National debt of the United States

Federal Debt Held by the Public as a percentage of gross domestic product (GDP), from 1940 to 2016 with future projections

The National debt of the United States is the total of deposits in U.S. Treasury Security accounts in the Federal Reserve Bank. The measure of the public debt is the value of the outstanding Treasury securities at a point of time that have been issued by the Treasury and other federal government agencies. The terms national deficit and national surplus usually refer to the federal government budget balance from year to year, not the cumulative total. A deficit year increases the debt because more money is spent than is received; a surplus year decreases the debt because more money is received than spent.

There are two components of gross national debt:[1]

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. In practice, Treasury securities are not issued or redeemed on a day-by-day basis,[2] and may also be issued or redeemed as part of the federal government's macroeconomic monetary management operations. The aggregate, gross amount that Treasury can borrow is limited by the United States debt ceiling.[3]

Historically, the US public debt as a share of gross domestic product (GDP) has increased during wars and recessions, and subsequently declined. The ratio of debt to GDP may decrease as a result of a government surplus or due to growth of GDP and inflation. For example, debt held by the public as a share of GDP peaked just after World War II (113% of GDP in 1945), but then fell over the following 35 years. In recent decades, however, aging demographics and rising healthcare costs have led to concern about the long-term sustainability of the federal government's fiscal policies.[4]

On November 7, 2016, debt held by the public was $14.3 trillion or about 76% of the previous 12 months of GDP.[5][6][7][8] Intragovernmental holdings stood at $5.4 trillion, giving a combined total gross national debt of $19.8 trillion or about 106% of the previous 12 months of GDP.[7] $6.2 trillion or approximately 45% of the debt held by the public was owned by foreign investors, the largest of which were China and Japan at about $1.25 trillion for China and $1.15 trillion for Japan as of May 2016.[9]

History

US federal debt held by the public as a percentage of GDP, from 1790 to 2013, projected to 2038
US Federal Debt as Percent of GDP since World War II, with presidential terms marked.

The United States government has continuously had a fluctuating public debt since its formation in 1789, except for about a year during 1835–1836. To allow comparisons over the years, public debt is often expressed as a ratio to gross domestic product (GDP). Historically, the United States public debt as a share of GDP has increased during wars and recessions, and subsequently declined.

The United States public debt as a percentage of GDP reached its highest level during Harry Truman's first presidential term, during and after World War II. 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. Debt as a share of GDP has consistently increased since then, except under Jimmy Carter and Bill Clinton. Public debt rose during the 1980s, as Ronald Reagan cut tax rates and increased military spending. It fell during the 1990s, due to decreased military spending, increased taxes and the 1990s boom. Public debt rose sharply in the wake of the 2007–08 financial crisis and the resulting significant tax revenue declines and spending increases.

Valuation and measurement

Public and government accounts

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

On January 26, 2016, debt held by the public was $13.62 trillion or about 75% of the previous 12 months of GDP.[5][6][7][8] Intragovernmental holdings stood at $5.34 trillion, giving a combined total gross national debt of $18.96 trillion or about 104% of the previous 12 months of GDP.[7]

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 $2.74 trillion in 2011.[10]

The non-marketable securities represent amounts owed to program beneficiaries. For example, in the case of the Social Security Trust Fund, the payroll taxes dedicated to Social Security were credited to the Trust Fund 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.[11] 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

U.S. debt from 1940 to 2011. Red lines indicate the "debt held by the public" and black lines indicate the total national debt or gross public debt. The difference is the "intragovernmental debt," which includes obligations to government programs such as Social Security. Stated as a formula, National Debt = Debt held by the Public + Intragovernmental Debt. The second panel shows the two debt figures as a percentage of U.S. GDP (dollar value of U.S. economic production for that year). The top panel is deflated so every year is in 2010 dollars.

