a Responsible Federal Budget The Committee for a Responsible Federal Budget (CRFB) is a non-profit public policy organization based in Washington, D.C. that addresses federal budget and fiscal issues. It was founded in 1981 by former United States Representatives Robert Gia ...
(CRFB), the U.S. government will spend more on servicing their debts than they do for their national defense budget by 2024.


Definition of public debt

Economists also debate the definition of public debt. Krugman argued in May 2010 that the debt held by the public is the right measure to use, while Reinhart has testified to the President's Fiscal Reform Commission that gross debt is the appropriate measure. The
Center on Budget and Policy Priorities The Center on Budget and Policy Priorities (CBPP) is a progressive American think tank that analyzes the impact of federal and state government budget policies. A 501(c)(3) nonprofit organization, the Center's stated mission is to "conduct resear ...
(CBPP) cited research by several economists supporting the use of the lower debt held by the public figure as a more accurate measure of the debt burden, disagreeing with these Commission members.Horney, James R. (May 27, 2010)
"Recommendation that president's fiscal commission focus on gross debt is misguided"
Center on Budget and Policy Priorities ebsite retrieved February 9, 2011.
There is debate regarding the economic nature of the intragovernmental debt, which was approximately $4.6 trillion in February 2011. For example, the CBPP argues: that "large increases in ebt held by the publiccan also push up interest rates and increase the amount of future interest payments the federal government must make to lenders outside of the United States, which reduces Americans' income. By contrast, intragovernmental debt (the other component of the gross debt) has no such effects because it is simply money the federal government owes (and pays interest on) to itself." However, if the U.S. government continues to run "on budget" deficits as projected by the CBO and OMB for the foreseeable future, it will have to issue marketable Treasury bills and bonds (i.e., debt held by the public) to pay for the projected shortfall in the Social Security program. This will result in "debt held by the public" replacing "intragovernmental debt".


Intergenerational equity

One debate about the national debt relates to intergenerational equity. For example, if one generation is receiving the benefit of government programs or employment enabled by deficit spending and debt accumulation, to what extent does the resulting higher debt impose risks and costs on future generations? There are several factors to consider: * For every dollar of debt held by the public, there is a government obligation (generally marketable Treasury securities) counted as an asset by investors. Future generations benefit to the extent these assets are passed on to them. * As of 2010, approximately 72% of the financial assets were held by the wealthiest 5% of the population. This presents a wealth and income distribution question, as only a fraction of the people in future generations will receive principal or interest from investments related to the debt incurred today. * To the extent the U.S. debt is owed to foreign investors (approximately half the "debt held by the public" during 2012), principal and interest are not directly received by U.S. heirs. * Higher debt levels imply higher interest payments, which create costs for future taxpayers (e.g., higher taxes, lower government benefits, higher inflation, or increased risk of fiscal crisis). * To the extent the borrowed funds are invested today to improve the long-term productivity of the economy and its workers, such as via useful infrastructure projects or education, future generations may benefit. * For every dollar of intragovernmental debt, there is an obligation to specific program recipients, generally non-marketable securities such as those held in the Social Security Trust Fund. Adjustments that reduce future deficits in these programs may also apply costs to future generations, via higher taxes or lower program spending. Krugman wrote in March 2013 that by neglecting public investment and failing to create jobs, we are doing far more harm to future generations than merely passing along debt: "Fiscal policy is, indeed, a moral issue, and we should be ashamed of what we're doing to the next generation's economic prospects. But our sin involves investing too little, not borrowing too much." Young workers face high unemployment and studies have shown their income may lag throughout their careers as a result. Teacher jobs have been cut, which could affect the quality of education and competitiveness of younger Americans.


Credit default

The U.S. has never fully defaulted. In April 1979, however, the U.S. may have technically defaulted on $122 million in
Treasury bills United States Treasury securities, also called Treasuries or Treasurys, are government debt instruments issued by the United States Department of the Treasury to finance government spending as an alternative to taxation. Since 2012, U.S. gov ...
, which was less than 1% of U.S. debt. The Treasury Department characterized it as a delay rather than as a default, but it did have consequences for short-term interest rates, which jumped 0.6%. Others view it as a temporary, partial default.


