United States public debt

The United States total public debt, commonly called the national debt, or U.S. government debt, is the amount of money owed by the United States federal government to holders of U.S. debt instruments. Debt held by the public is all federal debt held by states, corporations, individuals, and foreign governments, but does not include intragovernmental debt obligations or debt held for Social Security. Types of securities held by the public include, but are not limited to, Treasury Bills, Notes, Bonds, TIPS, United States Savings Bonds, and State and Local Government Series securities.

On 30 September 2008, the total U.S. federal debt passed the $10 trillion mark, for the first time, with about $32,895 per capita (that is, per U.S. resident). Of this amount, debt held by the public was roughly $5.3 trillion. Adding unfunded Medicaid, Social Security, Medicare, and similar obligations, this figure rises to a total of $59.1 trillion, or $516,348 per household. In 2007, the public debt was 36.9 percent of GDP , with a total debt of 65.5 percent of GDP. The CIA ranked the total percentage as 26th in the world.

Public debt is the amount owed by the government to its creditors, whether they are nationals or foreigners. External debt is the debt of all sectors of the economy (public and private), owed to foreigners. In the U.S., foreign ownership of the public debt is a significant part of the nation's external debt (see also below). The Bureau of the Public Debt, a division of the United States Department of the Treasury, calculates the amount of money owed by the national government on a daily basis.

The total debt has increased over $500 billion each year since FY 2003, considering both budgeted and non-budgeted spending. The annual US budget deficit declined from $318 billion in 2005 to $162 billion in 2007, but is estimated to increase to $410 billion in 2008. Annual deficits add to the debt. The Congressional Budget Office projects an annual budget surplus by 2012. However, this estimate is based on current law, which assumes sizable tax reductions will expire in 2010. When the U.S. Government has a surplus, it may pay down its outstanding debt by paying back the principal of the outstanding bonds redeemed for payment while not issuing new bonds. The U.S. Government could also purchase its own outstanding securities on the open market if it was searching for a way to use a surplus to reduce outstanding debt that was not due for redemption in a given year.

The Government Accountability Office (GAO), Office of Management and Budget (OMB) and the U.S. Treasury Department have warned that debt levels will increase dramatically relative to historical levels, due primarily to mandatory expenditures for programs such as Medicare, Medicaid, Social Security and interest. Mandatory expenditures are projected to exceed federal tax revenues sometime between 2030 and 2040 if reforms are not undertaken. Further, benefits under entitlement programs will exceed government income by over $40 trillion over the next 75 years. The severity of the measures necessary to address this challenge increases the longer such changes are delayed. These organizations have stated that the government's current fiscal path is "unsustainable.


The United States has had public debt since its inception. Debts incurred during the American Revolutionary War and under the Articles of Confederation led to the first yearly reported value of $75,463,476.52 on January 1, 1791. Over the following 45 years, the debt grew, briefly contracted to zero on January 8, 1835 under President Andrew Jackson but then quickly grew into the millions again.

The first dramatic growth spurt of the debt occurred because of the Civil War. The debt was just $65 million in 1860, but passed $1 billion in 1863 and had reached $2.7 billion following the war. The debt slowly fluctuated for the rest of the century, finally growing steadily in the 1910s and early 1920s to roughly $22 billion as the country paid for involvement in World War I.

The buildup and involvement in World War II brought the debt up another order of magnitude from $51 billion in 1940 to $260 billion following the war. After this period, the debt's growth closely matched the rate of inflation until the 1980s, when it again began to increase rapidly. Between 1980 and 1990, the debt more than tripled. The debt shrank briefly after the end of the Cold War, but by the end of 2005, the gross debt had reached $7.9 trillion, about 8.7 times its 1980 level.

End of
Fiscal Year
US Gross Debt
USD billions
US Gross Debt as % of GDP
1910 2.6
1920 25.9
1930 16.2
1940 43.0 52.4
1950 257.4 94.1
1960 290.2 56.1
1970 389.2 37.6
1980 930.2 33.3
1990 3,233 55.9
2000 5,674 58
2005 7,933 64.6
2007 9,008 65.5
2008 10,024.7


At any given time (at least in recent decades), there is a debt ceiling in effect. Whereas Congress once approved legislation for every debt issuance, the growth of government fiscal operations in the 20th century made this impractical. (For example, the Treasury now conducts more than 200 sales of debt by auction every year to fund $4 trillion in debt operations.) The Treasury was granted authority by the Congress to issue such debt as was needed to fund government operations as long as the total debt (excepting some small special classes) did not exceed a stated ceiling. However, the ceiling is routinely raised by passage of new laws by the United States Congress every year or so. An example of this occurred in September 2007, when the Congress raised the debt limit to $9.815 trillion. As of July 28, 2008, the recently passed "landmark housing bill" raises the current debt ceiling by US$ 800 billion to US$ 10.6 trillion to account for the potential bailout of the two mortgage giants Fannie Mae and Freddie Mac.