Only debt held by the public is reported as a liability on the consolidated financial statements of the United States government. Debt held by government accounts is an asset to those accounts but a liability to the Treasury; they offset each other in the consolidated financial statements.[12]

Government receipts and expenditures are normally presented on a cash rather than an accrual basis, although the accrual basis may provide more information on the longer-term implications of the government's annual operations.[13] The United States public debt is often expressed as a ratio of public debt to gross domestic product (GDP). The ratio of debt to GDP may decrease as a result of a government surplus as well as due to 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 the owner, but the large size of Fannie and Freddie has made the U.S. government reluctant to incorporate Freddie and Fannie into its own books. When Freddie and Fannie required bail-outs, White House Budget Director Jim Nussle, on September 12, 2008, initially indicated their budget plans would not incorporate the GSE debt into the budget because of the temporary nature of the conservator intervention.[14] As the intervention has dragged out, pundits have started to further 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".[15]

The government controls the Public Company Accounting Oversight Board, 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 on- or off-balance sheet 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.[16] The confusing independent but government-controlled status of the GSEs has resulted in investors of the legacy common shares and preferred shares launching various activist campaigns in 2014.[17]

Guaranteed obligations excluded

U.S. federal government guarantees are not included in the public debt total, until such time as there is a call on the guarantees. For example, the U.S. federal government in late-2008 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 Assets Relief Program, are included in the debt.

Unfunded obligations excluded

The U.S. government is obligated under current law to make mandatory payments for programs such as Medicare, Medicaid and Social Security. The Government Accountability Office (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 2010. These deficits require funding from other tax sources or borrowing.[18] 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.[19] However, these unfunded obligations are not counted in 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." 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.[20]

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, 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."[21] However, $1 trillion in additional borrowing since the end of FY 2015 has raised the ratio to 76.2% as of April 2016 [See 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 intergovernmental federal debt to count only federal "debt held by the public" gives 96% of GDP.[22]

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%.[23]

Calculating the annual change in debt

Comparison of deficits to change in debt in 2008

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.[24]

Social Security payroll taxes and benefit payments, along with the net balance of the U.S. Postal Service, 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.[25]

For example, in January 2009 the CBO reported that for fiscal year 2008 (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 was 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 due to the Subprime mortgage crisis. 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.[24] The Treasury Department reported an increase in the National Debt of $1,017B for FY2008.[26] The $66 billion difference is likely due to "supplemental appropriations" for the War on Terror, some of which were outside the budget process entirely until President Obama began including most of them in his FY2010 budget.[27]

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 and Afghanistan wars was accounted for this way prior to the Obama administration.[27] Certain stimulus measures and earmarks were also outside the budget process. The federal government publishes the total debt owed (public and intragovernmental holdings) monthly.[28]

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.[29] Such low rates, outpaced by the inflation rate, occur when the market believes that there are no alternatives with sufficiently low risk, or when popular institutional investments such as insurance companies, pensions, or bond, money market, and balanced mutual funds are required or choose to invest sufficiently large sums in Treasury securities to hedge against risk.[30][31]

Economist Lawrence Summers and blogger Matthew Yglesias have stated that at such low interest rates, government borrowing actually saves taxpayer money and improves creditworthiness.[32][33]

In the late 1940s through the early 1970s, the US 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 so low.[30][34] Between 1946 and 1974, the US 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.[35]

Converting fractional reserve to full reserve banking

The two economists, Jaromir Benes and Michael Kumhof, working for the International Monetary Fund, published a working paper called The Chicago Plan Revisited suggesting that the debt could be eliminated by raising bank reserve requirements, converting from fractional reserve banking to full reserve banking.[36][37] Economists at the Paris School of Economics have commented on the plan, stating that it is already the status quo for coinage currency,[38] and a Norges Bank economist has examined the proposal in the context of considering the finance industry as part of the real economy.[39] A Centre for Economic Policy Research paper agrees with the conclusion that, "no real liability is created by new fiat money creation, and therefore public debt does not rise as a result".[40]

Debt ceiling

US debt ceiling at the end of each year from 1981 to 2010

The debt ceiling is a legislative mechanism to limit the amount of national debt that can be issued by the Treasury. In effect, it will restrain 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.