Impact of the COVID-19 pandemic

The
COVID-19 pandemic in the United States The COVID-19 pandemic in the United States is a part of the COVID-19 pandemic, worldwide pandemic of COVID-19, coronavirus disease 2019 (COVID-19) caused by SARS-CoV-2, severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). In the Uni ...
impacted the economy significantly beginning in March 2020, as businesses were shut-down and furloughed or fired personnel. About 16 million persons filed for
unemployment insurance Unemployment benefits, also called unemployment insurance, unemployment payment, unemployment compensation, or simply unemployment, are payments made by authorized bodies to unemployed people. In the United States, benefits are funded by a comp ...
in the three weeks ending April 9. It caused the number of unemployed persons to increase significantly, which is expected to reduce tax revenues while increasing
automatic stabilizer In macroeconomics, automatic stabilizers are features of the structure of modern government budgets, particularly income taxes and welfare spending, that act to damp out fluctuations in real GDP. The size of the government budget deficit tends t ...
spending for unemployment insurance and nutritional support. As a result of the adverse economic impact, both state and federal budget deficits will dramatically increase, even before considering any new legislation. To help address lost income for millions of workers and assist businesses, Congress and President Trump enacted the
Coronavirus Aid, Relief, and Economic Security Act The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, is a $2.2trillion Stimulus (economics), economic stimulus bill passed by the 116th U.S. Congress and signed into law by President Donald Trump on March 27, 2 ...
(CARES Act) on March 27, 2020. It included loans and grants for businesses, along with direct payments to individuals and additional funding for unemployment insurance. While the act carried an estimated $2.3 trillion price tag, some or all of the loans may ultimately be paid back including interest, while the spending measures should dampen the negative budgetary impact of the economic disruption. While the law will almost certainly increase budget deficits relative to the January 2020 10-year CBO baseline (completed prior to the COVID-19 pandemic), in the absence of the legislation, a complete economic collapse could have occurred. CBO provided a preliminary score for the CARES Act on April 16, 2020, estimating that it would increase federal deficits by about $1.8 trillion over the 2020-2030 period. The estimate includes: *A $988 billion increase in mandatory outlays; *A $446 billion decrease in revenues; and *A $326 billion increase in discretionary outlays, stemming from emergency supplemental appropriations. CBO reported that not all parts of the bill will increase deficits: “Although the act provides financial assistance totaling more than $2 trillion, the projected cost is less than that because some of that assistance is in the form of loan guarantees, which are not estimated to have a net effect on the budget. In particular, the act authorizes the Secretary of the Treasury to provide up to $454 billion to fund emergency lending facilities established by the
Board of Governors of the Federal Reserve System The Board of Governors of the Federal Reserve System, commonly known as the Federal Reserve Board, is the main governing body of the Federal Reserve System. It is charged with overseeing the Federal Reserve Banks and with helping implement the mon ...
. Because the income and costs stemming from that lending are expected to roughly offset each other, CBO estimates no deficit effect from that provision.” The
Committee for a Responsible Federal Budget The Committee for a Responsible Federal Budget (CRFB) is a non-profit public policy organization based in Washington, D.C. that addresses federal budget and fiscal issues. It was founded in 1981 by former United States Representatives Robert Gia ...
estimated that the budget deficit for fiscal year 2020 would increase to a record $3.8 trillion, or 18.7% GDP. For scale, in 2009 the budget deficit reached 9.8% GDP ($1.4 trillion nominal dollars) in the depths of the
Great Recession The Great Recession was a period of marked general decline, i.e. a recession, observed in national economies globally that occurred from late 2007 into 2009. The scale and timing of the recession varied from country to country (see map). At ...
. CBO forecast in January 2020 that the budget deficit in FY2020 would be $1.0 trillion, prior to considering the impact of the COVID-19 pandemic or CARES. CFRB further estimated that the national debt would reach 106% of U.S. GDP in September 2020, a record since the aftermath of World War II.


COVID-19 pandemic and 2021 spendings

President Biden has spent significant amounts of money towards relief of the
COVID-19 pandemic The COVID-19 pandemic, also known as the coronavirus pandemic, is an ongoing global pandemic of coronavirus disease 2019 (COVID-19) caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). The novel virus was first identif ...
. According to a May 2021 report, Biden has or plans to spend $5.72 trillion dollars toward this effort and others such as climate change including providing stimulus checks and serving schools and low-income children. Many economists have agreed that this unprecedented level of spending from the
Biden Administration Joe Biden's tenure as the 46th president of the United States began with his inauguration on January 20, 2021. Biden, a Democrat from Delaware who previously served as vice president under Barack Obama, took office following his victory ...
has, in part, contributed to the inflation surge of 2021 and 2022 as a result of increasing the money supply in the economy.


Appendix


National debt for selected years


Interest paid

Note that this is all interest the U.S. paid, including interest credited to Social Security and other government trust funds, not just "interest on debt" frequently cited elsewhere.


