United States National Debt: Unlocking the Enigma, Understanding and Navigating the National Debt of The United States

By Fouad Sabry

What is National Debt of The United States

The national debt of the United States is the total national debt owed by the federal government of the United States to Treasury security 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 and other federal agencies. The terms "national deficit" and "national surplus" usually refer to the federal government budget balance from year to year, not the cumulative amount of debt. 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 and decreases from tax or other receipts, both of which fluctuate during the course of a fiscal year. 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, corporations, the Federal Reserve, and foreign, state and local governments."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. Debt held by government accounts represents the cumulative surpluses, including interest earnings, of various government programs that have been invested in Treasury securities.

How you will benefit

(I) Insights, and validations about the following topics:

Chapter 1: National debt of the United States

Chapter 2: Social Security Trust Fund

Chapter 3: Balanced budget amendment

Chapter 4: Military budget of the United States

Chapter 5: PAYGO

Chapter 6: Fiscal policy of the United States

Chapter 7: United States federal budget

Chapter 8: 2007 United States federal budget

Chapter 9: History of the United States public debt

Chapter 10: Economic policy of the George W. Bush administration

Chapter 11: 2009 United States federal budget

Chapter 12: Financial position of the United States

Chapter 13: 2011 United States federal budget

Chapter 14: Expenditures in the United States federal budget

Chapter 15: 2011 United States debt-ceiling crisis

Chapter 16: Political debates about the United States federal budget

Chapter 17: Deficit reduction in the United States

Chapter 18: 2013 United States budget sequestration

Chapter 19: Economic policy of the Donald Trump administration

Chapter 20: 2018 United States federal budget

Chapter 21: Economic policy of the Joe Biden administration

(II) Answering the public top questions about national debt of the united states.

(III) Real world examples for the usage of national debt of the united states in many fields.

Who this book is for

Professionals, undergraduate and graduate students, enthusiasts, hobbyists, and those who want to go beyond basic knowledge or information for any kind of National Debt of The United States.

• Language: English
• Publisher: One Billion Knowledgeable
• Release date: Mar 30, 2024

Book preview

Chapter 1: National debt of the United States

The national debt of the United States is the total national debt owed to Treasury security holders by the federal government of the United States. At any given time, the national debt equals the face value of outstanding Treasury securities issued by the Treasury and other federal agencies. The terms national deficit and national surplus typically refer to the budget balance of the federal government from one year to the next, not the total amount of debt. In a deficit year, the national debt increases because the government must borrow funds to finance the deficit, whereas in a surplus year, the debt decreases because more money is received than spent, allowing the government to buy back some Treasury securities and thereby reduce the debt. In general, government debt increases due to government spending and decreases due to tax or other receipts, both of which fluctuate throughout the fiscal year.

Public debt refers to Treasury securities held by investors other than the federal government, including those held by individuals, corporations, the Federal Reserve, and foreign, state and local governments.

Intragovernmental debt consists of non-marketable Treasury securities held in accounts of programs administered by the federal government, such as the Social Security Trust Fund. The cumulative surpluses, including interest earnings, of various government programs that have been invested in Treasury securities constitute the debt held by government accounts.

Federal debt to revenue ratioThe Federal Government has over 6:1 debt to revenue ratio as of Q3 2022

Throughout history, the U.S. public debt as a proportion of gross domestic product (GDP) has increased during wars and recessions, followed by a decline. The debt-to-GDP ratio may decline as a result of a government surplus, GDP growth, or inflation. For instance, public debt as a proportion of GDP peaked just after World War II (113 percent of GDP in 1945), but has since reached new heights of up to 134.84 percent of GDP in the second quarter of 2020.

Debt to GDP

State and local debt to gross domestic product

ratio of federal debt to gross domestic product

Federal Government debt

Interest on the debt

The amount of U.S.

public debt, expressed as a proportion of GDP, holding public access since 1900.

Since its founding in 1789, the federal government of the United States has had a fluctuating public debt, with the exception of approximately one year during the presidency of Andrew Jackson, when the nation paid off its entire national debt. In order to facilitate comparisons across time, public debt is frequently expressed as a ratio to GDP. The United States public debt as a percentage of GDP reached its highest level during and after World War II, during Harry Truman's first term as president. In the years following World War II, the proportion of public debt to GDP fell precipitously, reaching a low point in 1974 under Richard Nixon. Since then, the debt-to-GDP ratio has consistently increased, with the exception of the Carter and Clinton administrations.

In the 1980s, as a result of Ronald Reagan's negotiations with Congress to reduce tax rates and increase military spending, the public debt increased dramatically. It decreased in the 1990s due to decreased military spending, increased taxes, and the boom of the 1990s. During the presidency of George W. Bush and in the aftermath of the 2007–2008 financial crisis, the public debt increased dramatically due to significant declines in tax revenue and increases in spending, such as the Emergency Economic Stabilization Act of 2008 and the American Recovery and Reinvestment Act of 2009.

Detailed breakdown of government holders of treasury debt and debt instruments used of the public portion

The public held $20.57 trillion in debt on July 20, 2020, while the government held $5.94 trillion, for a total of $26.51 trillion. Other significant intragovernmental holders include the Federal Housing Administration, the Resolution Fund of the Federal Savings and Loan Corporation, and the Federal Hospital Insurance Trust Fund (Medicare).

U.S.

debt between 1940 and 2021Q2.

The red lines represent debt held by the public, while the black lines represent the total national debt or gross public debt.

The difference is intragovernmental debt, which consists of obligations to government programs like Social Security.

Formulized as a formula, National Debt = Public Obligation Plus Intragovernmental Obligation.