In 1995[41] and 2011,[42][43] congressional Republicans unsuccessfully made threats of default on the national debt through non-renewal of the debt ceiling to try to obtain political concessions from President Bill Clinton and President Barack Obama, respectively.

Debt holdings

Estimated ownership each year

Because a large variety of people own the notes, bills, and bonds in the "public" portion of the debt, 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.)

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

Composition of U.S. Long-Term Treasury Debt 2000–2014, from U. S. Department of the Treasury, TIC reporting system

As of September 2014, foreigners owned $6.06 trillion of U.S. debt, or approximately 47% of the debt held by the public of $12.8 trillion and 34% of the total debt of $17.8 trillion.[44] The largest holders were China, Japan, Belgium, the Caribbean banking centers, and oil exporters.[45]

The share held by foreign governments has grown over time, rising from 13% of the public debt in 1988[47] to 25% in 2007.[48]

As of September 2014 the largest single holder of U.S. government debt was China, with 21% of all foreign-held U.S. Treasury securities (10% of total U.S. public debt).[49] China's holdings of government debt, as a percentage of all foreign-held government debt are up significantly since 2000 (when China held just 6 percent of all foreign-held U.S. Treasury securities).[50]

This exposure to potential financial or political risk should foreign banks stop buying Treasury securities or start selling them heavily was addressed in a June 2008 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."[51]

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.[52] In September 2009 China, India and Russia said they were interested in buying International Monetary Fund gold to diversify their dollar-denominated securities.[53] However, in July 2010 China's State Administration of Foreign Exchange "ruled out the option of dumping its vast holdings of US Treasury securities" and said gold "cannot become a main channel for investing our foreign exchange reserves" because the market for gold is too small and prices are too volatile.

According to Paul Krugman, "It's true that foreigners now hold large claims on the United States, including a fair amount of government debt. But every dollar's worth of foreign claims on America is matched by 89 cents' worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors. If your image is of a nation that's already deep in hock to the Chinese, you've been misinformed. Nor are we heading rapidly in that direction."[54]

Forecasting

Further information: United States federal budget
CBO: Public Debt Under "Extended" and "Alternate" Scenarios
Spending for mandatory programs is projected to rise relative to GDP, while discretionary programs decline
Interest to GDP, a measure of debt burden, was very low in 2015 but is projected to rise with both interest rates and debt levels over the 2016–2026 period.

CBO short-term outlook

The Congressional Budget Office (CBO) reported in its February 2014 Budget and Economic Outlook (which covers the 2014–2024 period) that deficits were projected to return to approximately the historical average relative to the size of the economy (GDP) by 2014. The CBO estimated that under current law, the deficit would total $514 billion in fiscal year 2014 or 3.0% GDP. Deficits would then slowly begin rising again through 2024 due primarily to the pressures of an aging population and rising healthcare costs per person. The debt to GDP ratio would remain stable for much of the decade then begin rising again toward the end of the 10-year forecast window, from 74% in 2014 to 79% in 2024.[55]

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 2014 Outlook mainly covers the 25-year period through 2039. The "extended baseline scenario" assumes that the laws currently on the books will be implemented, for the most part. The CBO reported in July 2014 that under this scenario:

If current laws remained generally unchanged in the future, federal debt held by the public would decline slightly relative to GDP over the next few years. After that, however, growing budget deficits would push debt back to and above its current high level. Twenty-five years from now, in 2039, federal debt held by the public would exceed 100 percent of GDP. Moreover, debt would be on an upward path relative to the size of the economy, a trend that could not be sustained indefinitely. By 2039, the deficit would equal 6.5 percent of GDP, larger than in any year between 1947 and 2008, and federal debt held by the public would reach 106 percent of GDP, more than in any year except 1946—even without factoring in the economic effects of growing debt.[56]