Public and government accounts

The national debt is broken down into 2 main categories:

  1. Securities held by the public
  2. :*Marketable securites
  3. :*Non-marketable securities
  4. Securities held by government accounts

The values for fiscal years 1999-2008 are:

United States Public Debt
End of fiscal year Intragovernmental Holdings Debt Held by the Public
1999 2.020 trillion 3.636 trillion
2000 2.269 trillion 3.405 trillion
2001 2.468 trillion 3.339 trillion
2002 2.675 trillion 3.553 trillion
2003 2.859 trillion 3.924 trillion
2004 3.072 trillion 4.307 trillion
2005 3.331 trillion 4.601 trillion
2006 3.664 trillion 4.843 trillion
2007 3.958 trillion 5.049 trillion
2008 4.216 trillion 5.809 trillion

Below is a chart (using data published by the U.S. Treasury) showing the total of government and public portions of the debt as well as the components of each as of March, 2008:

Estimated ownership

Because there is a large variety of people who own the notes, bills, and bonds in the "public" portion of the debt, the U.S. Treasury also publishes data which groups the types of holders by a few, general categories to get a good picture of 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) As is apparent from the chart, a little more than half of the total national debt is owed to the "Federal Reserve and interagovernmental holdings". The foreign and international holders of the debt are also put together from the notes, bills, and bonds sections. Below is a chart for the data as of December, 2007:

The next chart does the same thing for the each year since 1997:

Fannie Mae and Freddie Mac obligations excluded

Although not included in the figures reported by the government, the U.S. government has moved to more explicitly support the soundness of obligations of Freddie Mac and Fannie Mae, starting in July via the Housing and Economic Recovery Act of 2008, and the September 7, 2008 Federal Housing Finance Agency (FHFA) conservatorship of both government sponsored enterprises (GSEs). The on- or off-balance sheet obligations of those two independent GSEs is just over $5 trillion. The government accounts for these corporations as if they are unconnected to its balance sheet. The U.S. Treasury contracted at the inception of the conservatorship to receive US$ 1 billion dollars in senior preferred shares, and a warrant for 79.9% of the common shares from each GSE, as a fee to fund, as needed, up to US$ 100 billion total for each GSE (in exchange for more senior preferred stock), in order to maintain solvency and adequate capital ratios at the GSEs, thereby supporting all senior (normal) liabilities, subordinated indebtedness, and guarantees of the two firms. Some observers see this as an effective nationalization of the companies that ultimately places taxpayers at risk for all their liabilities The net exposure to taxpayers is difficult to determine at the time of the takeover and depends on several factors, such as declines in housing prices and losses on mortgage assets in the future. Over 98 percent of Fannie's loans were paying timely during 2008. Both Fannie and Freddie had positive net worth as of the date of the takeover, meaning the value of their assets exceeded their liabilities. The Congressional Budget Office has recommended incorporating the assets and liabilities of the two companies into the federal budget due to the degree of government control over the entities. The 5-year credit default swap spread for U.S. treasuries had risen to 18 basis points per annum as of 9 September 2008 as a result of market perception regarding the increased debt load of the government.

Foreign ownership

A traditional defense of the national debt is that Americans "owe the debt to themselves", but that is increasingly not true. The US debt in the hands of foreign governments is 25% of the total, virtually double the 1988 figure of 13%. Despite the declining willingness of foreign investors to continue investing in US-dollar–denominated instruments as the US Dollar has fallen in 2007, the U.S. Treasury statistics indicate that, at the end of 2006, foreigners held 44% of federal debt held by the public. About 66% of that 44% was held by the central banks of other countries, in particular the central banks of Japan and China. In total, lenders from Japan and China held 47% of the foreign-owned debt. This exposure to potential financial or political risk should foreign banks stop buying Treasury securities or start selling them heavily was addressed in a recent report issued by the Bank of International Settlements which stated, "'Foreign investors in U.S. dollar assets have seen big losses measured in dollars, and still bigger ones measured in their own currency. While unlikely, indeed highly improbable for public sector investors, a sudden rush for the exits cannot be ruled out completely."

In 2006, the central banks of Italy, Russia, Sweden, and the United Arab Emirates announced they would reduce their dollar holdings slightly, with Sweden moving from a 90% dollar-based foreign reserve to 85%. On May 20, 2007, Kuwait discontinued pegging its currency exclusively to the dollar, preferring to use the dollar in a basket of currencies. Syria made a similar announcement on June 4, 2007.

