National debt of the United States

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United States national debt as a percent of GDP US National Debt.png
United States national debt as a percent of GDP
Intergovernmental and public US National debt US National Debt public intergovernmental.png
Intergovernmental and public US National debt

The national debt of the United States is the total debt, or unpaid borrowed funds, carried by the Federal Government of the United States, which is measured as the face value of the currently outstanding Treasury securities 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 amount of debt. A deficit year increases the debt, while a surplus year decreases the debt as more money is received than spent.

Debt deferred payment, or series of payments, that is owed in the future

Debt is when something, usually money, is owed by one party, the borrower or debtor, to a second party, the lender or creditor. Debt is a deferred payment, or series of payments, that is owed in the future, which is what differentiates it from an immediate purchase. The debt may be owed by sovereign state or country, local government, company, or an individual. Commercial debt is generally subject to contractual terms regarding the amount and timing of repayments of principal and interest. Loans, bonds, notes, and mortgages are all types of debt. The term can also be used metaphorically to cover moral obligations and other interactions not based on economic value. For example, in Western cultures, a person who has been helped by a second person is sometimes said to owe a "debt of gratitude" to the second person.

United States Treasury security A marketable, fixed-interest U.S. government debt security

A United States Treasury security is a government debt instrument issued by the United States Department of the Treasury to finance government spending as an alternative to taxation. Treasury securities are often referred to simply as Treasurys. Since 2012 the management of government debt has been arranged by the Bureau of the Fiscal Service, succeeding the Bureau of the Public Debt.

Government budget balance Difference between revenues and spending

A government budget is a financial statement presenting the government's proposed revenues and spending for a financial year. The government budget balance, also alternatively referred to as general government balance, public budget balance, or public fiscal balance, is the overall difference between government revenues and spending. A positive balance is called a government budget surplus, and a negative balance is a government budget deficit. A budget is prepared for each level of government and takes into account public social security obligations.

Contents

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

The Federal Old-Age and Survivors Insurance Trust Fund and Federal Disability Insurance Trust Fund are trust funds that provide for payment of Social Security benefits administered by the United States Social Security Administration.

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 management operations.

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, aging demographics and rising healthcare costs have led to concern about the long-term sustainability of the federal government's fiscal policies. [3] The aggregate, gross amount that Treasury can borrow is limited by the United States debt ceiling. [4]

Gross domestic product market value of goods and services produced within a country

Gross domestic products (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period, often annually. GDP (nominal) per capita does not, however, reflect differences in the cost of living and the inflation rates of the countries; therefore using a basis of GDP per capita at purchasing power parity (PPP) is arguably more useful when comparing differences in living standards between nations.

Fiscal policy use of government revenue collection and spending to influence the economy

In economics and political science, fiscal policy is the use of government revenue collection and expenditure (spending) to influence a country's economy. The use of government revenues and expenditures to influence macroeconomic variables developed as a result of the Great Depression, when the previous laissez-faire approach to economic management became discredited. Fiscal policy is based on the theories of the British economist John Maynard Keynes, whose Keynesian economics indicated that government changes in the levels of taxation and government spending influences aggregate demand and the level of economic activity. Fiscal and monetary policy are the key strategies used by a country's government and central bank to advance its economic objectives. The combination of these policies enables these authorities to target the inflation and to increase employment. Additionally, it is designed to try to keep GDP growth at 2%–3% and the unemployment rate near the natural unemployment rate of 4%–5%. This implies that fiscal policy is used to stabilize the economy over the course of the business cycle.

The United States debt ceiling or debt limit is a legislative limit on the amount of national debt that can be incurred by the U.S. Treasury, thus limiting how much money the federal government may borrow. The debt ceiling is an aggregate figure that applies to the gross debt, which includes debt in the hands of the public and in intra-government accounts. Because expenditures are authorized by separate legislation, the debt ceiling does not directly limit government deficits. In effect, it can only restrain the Treasury from paying for expenditures and other financial obligations after the limit has been reached, but which have already been approved and appropriated.