The "extended alternative fiscal scenario" assumes the continuation of present trends, which result in a more unfavorable debt position and adverse economic consequences relative to the baseline scenario. The CBO reported in July 2014 that under this scenario:

[C]ertain policies that are now in place but are scheduled to change under current law are assumed to continue, and some provisions of current law that might be difficult to sustain for a long period are assumed to be modified. Under that scenario, deficits excluding interest payments would be about $2 trillion larger over the first decade than those under the baseline; subsequently, such deficits would be larger than those under the extended baseline by rapidly increasing amounts, doubling as a percentage of GDP in less than 10 years. CBO projects that real GNP in 2039 would be about 5 percent lower under the extended alternative fiscal scenario than under the extended baseline with economic feedback, and that interest rates would be about three-quarters of a percentage point higher. Reflecting the budgetary effects of those economic developments, federal debt would rise to 183 percent of GDP in 2039.[56]

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.[56]

The CBO estimated under the baseline scenario that the U.S. debt held by the public would increase approximately $8.5 trillion between the end of 2014 and 2024. Under a $2 trillion deficit reduction scenario during that first decade, federal debt held by the public in 2039 would stand at 75 percent of GDP, only slightly above the value of 72 percent at the end of 2013. Under a $4 trillion deficit reduction scenario for that decade, federal debt held by the public would fall to 42 percent of GDP in 2039. By comparison, such debt was 35 percent of GDP in 2007 and has averaged 39 percent of GDP during the past 40 years.[56]

The CBO reported in September 2011: "The nation cannot continue to sustain the spending programs and policies of the past with the tax revenues it has been accustomed to paying. Citizens will either have to pay more for their government, accept less in government services and benefits, or both."[57]

Risks and debates

Risks due to increasing entitlement spending, according to GAO's projections of future trends

CBO risk factors

The CBO reported several types of risk factors related to rising debt levels in a July 2010 publication:

Concerns over Chinese holdings of U.S. debt

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,[59][60] as part of their reserves.

The National Defense Authorization Act of the fiscal year 2012 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. As the threat is not credible and the effect would be limited even if carried out, it does 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."[61]

The 112th United States Congress introduced legislation whose aim was the assessment of the implications of China's ownership of U.S. debt.[61] The 2013 Report claimed that "[a] potentially serious short-term problem would emerge if China decided to suddenly reduce their liquid U.S. financial assets significantly" [emphasis in the original text], noting, also, that Federal Reserve System Chairman Ben Bernanke had, in 2007, stated that "because foreign holdings of U.S. Treasury securities represent only a small part of total U.S. credit market debt outstanding, U.S. credit markets should be able to absorb without great difficulty any shift of foreign allocations."[61]

A significant number of economists and analysts dismiss any and all concerns over foreign holdings of United States government debt denominated in U.S. dollars, including China's holdings.[62][63][64][65]

Sustainability

According to the Government Accountability Office (GAO), the United States is on a "fiscally unsustainable" path because of projected future increases in Medicare and Social Security spending.[18]

Risks to economic growth

Debt levels may affect economic growth rates. In 2010, economists Kenneth Rogoff and Carmen Reinhart 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).[66] 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.[67][68] 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.[69] Reinhart and Rogoff maintain that after correcting for errors, a negative relationship between high debt and growth remains.[70] However, other economists, including Paul Krugman, have argued that it is low growth which causes national debt to increase, rather than the other way around.[71][72][73]

Former Federal Reserve Chairman Ben Bernanke 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."[74]

Interest and debt service costs

Components of interest on the debt

Despite rising debt levels, interest costs have remained at approximately 2008 levels (around $450 billion in total) due to lower than long-term interest rates paid on government debt in recent years.[75] However, interest rates may return to higher historical levels.[76]

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.[77] 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 percent of GDP, to $799 billion in 2024, or 3.0 percent of GDP—the highest ratio since 1996."[78]

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.[71] The Center on Budget and Policy Priorities (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.[79]