A list of the foreign owners of U.S. Treasury securities is listed by the U.S. Treasury:

Foreign owners of US Treasury Securities (July 2008)
Nation billions of dollars percentage
Japan 593.4 22.17%
Mainland China 518.7 19.38%
United Kingdom 290.8 10.87%
Oil exporters 173.9 6.50%
Brazil 148.4 5.54%
Caribbean banking centers 133.5 4.99%
Luxembourg 75.8 2.83%
Russia 74.1 2.77%
Hong Kong 60.6 2.26%
Switzerland 45.1 1.69%
Republic of China (Taiwan) 42.3 1.58%
Norway 41.8 1.56%
Germany 41.1 1.54%
Mexico 36.0 1.35%
South Korea 35.3 1.32%
Turkey 32.4 1.21%
Thailand 31.8 1.19%
Singapore 31.4 1.17%
Canada 26.6 0.99%
Netherlands 14.9 0.56%
Poland 13.9 0.52%
Egypt 13.4 0.50%
Chile 13.1 0.49%
India 13.0 0.49%
Sweden 12.4 0.46%
Belgium 12.0 0.45%
Ireland 11.2 0.42%
All other 139.5 5.21%
Grand Total 2676.4

Statistics and comparables

The mechanics of U.S. Government debt

When the expenses of the U.S. Government exceed the revenue collected, it issues new debt to cover the deficit. This debt typically takes the form of new issues of government bonds which are sold on the open market. However, the debt can also be monetized by which the Federal Reserve creates an entry on its books to credit the US Government for an amount equal to the dollar amount of the bonds the Federal Reserve is acquiring. The money created in this process not only includes the new dollars that came into existence just to purchase the bonds, but much more because this new money is now sitting in the form of checkbook money at the Federal Reserve. Under the practice of Fractional Reserve Banking this new checkbook money is treated as an asset to lend against. Economists estimate the expansion of the money supply as being many times the amount of the initial money created with the exact amount being a function of what percentage of deposits banks must set aside as "reserves".

The ultimate consequence of monetizing U.S. debt is that it expands the money supply which will tend to dilute the value of dollars already in circulation. Thus, expanding the pool of money puts downward pressure on the dollar, downward pressure on short-term interest rates (the banks have more to lend) and upward pressure on inflation. Typically this causes an inflationary boom that ends in a deflationary bust to complete the business cycle. Note that money supply expansion is not the only force at work in inflation or interest rates. United States Dollars are essentially a commodity on the world market and the value of the dollar at any given time is subject to the law of supply and demand. In recent years, the debt has soared and inflation has stayed relatively low in part because China has been willing to accumulate reserves denominated in U.S. Dollars. Currently, China holds over $1 trillion in dollar denominated assets (of which $330 billion are U.S. Treasury notes). In comparison, $1.4 trillion represents M1 or the "tight money supply" of U.S. Dollars which suggests that the value of the U.S. Dollar could change dramatically should China ever choose to divest itself of a large portion of those reserves.

Arguments against paying down the national debt

Kenneth L. Fisher's May 1, 2007, article "Learning to Love Debt" is a good representation of the argument that "more debt is [a] good thing" due to the after-effects that the resulting money creation will have on the economy.

Arguments for paying down the national debt

Economists from the Austrian School point out that the United States experienced depreciation of 43% of CPI (from CPI of 51 to 29) from 1800-1912: a period of strong economic growth in U.S. history.

Furthermore, it is not always true that an increase in the money supply leads to an expansion of the economy. For example, consider the failure of Japan's Central Bank to do just that. In an attempt to follow Keynesian economics and spend itself out of a recession, Japan's central bank engaged in ten stimulus programs over the 1990s that totaled over 100 trillion yen. Even after enacting this policy Japan has been left with a national debt that is 194% of GDP

In the absence of debt monetization, when the Government borrows money from the savings of others, it consumes the amount of savings there are to lend. If the government were to borrow less, that money would be freed to work in the private sector and would lower interest rates overall.

Lastly, raising interest rates is one of the traditional ways that the U.S. Federal Reserve uses to combat inflation (which can be brought on by government debt), but a large national debt figure makes it difficult to do so because it raises the interest paid in servicing that debt.

Net interest on the public debt was approximately $239 billion in fiscal years 2007 and 2008. This represented approximately 9.5% of government spending. Interest was the fourth largest single budgeted disbursement category, after defense, Social Security, and Medicare.In addition, the government accrued a non-cash interest expense of $194 billion for intra-governmental debt, primarily the Social Security trust fund, for a total interest expense of $433 billion. This accrued interest will be paid to Social Security recipients in the future. Paying off the national debt would free up these funds for other purposes.