As of June 2019, federal debt held by the public was $16.17 trillion and intragovernmental holdings were $5.86 trillion, for a total national debt of $22.03 trillion. [5] At the end of 2018, debt held by the public was approximately 76.4% of GDP, [6] [7] and approximately 39% of the debt held by the public was owned by foreigners. [8] The United States has the largest external debt in the world. In 2017, the US debt-to-GDP ratio was ranked 43rd highest out of 207 countries. [9] The Congressional Budget Office forecast in April 2018 that debt held by the public will rise to nearly 100% of GDP by 2028, perhaps higher if current policies are extended beyond their scheduled expiration date. [10]

In public finance, intragovernmental holdings are debt obligations that a government owes to its own agencies. These agencies may receive or spend money unevenly throughout the year, or receive it for payout at a future date, as in the case of a pension fund. Lending the excess funds to the government, typically on the accounts of its treasury, enables the government to calculate its net cash requirements over time.

Congressional Budget Office Government agency

The Congressional Budget Office (CBO) is a federal agency within the legislative branch of the United States government that provides budget and economic information to Congress. Inspired by California's Legislative Analyst's Office that manages the state budget in a strictly nonpartisan fashion, the CBO was created as a nonpartisan agency by the Congressional Budget and Impoundment Control Act of 1974.

History

The amount of US public debt, measured as a percentage of GDP, held by the public since 1790. US Debt Held by Public.png
The amount of US public debt, measured as a percentage of GDP, held by the public since 1790.

The United States federal government has continuously had a fluctuating public debt since its formation in 1789, except for about a year during 1835–1836, a period in which the nation, during the presidency of Andrew Jackson, completely paid the national debt. To allow comparisons over the years, public debt is often expressed as a ratio to gross domestic product (GDP).

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 during the presidencies of Jimmy Carter and Bill Clinton.

Public debt rose sharply 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 during George W Bush's presidency and in the wake of the 2007–2008 financial crisis, with resulting significant tax revenue declines and spending increases. [11]

In their September 2018 monthly report published on October 5 and based on data from the Treasury Department's "Daily Treasury Statements" (DTS), the Congressional Budget Office (CBO) wrote that the federal budget deficit was c.$782 billion for the fiscal year 2018—which runs from October 2017 through September 2018. This is $116 billion more than in FY2017. [12] :1 The Treasury statements as summarized by in the CBO report that corporate taxes for 2017 and 2018 declined by $92 billion representing a drop of 31%. The CBO added that "about half of the decline ... occurred since June" when some of the provisions of the Tax Cuts and Jobs Act of 2017 took effect, which included the "new lower corporate tax rate and the expanded ability to immediately deduct the full value of equipment purchases". [12]

According to articles in The Wall Street Journal [13] and Business Insider , [14] [13] [15] based on documents released on October 29, 2018 by the Treasury Department, [16] the Department's new projection [14] estimates that by the fourth quarter of the FY2018, it will issue c. $1.338 trillion in debt. This would be the highest debt issuance since 2010, when it reached $1.586 trillion. The Treasury anticipates that the total "net marketable debt"—net marketable securities—issued in the fourth quarter will reach $425 billion; which would raise the 2018 "total debt issuance" to over a trillion dollars of new debt, representing a "146% jump from 2017". [14] According to the Journal that is the highest fourth quarter issuance "since 2008, at the height of the financial crisis." [13] As cited by the Journal and the Business Insider, the primary drivers of new debt issuance are "stagnant", "sluggish tax revenues", a decrease in "corporate tax revenue", [14] due to the GOP Tax Cuts and Jobs Act of 2017, [13] the "bipartisan budget agreement", and "higher government spending". [13] [14]

Valuation and measurement

Public and government accounts

Detailed breakdown of government holders of treasury debt and debt instruments used of the public portion Holders of the National Debt of the United States.gif
Detailed breakdown of government holders of treasury debt and debt instruments used of the public portion

As of December 31, 2018, debt held by the public was $16.1 trillion and intragovernmental holdings were $5.87 trillion, for a total of $21.97 trillion. [17] Debt held by the public was approximately 77% of GDP in 2017, ranked 43rd highest out of 207 countries. [9] The Congressional Budget Office forecast in April 2018 that the ratio will rise to nearly 100% by 2028, perhaps higher if current policies are extended beyond their scheduled expiration date. [10]

The national debt can also be classified into marketable or non-marketable securities. Most of the marketable securities are Treasury notes, bills, and bonds held by investors and governments globally. The non-marketable securities are mainly the "government account series" owed to certain government trust funds such as the Social Security Trust Fund, which represented $2.82 trillion in 2017. [18]

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. [19] 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).[ citation needed ]

Accounting treatment

U.S. debt from 1940 to 2016. 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 USDebt.png
U.S. debt from 1940 to 2016. 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
U.S. intra-governmental debt components, which totaled $5.47 trillion as of September 2016. This debt mainly represents obligations to Social Security recipients and retired federal government employees, including military. U.S. Intragovernmental debt - v1.png
U.S. intra-governmental debt components, which totaled $5.47 trillion as of September 2016. This debt mainly represents obligations to Social Security recipients and retired federal government employees, including military.