The second panel displays the two debt figures as a percentage of U.S. gross domestic product.

GDP (U.S. dollar economic output).

economic output for the given year).

The top panel is deflated so every year is in 2012 dollars

U.S.

internal government debt elements, which amounted to $5.47 trillion in September 2016.

This debt primarily consists of obligations to Social Security beneficiaries and retired federal employees, including military.

On the United States government's consolidated financial statements, only public debt is reported as a liability. Debt held by US government accounts is an asset for those accounts but a liability for the Treasury; in the consolidated financial statements, they offset each other. Often, the United States public debt is expressed as a ratio of public debt to gross domestic product. The debt-to-GDP ratio may decline as a result of a government surplus, GDP expansion, and inflation.

The U.S. government is hesitant to consolidate Fannie Mae and Freddie Mac into its own books due to their size. When two mortgage companies required bailouts, on September 12, 2008, White House Budget Director Jim Nussle indicated their budget plans would not include government-sponsored enterprise (GSE) debt due to the temporary nature of the conservator intervention.

Government guarantees issued by the federal government of the United States were not included in the public debt total because they were not drawn against. Late in 2008, the federal government had guaranteed substantial obligations of mutual funds, banks, and corporations under a variety of programs designed to address the problems resulting from the financial crisis of the late 2000s. Congress declined to extend the scheme, causing the guarantee program to expire at the end of 2012. The debt totals included the funding of direct investments made in response to the crisis, such as those made under the Troubled Asset Relief Program.

A timeline showing projected debt milestones from the CBO.

Current law requires the federal government to make mandatory payments for programs such as Medicare, Medicaid, and Social Security. Over the next seventy-five years, the Government Accountability Office (GAO) projects that program payouts will significantly exceed tax revenues. In fiscal year 2010, Medicare Part A (hospital insurance) payments exceeded program tax revenues, and social security payments exceeded payroll taxes. These deficits must be financed through alternative tax sources or borrowing.

Public debt percent of GDP. Federal, State, and Local debt and a percentage of GDP chart/graph

Public debt percent of GDP.Federal, State, Local debt as a percentage of gross domestic product chart

The Gross Domestic Product is a measure of the total size and output of the economy. The debt-to-GDP ratio is a measurement of the debt burden based on the proportion of debt to GDP. This is the debt divided by the gross domestic product. Along with its annual Budget and Economic Outlook, the Congressional Budget Office includes historical budget and debt tables in its Budget and Economic Outlook. The ratio of public debt to GDP increased from 34.7 percent in 2000 to 40.5 percent in 2008 and 67.7 percent in 2011. Mathematically, the ratio can decline even as debt increases if the rate of increase in GDP (which accounts for inflation) exceeds the rate of increase in debt. Conversely, if the decline in GDP is sufficient, the debt-to-GDP ratio can rise even if debt is declining.

According to the CIA World Factbook, the United States' debt-to-GDP ratio of 73.6 percent in 2015 ranked 39th in the world. This was measured using publicly held debt.

Comparison of deficits to change in debt in 2008

A deficit adds to the national debt, while a surplus reduces it. However, due to the complexity of budgetary computations, the deficit figure typically reported in the media (the total deficit) may differ significantly from the annual increase in the debt. Principal categories of dissimilarities include the treatment of the Social Security program, Treasury borrowing, and supplemental appropriations outside the budget process.

Since 2010, the U.S. Treasury has obtained negative real interest rates on government debt, indicating that the inflation rate exceeds the interest rate paid on the debt.

Two economists working for the International Monetary Fund, Jaromir Benes and Michael Kumhof, published a working paper titled The Chicago Plan Revisited, proposing that the debt could be eliminated by increasing bank reserve requirements and switching from fractional-reserve to full-reserve banking.

The debt ceiling is a legislative mechanism that limits the amount of Treasury-issued national debt. In effect, it prevents the Treasury from paying for expenditures after the limit has been reached, even if they have been approved (in the budget) and appropriated. It is uncertain whether Treasury would be able to prioritize payments on debt to avoid defaulting on its debt obligations, but it would be forced to default on some of its non-debt obligations if this scenario materialized.

Federal Government debt holders

Private domestic investors

Federal Reserve Treasury securities

Governmental holdings in the country

Foreign

Estimated ownership each year

Because a wide variety of individuals own the notes, bills, and bonds comprising the public portion of the debt, the Treasury also publishes information that categorizes the types of holders to illustrate who owns United States debt. In this data set, a portion of the public portion is combined with the total government portion because the Federal Reserve owns this amount as part of United States monetary policy. (Refer to the Federal Reserve System.)

A little less than half of the national debt is owed to the Federal Reserve and intragovernmental holdings, as shown in the graph. The foreign and international debt holders are also compiled from the sections on notes, bills, and bonds. Right is a chart containing the data as of June 2008:

Composition of U.S.

Long-Term Treasury Debt 2000–2014

Foreign holders of Treasury SecuritiesApril 2021 - April 2022

As of October 2018, foreigners held $6.2 trillion in U.S. debt, which represented approximately 39 percent of the public's $16.1 trillion debt and 28 percent of the total $21.8 trillion debt.

U.S.

Position of Net International Investments over Time

According to Paul Krugman, the United States earns more from its overseas holdings than it pays to foreign investors.

Congressional Budget Office (CBO) baseline scenario comparisons: June 2017, April 2018 (which reflects the tax cuts and spending bills of President Trump), alternative scenario for April 2018 (which assumes extension of Trump tax cuts), besides other existing policy extensions).

In their annual Budget & Economic Outlook report, published in April 2018, the CBO estimated the effects of the Tax Cuts and Jobs Act and separate spending legislation over the period