Risks and obstacles

Risks to the U.S. dollar

By definition, international trade is the exchange of goods and services across national borders. Historically the currencies of nations involved were backed by precious metals (typically using some form of Gold Standard), which would cause a nation operating under a trade imbalance to send precious metals (economic goods in and of themselves) to correct any trade imbalances. In the current scheme of fiat money, the U.S. government is free to print all the money it wants. Consequentially, the government cannot technically go bankrupt as any debtor nation can just issue more money through a practice known as seigniorage.

If there is a gross imbalance between the amount of new money being brought into circulation and the amount of economic goods that are represented by an economy, then there is an unstable situation that can lead to hyperinflation. This has been observed in smaller nations such as Argentina in 1989; the International Monetary Fund and World Bank try to end such crises by working with the problem country to institute sound economic policies and restore faith in the international community that the country can again service its debt with a stable currency.

The interest rate offered on new bond issues is the one that clears the market. On December 13, 2006, the U.S. 30-year treasury note had a rate of 5.375%. Were investors to become concerned about the future value of the US Dollar, they would demand a higher interest rate on US bonds to compensate them for the risk they are assuming.

Long-term risks to financial health of federal government

Several government agencies provide budget and debt data and analysis. These include the Government Accountability Office (GAO), the Congressional Budget Office, the Office of Management and Budget (OMB), and the U.S. Treasury Department. These agencies have reported that the federal government is facing a series of critical long-term financing challenges. This is because expenditures related to entitlement programs such as Social Security, Medicare, and Medicaid are growing considerably faster than the economy overall, as the population grows older. These agencies have indicated that under current law, sometime between 2030 and 2040, mandatory spending (primarily Social Security, Medicare, Medicaid, and interest on the national debt) will exceed tax revenue. In other words, all discretionary spending (e.g., defense, homeland security, law enforcement, education, etc.) will require borrowing and related deficit spending. These agencies have used such language as "unsustainable" and "trainwreck" to describe such a future.

While there is significant debate about solutions, the significant long-term risk posed by the increase in entitlement spending is widely recognized, with health care costs (Medicare and Medicaid) the primary risk category. If significant reforms are not undertaken, benefits under entitlement programs will exceed government income by over $40 trillion over the next 75 years.According to the GAO, this will cause debt ratios relative to GDP to double by 2040 and double again by 2060, reaching 600 percent by 2080.

In 2006, Professor Laurence Kotlikoff argued the United States must eventually choose between "bankruptcy", raising taxes, or cutting payouts. He assumes there will be ever-growing payment obligations from Medicare and Medicaid. Others who have attempted to bring this issue to the fore of America's attention range from Ross Perot in his 1992 Presidential bid, to investment guru Robert Kiyosaki, and David Walker, former head of the Government Accountability Office.

Thomas Friedman has argued that increasing dependence on foreign sources of funding will render the U.S. less able to act independently.

Unfunded obligations

The U.S. government is committed under current law to mandatory payments for programs such as Medicare, Medicaid and Social Security. The 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 payroll taxes fully cover payouts only until 2017. These deficits require funding from other tax sources or borrowing. The present value of these deficits or unfunded obligations is an estimated $41 trillion. This is the amount that would have to be set aside during 2008 such that the principal and interest would pay for the unfunded commitments through 2082. Approximately $7 trillion relates to Social Security, while $34 trillion relates to Medicare and Medicaid. In other words, healthcare programs are nearly five times as serious a funding challenge as Social Security. Adding this to the national debt during September 2008 of nearly $10 trillion and other federal commitments brings the total obligations to nearly $53 trillion.

The Congressional Budget Office (CBO) has indicated that: "Future growth in spending per beneficiary for Medicare and Medicaid—the federal government’s major health care programs—will be the most important determinant of long-term trends in federal spending. Changing those programs in ways that reduce the growth of costs—which will be difficult, in part because of the complexity of health policy choices—is ultimately the nation’s central long-term challenge in setting federal fiscal policy.

Recent additions to the public debt of the United States

Recent additions to U.S. public debt
Fiscal year (begins
10/01 of prev. year)
Value % of GDP
2001 $144.5 billion 1.4%
2002 $409.5 billion 3.9%
2003 $589.0 billion 5.5%
2004 $605.0 billion 5.3%
2005 $523.0 billion 4.3%
2006 $536.5 billion 4.1%
2007 $459.5 billion 3.4%
2008 $962.0 billion (proj.) 6.8%

There is a significant difference between the reported budget deficit and the change in debt. The key differences are: 1) The Social Security surplus, which reduces the "off-budget" deficit often reported in the media; and 2) Non-budgeted spending, such as for the Iraq and Afghanistan wars. The debt increased by approximately $550 billion on average each year during the 2003-2007 period.