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. [20]

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. [21] 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.[ citation needed ]

Fannie Mae and Freddie Mac obligations excluded

Under normal accounting rules, fully owned companies would be consolidated into the books of their owners, but the large size of Fannie and Freddie has made the U.S. government reluctant to incorporate Freddie and Fannie into its own books. When Freddie Mac and Fannie Mae 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. [22] 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". [23]

The federal 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. [24] The confusing independent but government-controlled status of the GSEs resulted in investors of the legacy common shares and preferred shares launching various activist campaigns in 2014. [25]

Guaranteed obligations excluded

U.S. federal government guarantees were not included in the public debt total as they were not drawn against. The U.S. federal government in late-2008 had guaranteed large amounts of obligations of mutual funds, banks, and corporations under several programs designed to deal with the problems arising from the late-2000s financial crisis. The guarantee program lapsed at the end of 2012 when Congress declined to extend the scheme. The funding of direct investments made in response to the crisis, such as those made under the Troubled Assets Relief Program, were included in the debt totals.

Unfunded obligations excluded

A timeline showing projected debt milestones from the CBO. CBO debt milestone timeline.png
A timeline showing projected debt milestones from the CBO.

The U.S. federal 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. [26] 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. [27] However, these unfunded obligations are not counted in the national debt, as shown in monthly Treasury reports of the national debt. [28]

Measuring debt burden

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

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. [29]

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." [30] 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. [31]

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%. [32]

Calculating the annual change in debt

Comparison of deficits to change in debt in 2008 Deficit to Change in Debt Comparison - 2008.png
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. [33]

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. [34]

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 is the one commonly reported in the media. However, an additional $313 billion was required for "the Treasury actions aimed at stabilizing the financial markets," an unusually high amount 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. [33] The Treasury Department reported an increase in the National Debt of $1,017B for FY2008. [35] 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. [36]

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. [36] Certain stimulus measures and earmarks were also outside the budget process. The federal government publishes the total debt owed (public and intragovernmental holdings) monthly. [37]

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. [38] 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. [39] [40]

Economist Lawrence Summers has stated that at such low interest rates, government borrowing actually saves taxpayer money and improves creditworthiness. [41]

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 this low. [39] [42] 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. [43]

Raising reserve requirements and full reserve banking

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 and converting from fractional reserve banking to full reserve banking. [44] [45] Economists at the Paris School of Economics have commented on the plan, stating that it is already the status quo for coinage currency, [46] and a Norges Bank economist has examined the proposal in the context of considering the finance industry as part of the real economy. [47] 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." [48]

Debt ceiling

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

Debt holdings

Estimated ownership each year Estimated ownership of treasury securities by year.gif
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 Composition of U.S. Long-Term Treasury Debt 2000-2014.svg
Composition of U.S. Long-Term Treasury Debt 2000–2014

As of October 2018, foreigners owned $6.2 trillion of U.S. debt, or approximately 39 percent of the debt held by the public of $16.1 trillion and 28 percent of the total debt of $21.8 trillion. [49] At the close of 2018, the largest foreign holders [50] were China ($1.13 trillion), Japan ($1.02 trillion), Brazil ($313 billion), and Ireland ($287 billion). [51]

Historically, the share held by foreign governments had grown over time, rising from 13 percent of the public debt in 1988 [52] to 34 percent in 2015. [53] In more recent years, foreign ownership has retreated both in percent of total debt and total dollar amounts. China's maximum holding of 9.1% or $1.3 trillion of US debt occurred in 2011, subsequently reduced to 5% in 2018. Japan's maximum holding of 7% or $1.2 trillion occurred in 2012, subsequently reduced to 4% in 2018. [54]

U.S. Net International Investment Position over time U.S. Net International Investment Position over time.png
U.S. Net International Investment Position over time

For the first time, in the second quarter of 2018, Foreign Direct Investment in the US was negative. [55] Prior to the change in foreign investment trajectory, some analysts expressed concerns of exposure to potential financial or political risk should foreign banks stop buying Treasury securities or start selling them heavily. This 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." [56]

According to Paul Krugman, "America actually earns more from its assets abroad than it pays to foreign investors." [57] Nonetheless, the country's net international investment position represents a debt of more than $9 trillion [58] .