There is debate regarding the economic nature of the intragovernmental debt, which was approximately $4.6 trillion in February 2011.[80] For example, the CBPP argues: that "large increases in [debt held by the public] can 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."[79]

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".[81][82]

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:

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.[86]

Credit default

The US has never fully defaulted.[87][88]

In April 1979, however, the United States may have technically defaulted on $122 million in Treasury bills, 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%.[89] Others view it as a temporary, partial default.[90][91][92]

Appendix

National debt for selected years

Fiscal year Total debt
[93][94][95]		 Total debt
as % of GDP		 Public debt Public debt
as % of GDP		 GDP
($ billions)[96]
1910  2.65/-8.1% 2.65 8.1% est. 32.8
1920 25.95/-29.2% 25.95 29.2% est. 88.6
1927 [97] 18.51/-19.2%18.5119.2%est. 96.5
1930 16.19/- 16.6%16.19 16.6%est. 97.4
1940 42.97/50.7043.8–51.6%42.7743.6%-/98.2
1950 257.3/256.992.0% 219.0 78.4%279.0
1960 286.3/290.553.6–54.2%236.844.3%535.1
1970 370.9/380.935.4–36.4%283.227.0%1,049
1980 907.7/909.032.4–32.6%711.925.5%2,796
1990 3,233/3,20654.2–54.6%2,40040.8%5,915
2000 a15,659 a55.8%a3,45033.9%10,150
2001 a25,792 a54.8%a3,35031.6%10,550
2002 a36,213 a57.1%a3,55032.7%10,900
2003 a6,783 a 59.9%a3,90034.6%11,350
2004 a7,379 a 61.0%a4,30035.6%12,100
2005 a47,918a 61.4%a4,60035.7%12,900
2006 a58,493a 62.1%a4,85035.4%13,700
2007 a68,993a 62.8%a5,05035.3%14,300
2008 a710,011a 67.9%a5,80039.4%14,750
2009 a811,898a 82.5%a7,55052.4%14,400
2010 a913,551 a 91.6%a9,00061.0%14,800
2011 a1014,781a 96.1%a10,15065.8%15,400
2012 a1116,059a100.2%a11,25070.3%16,050
2013 a1216,732a101.3%a12,00072.6%16,500
2014 a1317,810a103.4%a12,80074.2%17,200
2015 a1418,138a101.3/101.8%a13,10073.3%17,900
2016 (Oct. '15 –
Jul. '16 only)		 ~19,428~106.1%~13,998~76.5%

On June 25, 2014, the BEA announced: "[On July 30, 2014, i]n addition to the regular revision of estimates for the most recent 3 years and for the first quarter of 2014, GDP and select components will be revised back to the first quarter of 1999.

Fiscal years 1940–2009 GDP figures were derived from February 2011 Office of Management and Budget figures which contained revisions of prior year figures due to significant changes from prior GDP measurements. Fiscal years 1950–2010 GDP measurements were derived from December 2010 Bureau of Economic Analysis figures which also tend to be subject to revision, especially more recent years. Afterwards the OMB figures were revised back to 2004 and the BEA figures (in a revision dated July 31, 2013) were revised back to 1947.

Regarding estimates recorded in the GDP column (the last column) marked with a "~" symbol, absolute differences from advance (one month after) BEA reports of GDP percent change to current findings (as of November 2013) found in revisions are stated to be 1.3% ± 2.0% or a 95% probability of being within the range of 0.0–3.3%, assuming the differences to occur according to standard deviations from the average absolute difference of 1.3%. E.g. with an advance report of a $400 billion increase of a $10 trillion GDP, for example, one could be 95% confident that the range in which the exact GDP dollar amount lies would be 0.0 to 3.3% different than 4.0% (400 ÷ 10,000) or within the range of $0 to $330 billion different than the hypothetical $400 billion (a range of $70-730 billion). Two months after, with a revised value, the range of potential difference from the stated estimate shrinks, and three months after with another revised value the range shrinks again.