Foreign holders of U.S. Treasury securities

The following is a list of the top foreign holders of Treasury securities as listed by the Federal Reserve Board (revised by October 2022 survey):


Statistics

* U.S. official gold reserves total 261.5 million
troy ounce Troy weight is a system of units of mass that originated in 15th-century England, and is primarily used in the precious metals industry. The troy weight units are the grain, the pennyweight (24 grains), the troy ounce (20 pennyweights), and th ...
s with a book value of approximately $11.04 billion. *
Foreign exchange reserves Foreign exchange reserves (also called forex reserves or FX reserves) are cash and other reserve assets such as gold held by a central bank or other monetary authority that are primarily available to balance payments of the country, influence ...
$140 billion . * The national debt was up to $80,885 per person as of 2020. * The national debt equated to $59,143 per person U.S. population, or $159,759 per member of the U.S. working taxpayers, back in March 2016. * In 2008, $242 billion was spent on
interest In finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct ...
payments servicing the debt, out of a total tax revenue of $2.5 trillion, or 9.6%. Including non-cash interest accrued primarily for Social Security, interest was $454 billion or 18% of tax revenue. * Total U.S.
household debt Household debt is the combined debt of all people in a household, including consumer debt and mortgage loans. A significant rise in the level of this debt coincides historically with many severe economic crises and was a cause of the U.S. and su ...
, including
mortgage loan A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any p ...
and
consumer debt In economics, consumer debt is the amount owed by consumers (as opposed to amounts owed by businesses or governments). It includes debts incurred on purchase of goods that are consumable and/or do not appreciate. In macroeconomic terms, it is ...
, was $11.4 trillion in 2005. By comparison, total U.S. household assets, including real estate, equipment, and financial instruments such as
mutual fund A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV i ...
s, was $62.5 trillion in 2005. * Total U.S. Consumer Credit Card
revolving credit Revolving credit is a type of credit that does not have a fixed number of payments, in contrast to installment credit. Credit cards are an example of revolving credit used by consumers. Corporate revolving credit facilities are typically used to ...
was $931.0 billion in April 2009. * The U.S.
balance of trade The balance of trade, commercial balance, or net exports (sometimes symbolized as NX), is the difference between the monetary value of a nation's exports and imports over a certain time period. Sometimes a distinction is made between a balance ...
deficit in goods and services was $725.8 billion in 2005. * According to the U.S. Department of Treasury Preliminary 2014 Annual Report on U.S. Holdings of Foreign Securities, the United States valued its foreign treasury securities portfolio at $2.7 trillion. The largest debtors are Canada, the United Kingdom, Cayman Islands, and Australia, whom account for $1.2 trillion of
sovereign debt A country's gross government debt (also called public debt, or sovereign debt) is the financial liabilities of the government sector. Changes in government debt over time reflect primarily borrowing due to past government deficits. A deficit o ...
owed to residents of the U.S. * The entire public debt in 1998 was equal to the cost of research, development, and deployment of U.S. nuclear weapons and nuclear weapons-related programs during the
Cold War The Cold War is a term commonly used to refer to a period of geopolitical tension between the United States and the Soviet Union and their respective allies, the Western Bloc and the Eastern Bloc. The term '' cold war'' is used because the ...
. A 1998
Brookings Institution The Brookings Institution, often stylized as simply Brookings, is an American research group founded in 1916. Located on Think Tank Row in Washington, D.C., the organization conducts research and education in the social sciences, primarily in ec ...
study published by the Nuclear Weapons Cost Study Committee (formed in 1993 by the W. Alton Jones Foundation), calculated that total expenditures for U.S. nuclear weapons from 1940 to 1998 was $5.5 trillion in 1996 Dollars. The total public debt at the end of fiscal year 1998 was $5,478,189,000,000 in 1998 Dollars or $5.3 trillion in 1996 Dollars.


International debt comparisons

Sources:
Eurostat Eurostat ('European Statistical Office'; DG ESTAT) is a Directorate-General of the European Commission located in the Kirchberg, Luxembourg, Kirchberg quarter of Luxembourg City, Luxembourg. Eurostat's main responsibilities are to provide statis ...
,
International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster globa ...
, ''World Economic Outlook'' (emerging market economies);
Organisation for Economic Co-operation and Development The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organization, intergovernmental organisation with 38 member countries ...
, ''Economic Outlook'' (advanced economies) IMF, 1China, Hong Kong, India, Indonesia, Korea, Malaysia, the Philippines, Singapore and Thailand 2Afghanistan, Armenia, Australia, Azerbaijan, Bangladesh, Bhutan, Brunei Darussalam, Cambodia, China, People's Republic of, Fiji, Georgia, Hong Kong SAR, India, Indonesia, Japan, Kazakhstan, Kiribati, Korea, Republic of, Kyrgyz Republic, Lao P.D.R., Macao SAR, Malaysia, Maldives, Marshall Islands, Micronesia, Fed. States of, Mongolia, Myanmar, Nauru, Nepal, New Zealand, Pakistan, Palau, Papua New Guinea, Philippines, Samoa, Singapore, Solomon Islands, Sri Lanka, Taiwan, Tajikistan, Thailand, Timor-Leste, Tonga, Turkey, Turkmenistan, Tuvalu, Uzbekistan, Vanuatu, Vietnam