Forecasting

Congressional Budget Office (CBO) baseline scenario comparisons: June 2017 (essentially the deficit trajectory that President Trump inherited from President Obama), April 2018 (which reflects Trump's tax cuts and spending bills), and April 2018 alternate scenario (which assumes extension of the Trump tax cuts, among other current policy extensions). CBO Deficit - Baseline Comparison - April 2018.png
Congressional Budget Office (CBO) baseline scenario comparisons: June 2017 (essentially the deficit trajectory that President Trump inherited from President Obama), April 2018 (which reflects Trump's tax cuts and spending bills), and April 2018 alternate scenario (which assumes extension of the Trump tax cuts, among other current policy extensions).

CBO ten-year outlook 2018–2028

The CBO estimated the impact of the Tax Cuts and Jobs Act and separate spending legislation over the 2018–2028 period in their annual "Budget & Economic Outlook", released in April 2018:

CBO long-term outlook

The actual and projected United States Federal Debt Held by the Public as percentage of GDP. Federal debt held by public CBO 2019.png
The actual and projected United States Federal Debt Held by the Public as percentage of GDP.
Spending for mandatory programs is projected to rise relative to GDP, while discretionary programs decline CBO 2014 LTBO Spending Under Ext Baseline.png
Spending for mandatory programs is projected to rise relative to GDP, while discretionary programs decline

The CBO reports its Long-Term Budget Outlook annually, providing at least two scenarios for spending, revenue, deficits, and debt. The 2019 Outlook mainly covers the 30-year period through 2049. The CBO reported:

Large budget deficits over the next 30 years are projected to drive federal debt held by the public to unprecedented levels—from 78 percent of gross domestic product (GDP) in 2019 to 144 percent by 2049. That projection incorporates CBO’s central estimates of various factors, such as productivity growth and interest rates on federal debt. CBO’s analysis indicates that even if values for those factors differed from the agency’s projections, debt several decades from now would probably be much higher than it is today. [59]

Furthermore, under alternative scenarios:

If lawmakers changed current laws to maintain certain major policies now in place—most significantly, if they prevented a cut in discretionary spending in 2020 and an increase in individual income taxes in 2026—then debt held by the public would increase even more, reaching 219 percent of GDP by 2049. By contrast, if Social Security benefits were limited to the amounts payable from revenues received by the Social Security trust funds, debt in 2049 would reach 106 percent of GDP, still well above its current level.

Over the long-term, the CBO projects that interest expense and mandatory spending categories (e.g., Medicare, Medicaid and Social Security) will continue to grow relative to GDP, while discretionary categories (e.g., Defense and other Cabinet Departments) continue to fall relative to GDP. Debt is projected to continue rising relative to GDP under the above two scenarios, although the CBO did also offer other scenarios that involved austerity measures that would bring the debt to GDP ratio down. [59]

Risks and debates

Historical and projected US Federal Government revenues and spending from 2018 GAO financial report Historical and projected US Federal Government revenues and spending 2018 GAO financial report.png
Historical and projected US Federal Government revenues and spending from 2018 GAO financial report

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, [61] [62] 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." [63]

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. [64] [65] [66]

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. [26]

According to the Treasury report in early October, summarized by Business Insider's Bob Bryan, the US federal budget deficit rose as a result of the Tax Cuts and Jobs Act of 2017 [13] signed into law by President Donald Trump on December 22, 2017 [67] and the Consolidated Appropriations Act, 2018 signed into law on March 23, 2018. [68] [69]

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). [70] 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. [71] [72] 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. [73] Reinhart and Rogoff maintain that after correcting for errors, a negative relationship between high debt and growth remains. [74] 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. [75] [76] [77]