The cumulative debt of the United States in the past 7 completed fiscal years was approximately $4.08 trillion, or about 40.8% of the total national debt of ~$10.0 trillion at the time of its completion.

Debt clocks

In several cities around the United States, there are national debt clocks—electronic billboards which supposedly show the amount of money owed by the government. Some also attempt to show the money owed per capita or per family. There is a significant level of fluctuation day-to-day, both up and down, so any "clocks" must be continually re-set with proper values.

The most famous debt clock, the National Debt Clock located in Times Square in New York City, was created by eccentric real estate mogul Seymour Durst. The clock is now owned by his son Douglas Durst. Although the total debt continued to increase, the Durst's clock was deactivated in 2000 when public debt began to decrease due to budget surpluses. However, following large increases in the debt (total and public) a few years later, the clock was reactivated in July 2002 , though it had to be moved to make way for One Bryant Park. Since 30 September 2008, when the debt surpassed $10 trillion, the clock's dollar sign has been replaced by the extra digit. A new clock, enabling the recording of a quadrillion dollars of debt, is expected early 2009.

Calculating and projecting the debt

Tracking current levels of debt is a cumbersome but rather straightforward process. Making future projections is much more difficult for a number of reasons. For example, before the September 11, 2001 attacks, the George W. Bush administration projected in the 2002 U.S. budget that there would be a $1.288 trillion surplus from 2001 through 2004. In the 2005 Mid-Session Review, however, this had changed to a projected deficit of $850 billion, a swing of $2.138 trillion. The latter document states that 49 percent of this swing was due to "economic and technical re-estimates", 29 percent was due to "tax relief", (mainly the 2001 and 2003 Bush tax cuts), and the remaining 22 percent was due to "war, homeland, and other enacted legislation" (mainly expenditures for the War on Terror, Iraq War, and homeland security).

Projections between different groups will sometimes differ because they make different assumptions. For example, in August 2003, a Congressional Budget Office report projected a $1.4 trillion deficit from 2004 through 2013.

However, a mid-term and long-term joint analysis a month later by the Center on Budget and Policy Priorities, the Committee for Economic Development, and the Concord Coalition stated that "In projecting deficits, CBO follows mechanical 'baseline' rules that do not allow it to account for the costs of any prospective tax or entitlement legislation, no matter how likely the enactment of such legislation may be." The analysis added in a proposed tax cut extension and Alternative Minimum Tax reform (enacted by a 2005 act), prescription drug plan (Medicare Part D, enacted in a 2003 act), and further increases in defense, homeland security, international, and domestic spending. According to the report, this "adjusts CBO's official ten-year projections for more realistic assumptions about the costs of budget policies", raising the projected deficit from $1.4 trillion to $5 trillion.

See also


  • Wright, Robert (2008). One Nation Under Debt: Hamilton, Jefferson, and the History of What We Owe. Mc-Graw Hill. Argues that America completely paid off its first national debt but is unlikely to do so again.
  • Bonner, William; Wiggin, Addison (2006). Empire of Debt: the Rise of an Epic Financial Crisis. Wiley. Argues that America is a world empire that uses credit in lieu of tribute and that history shows this to be unsustainable.
  • Cavanaugh, Frances X. (1996). The Truth About the National Debt: Five Myths and One Reality. Argues that the US is in good economic condition and that talk of the consequences of its debt is unduly alarmist.
  • Hargreaves, Eric L. (1966). The National Debt.
  • Macdonald, James (2006). A Free Nation Deep in Debt: The Financial Roots of Democracy. Princeton University Press. Argues that democracies eventually defeat autocracies because "countries with representative institutions are able to borrow more cheaply than those with autocratic governments" (p. 4). Bond markets also strengthen democracies internally by giving citizens some of the proverbial power of the purse and by aligning their interests with those of their governments.
  • Rothbard, Murray Newton (1994). The Case Against the Fed. Describes the process of debt monetization by a nation's central bank and it's unfortunate consequences on society.
  • Taylor, George Rogers (ed.) (1950). Hamilton and the National Debt.

External links

Search another word or see United_States_public_debton Dictionary | Thesaurus |Spanish
Copyright © 2015 Dictionary.com, LLC. All rights reserved.
  • Please Login or Sign Up to use the Recent Searches feature