Recent additions to the public debt of the United States


Historical debt ceiling levels


State and local government debt

U.S. state In the United States, a state is a constituent political entity, of which there are 50. Bound together in a political union, each state holds governmental jurisdiction over a separate and defined geographic territory where it shares its sover ...
s have a combined state and local government debt of about $3 trillion and another $5 trillion in unfunded liabilities.


See also

*
Criticism of the Federal Reserve The Federal Reserve System (also known as "the Fed") has faced various criticisms since it was authorized in 1913. Nobel laureate economist Milton Friedman and his fellow monetarist Anna Schwartz criticized the Fed's response to the Wall Street ...
*
Financial position of the United States The financial position of the United States includes assets of at least $269.6 trillion (1576% of GDP) and debts of $145.8 trillion (852% of GDP) to produce a net worth of at least $123.8 trillion (723% of GDP) as of Q1 2014. The U.S. inc ...
*
List of countries by public debt Below is a list of countries and territories by government debt , public debt (also called government debt or sovereign debt). ''Gross'' government debt is government financial liabilities that are debt instruments. A ''debt instrument'' is a f ...
*
Sovereign default A sovereign default is the failure or refusal of the government of a sovereign state to pay back its debt in full when due. Cessation of due payments (or receivables) may either be accompanied by that government's formal declaration that it wi ...
*
Troubled Asset Relief Program The Troubled Asset Relief Program (TARP) is a program of the United States government to purchase toxic assets and equity from financial institutions to strengthen its financial sector that was passed by Congress and signed into law by President G ...
*
World debt The global debt is 305 trillion US $ in 2022, including debt by public and private debtors. (A trillion is defined here as a million millions, or 1012.) This debt consists of * 23% private household debt * 38% private debt of non-financial corporat ...


Notes


References


Further reading

* Andrew J. Bacevich, "The Old Normal: Why we can't beat our addiction to war", ''
Harper's Magazine ''Harper's Magazine'' is a monthly magazine of literature, politics, culture, finance, and the arts. Launched in New York City in June 1850, it is the oldest continuously published monthly magazine in the U.S. (''Scientific American'' is older, b ...
'', vol. 340, no. 2038 (March 2020), pp. 25–32. "In 2010, Admiral
Michael Mullen Michael Glenn Mullen (born October 4, 1946) is a retired United States Navy Admiral (United States), admiral, who served as the 17th chairman of the Joint Chiefs of Staff from October 1, 2007, to September 30, 2011. Mullen previously served as ...
, chairman of the
Joint Chiefs of Staff The Joint Chiefs of Staff (JCS) is the body of the most senior uniformed leaders within the United States Department of Defense, that advises the president of the United States, the secretary of defense, the Homeland Security Council and the ...
, declared that the
national debt A country's gross government debt (also called public debt, or sovereign debt) is the financial liabilities of the government sector. Changes in government debt over time reflect primarily borrowing due to past government deficits. A deficit oc ...
, the prime expression of American profligacy, had become 'the most significant threat to our national security.' In 2017, General
Paul Selva Paul Joseph Selva (born September 27, 1958) is a retired United States Air Force general who served as the tenth vice chairman of the Joint Chiefs of Staff. In this capacity, he was the nation's second-highest-ranking military officer, and the hi ...
, Joint Chiefs vice chair, stated bluntly that 'the dynamics that are happening in our
climate Climate is the long-term weather pattern in an area, typically averaged over 30 years. More rigorously, it is the mean and variability of meteorological variables over a time spanning from months to millions of years. Some of the meteorologic ...
will drive uncertainty and will drive conflict." (p. 31.) * * * * *


External links


Foreign Holdings of Federal Debt
Congressional Research Service The Congressional Research Service (CRS) is a public policy research institute of the United States Congress. Operating within the Library of Congress, it works primarily and directly for members of Congress and their committees and staff on a c ...

Historical Tables
Office of Management and Budget
U.S. Treasury Resource Center – Treasury International Capital (TIC) System

Real-time debt clock
{{United States topics Economy of the United States Government finances in the United States United States federal budgets United States fiscal cliff Government debt by country