Commenting on fiscal sustainability, 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." [78]

Interest and debt service costs

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. U.S. Federal Net Interest as Pct GDP.png
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.
Components of interest on the debt Interest expense on the U.S. national debt.png
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. [79] However, interest rates may return to higher historical levels. [80]

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. [81] 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." [82]

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. [75] 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. [83]

There is debate regarding the economic nature of the intragovernmental debt, which was approximately $4.6 trillion in February 2011. [84] 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." [83]

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". [85] [86]

Intergenerational equity

1979 $10,000 Treasury Bond 1979 $10,000 Treasury Bond .jpg
1979 $10,000 Treasury Bond

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. [90]

Credit default

The US has never fully defaulted. [91] [92]

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%. [93] Others view it as a temporary, partial default. [94] [95] [96]

Appendix

National debt for selected years

Fiscal yearTotal debt,
$Bln
[97] [98] [99]
Total debt
as % of GDP
Public debt,
$Bln, 1996–
Public debt
as % of GDP
GDP, $Bln,
BEA/OMB
[100]
19102.65/-8.1%2.658.1%est. 32.8
192025.95/-29.2%25.9529.2%est. 88.6
1927 [101] 18.51/-19.2%18.5119.2%est. 96.5
193016.19/-16.6%16.1916.6%est. 97.4
194042.97/50.7043.8–51.6%42.7743.6%-/98.2
1950257.3/256.992.0%219.0078.4%279.0
1960286.3/290.553.6–54.2%236.8044.3%535.1
1970370.9/380.935.4–36.4%283.2027.0%1,049.0
1980907.7/909.032.4–32.6%711.9025.5%2,796.0
19903,233/3,20654.2–54.6%2,400.0040.8%5,915.0
2000a1 5,659a 55.8%a 3,450.0033.9%10,150.0
2001a2 5,792a 54.8%a 3,350.0031.6%10,550.0
2002a3 6,213a 57.1%a 3,550.0032.7%10,900.0
2003a 6,783a 59.9%a 3,900.0034.6%11,350.0
2004a 7,379a 61.0%a 4,300.0035.6%12,100.0
2005a4 7,918a 61.4%a 4,600.0035.7%12,900.0
2006a5 8,493a 62.1%a 4,850.0035.4%13,700.0
2007a6 8,993a 62.8%a 5,050.0035.3%14,300.0
2008a7 10,011a 67.9%a 5,800.0039.4%14,750.0
2009a8 11,898a 82.5%a 7,550.0052.4%14,400.0
2010a9 13,551a 91.6%a 9,000.0061.0%14,800.0
2011a10 14,781a 96.1%a 10,150.0065.8%15,400.0
2012a11 16,059a 100.2%a 11,250.0070.3%16,050.0
2013a12 16,732a 101.3%a 12,000.0072.6%16,500.0
2014a13 17,810a 103.4%a 12,800.0074.2%17,200.0
2015a14 18,138a 101.3/101.8%a 13,100.0073.3%17,900.0
2016
(Oct. '15 –
Jul. '16 only)
~19,428~106.1%~13,998.00~76.5%

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 [102] Fiscal Year estimates are derived from simple linear interpolation.

(a1) Audited figure was "about $5,659 billion." [103]

(a2) Audited figure was "about $5,792 billion." [104]

(a3) Audited figure was "about $6,213 billion." [104]

(a) Audited figure was said to be "about" the stated figure. [105]

(a4) Audited figure was "about $7,918 billion." [106]

(a5) Audited figure was "about $8,493 billion." [106]

(a6) Audited figure was "about $8,993 billion." [107]

(a7) Audited figure was "about $10,011 billion." [107]

(a8) Audited figure was "about $11,898 billion." [108]

(a9) Audited figure was "about $13,551 billion." [109]

(a10) GAO affirmed Bureau of the Public debt figure as $14,781 billion. [110]

(a11) GAO affirmed Bureau of the Public debt figure as $16,059 billion. [110]

(a12) GAO affirmed Bureau of the Fiscal Service's figure as $16,732 billion. [111]

(a13) GAO affirmed Bureau of the Fiscal Service's figure as $17,810 billion. [112]

(a14) GAO affirmed Bureau of the Fiscal Service's figure as $18,138 billion. [113]

