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.
| US Gross Debt |
|US Gross Debt as % of GDP|
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.
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:
The next chart does the same thing for the each year since 1997:
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|
|Caribbean banking centers||133.5||4.99%|
|Republic of China (Taiwan)||42.3||1.58%|
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.
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.
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.
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.
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.
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.
|Fiscal year (begins |
10/01 of prev. year)
|Value||% of GDP|
|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.
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.
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.