Fiscal years 1940–1970 begin July 1 of the previous year (for example, Fiscal Year 1940 begins July 1, 1939 and ends June 30, 1940); fiscal years 1980–2010 begin October 1 of the previous year. Intragovernmental debts before the Social Security Act are presumed to equal zero.

1909–1930 calendar year GDP estimates are from MeasuringWorth.com[98] Fiscal Year estimates are derived from simple linear interpolation.

(a1) Audited figure was "about $5,659 billion."[99]

(a2) Audited figure was "about $5,792 billion."[100]

(a3) Audited figure was "about $6,213 billion."[100]

(a) Audited figure was said to be "about" the stated figure.[101]

(a4) Audited figure was "about $7,918 billion."[102]

(a5) Audited figure was "about $8,493 billion."[102]

(a6) Audited figure was "about $8,993 billion."[103]

(a7) Audited figure was "about $10,011 billion."[103]

(a8) Audited figure was "about $11,898 billion."[104]

(a9) Audited figure was "about $13,551 billion."[105]

(a10) GAO affirmed Bureau of the Public debt figure as $14,781 billion.[106]

(a11) GAO affirmed Bureau of the Public debt figure as $16,059 billion.[106]

(a12) GAO affirmed Bureau of the Fiscal Service's figure as $16,732 billion.[107]

(a13) GAO affirmed Bureau of the Fiscal Service's figure as $17,810 billion.[6]

(a14) GAO affirmed Bureau of the Fiscal Service's figure as $18,138 billion.[108]

Interest paid

Fiscal
Year		 Historical
debt outstanding,
$billions, US[109]		 Interest paid
$billions, US[110]		 Interest rate
201417,824430.8 2.42%
201316,738415.7 2.48%
201216,066359.8 2.24%
201114,790454.4 3.07%
201013,562414.0 3.05%
200911,910383.1 3.22%
200810,025451.2 4.50%
20079,008430.0 4.77%
20068,507405.9 4.77%
20057,933352.4 4.44%
20047,379321.6 4.36%
20036,783318.1 4.69%
20026,228332.5 5.34%
20015,807359.5 6.19%
20005,674362.0 6.38%
19995,656353.5 6.25%
19985,526363.8 6.58%
19975,413355.8 6.57%
19965,225344.0 6.58%
19954,974332.4 6.68%
19944,693296.3 6.31%
19934,411292.5 6.63%
19924,065292.4 7.19%
19913,665286.0 7.80%

Foreign holders of US Treasury securities

The following is a list of the top foreign holders (over $100 billion) of US Treasury securities as listed by the US Treasury (revised by September 2016 survey):[111]

Leading foreign holders of US Treasury securities as of September 2016
Country Billions of dollars (est.) Ratio of owned US debt
to 2015 GDP (est.)[112][113]		Percent change since
September 2015
 China 1,157.06%− 8%
 Japan 1,136.428%− 3%
 Ireland 270.995%+22%
 Cayman Islands 262.1n/a+17%
 Brazil 258.115%+ 3%
  Switzerland 240.736%+ 6%
 Luxembourg 227.0393%+19%
 United Kingdom 217.58%+ 7%
 Hong Kong 189.861%− 4%
 Taiwan 189.336%+ 6%
 Belgium 142.731%+ 5%
 India 122.76%+ 8%
 Germany 102.93%+23%
 Singapore 101.335%−18%
Others 1,536.4n/a+ 1%
Grand total 6,154.7n/a+ 1%

Statistics

Revenue and Expense as percent of GDP
US federal debt as percent of GDP by presidential party from 1940 to 2015
U.S. federal debt as percent of GDP by Senate majority party from 1940 to 2009

A 1998 Brookings Institution 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.[121] The total public debt at the end of fiscal year 1998 was $5,478,189,000,000 in 1998 Dollars[124] or $5.3 trillion in 1996 Dollars.

International debt comparisons

Gross debt as percentage of GDP
Entity 2007 2010 2011
United States 62% 92% 102%
European Union 59% 80% 83%
Austria 62% 78% 72%
France 64% 82% 86%
Germany 65% 82% 81%
Sweden 40% 39% 38%
Finland 35% 48% 49%
Greece 104% 123% 165%
Romania 13% 31% 33%
Bulgaria 17% 16% 16%
Czech Republic 28% 38% 41%
Italy 112% 119% 120%
Netherlands 52% 77% 65%
Poland 51% 55% 56%
Spain 42% 68% 68%
United Kingdom 47% 80% 86%
Japan 167% 197% 204%
Russia 9% 12% 10%
Asia 1 37% 40% 41%
South America and Mexico 2 41% 37% 35%

Sources: Eurostat,[125] International Monetary Fund, World Economic Outlook (emerging market economies); Organisation for Economic Co-operation and Development, Economic Outlook (advanced economies)[126]

1China, Hong Kong, India, Indonesia, Korea, Malaysia, the Philippines, Singapore and Thailand

2Argentina, Brazil, Chile and Mexico

Recent additions to the public debt of the United States

Deficit and Debt Increases 2001–2016
Recent additions to U.S. public debt[7][93][94][96]
Fiscal year (begins
Oct. 1 of year prior
to stated year)		 GDP
$Billions		 New debt
for
fiscal year
$Billions		 New debt
as
% of GDP		 Total debt
$Billions		 Total debt
as % of GDP
(Debt to GDP
ratio)
1994 $7,200$281–292 3.9–4.1%~$4,65064.6–65.2%
1995 7,600277–281 3.7%~4,95064.8–65.6%
1996 8,000251–260 3.1–3.3%~5,20065.0–65.4%
1997 8,500188 2.2%~5,40063.2–63.8%
1998 8,950109–113 1.2–1.3%~5,50061.2–61.8%
1999 9,500127–130 1.3–1.4%5,65659.3%
2000 10,15018 0.2%5,67455.8%
2001 $10,550$  133 1.3%$ 5,79254.8%
2002 10,900421 3.9%6,21357.1%
2003 11,350570 5.0%6,78359.9%
2004 12,100596 4.9%7,37961.0%
2005 12,900539 4.2%7,91861.4%
2006 13,700575 4.2%8,49362.1%
2007 14,300500 3.5%8,99362.8%
2008 14,7501,018 6.9%10,01167.9%
2009 $14,400$1,88713.1%$11,89882.5%
2010 14,8001,653 11.2%13,55191.6%
2011[127] 15,4001,230 8.0% 14,78196.1%
2012 16,0501,2788.0% 16,059100.2%
2013 16,500 673 4.1% 16,732 101.3%
2014 17,2001,078 6.3% 17,810 103.4%
2015 17,900328 1.8% 18,138101.3%
2016 (Oct. '15 –
Jul. '16 only)		 ~1,290 ~7.0% ~19,428~106.1%

On July 29, 2016 the BEA released a revision to 2013–2016 GDP figures. The figures for this table were corrected the next week with changes to figures in those fiscal years.

On July 30, 2015 the BEA released a revision to 2012–2015 GDP figures. The figures for this table were corrected on that day with changes to FY 2013 and 2014, but not 2015 as FY 2015 is updated within a week with the release of debt totals for July 31, 2015.

On June 25, 2014 the BEA announced a 15-year revision of GDP figures would take place on July 31, 2014. The figures for this table were corrected after that date with changes to FY 2000, 2003, 2008, 2012, 2013 and 2014. The more precise FY 1999–2014 debt figures are derived from Treasury audit results. The variations in the 1990s and FY 2015 figures are due to double-sourced or relatively preliminary GDP figures respectively. A comprehensive revision GDP revision dated July 31, 2013 was described on the Bureau of Economic Analysis website. In November 2013 the total debt and yearly debt as a percentage of GDP columns of this table were changed to reflect those revised GDP figures.

Historical debt ceiling levels

See also

References

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