Interest paid

Federal interest payments Federal interest payments.jpg
Federal interest payments
Fiscal
Year
Historical
debt outstanding,
$billions, US [114]
Interest paid
$billions, US [115]
Interest rate
201720,244458.52.26%
201619,573432.62.21%
201518,150402.42.22%
201417,824430.82.42%
201316,738415.72.48%
201216,066359.82.24%
201114,790454.43.07%
201013,562414.03.05%
200911,910383.13.22%
200810,025451.24.50%
20079,008430.04.77%
20068,507405.94.77%
20057,933352.44.44%
20047,379321.64.36%
20036,783318.14.69%
20026,228332.55.34%
20015,807359.56.19%
20005,674362.06.38%
19995,656353.56.25%
19985,526363.86.58%
19975,413355.86.57%
19965,225344.06.58%
19954,974332.46.68%
19944,693296.36.31%
19934,411292.56.63%
19924,065292.47.19%
19913,665286.07.80%

Foreign holders of US Treasury securities

The following is a list of the top foreign holders of US Treasury securities as listed by the US Treasury (revised by June 2019 survey): [51]

Leading foreign holders of US Treasury securities as of June 2019
Country or regionBillions of dollars (est.)Ratio of owned US debt
to 2017 GDP (est.) [116] [117]
Percent change since
June 2018
Flag of Japan.svg  Japan 1,122.923%+ 9%
Flag of the People's Republic of China.svg  China 1,112.55%− 7%
Flag of the United Kingdom.svg  United Kingdom 341.113%+24%
Flag of Brazil.svg  Brazil 311.715%+ 4%
Flag of Ireland.svg  Ireland 262.179%−13%
Flag of Switzerland.svg   Switzerland 232.934%− 1%
Flag of Luxembourg.svg  Luxembourg 231.0369%+ 5%
Flag of the Cayman Islands.svg  Cayman Islands 226.6n/a+18%
Flag of Hong Kong.svg  Hong Kong 215.663%+10%
Flag of Belgium (civil).svg  Belgium 203.641%+32%
Flag of Saudi Arabia.svg  Saudi Arabia 179.626%+ 9%
Flag of the Republic of China.svg  Taiwan 175.131%+ 8%
Flag of India.svg  India 162.76%+10%
Flag of Singapore.svg  Singapore 139.643%+14%
Flag of France.svg  France 131.65%+41%
Flag of South Korea.svg  South Korea 115.27%+ 9%
Flag of Canada (Pantone).svg  Canada 111.67%+ 9%
Flag of Norway.svg  Norway 99.325%+100%
other1,261.6n/a+ 7%
Grand total6,636.3n/a+ 7%

Statistics

Revenue and Expense as percent of GDP Revenue and Expense to GDP Chart 1993 - 2012.png
Revenue and Expense as percent of GDP

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. [125] The total public debt at the end of fiscal year 1998 was $5,478,189,000,000 in 1998 Dollars [128] or $5.3 trillion in 1996 Dollars.

International debt comparisons

Government debt as a percent of GDP by IMF (2018) Government debt gdp.png
Government debt as a percent of GDP by IMF (2018)
Gross debt as percentage of GDP
Entity2007201020112017/2018
United States62%92%102%108%
European Union59%80%83%82%
Austria62%78%72%78%
France64%82%86%97%
Germany65%82%81%64%
Sweden40%39%38%41%
Finland35%48%49%61%
Greece104%123%165%179%
Romania13%31%33%35%
Bulgaria17%16%16%25%
Czech Republic28%38%41%35%
Italy112%119%120%132%
Netherlands52%77%65%57%
Poland51%55%56%51%
Spain42%68%68%98%
United Kingdom47%80%86%88%
Japan167%197%204%236%
Russia9%12%10%19%
Asia 1 (2017+)237%40%41%80%

Sources: Eurostat, [129] International Monetary Fund, World Economic Outlook (emerging market economies); Organisation for Economic Co-operation and Development, Economic Outlook (advanced economies) [130] IMF, [131]

1China, Hong Kong, India, Indonesia, Korea, Malaysia, the Philippines, Singapore and Thailand 2Afghanistan, Armenia, Australia, Azerbaijan, Bangladesh, Bhutan, Brunei Darussalam, Cambodia, China, People's Republic of, Fiji, Georgia, Hong Kong SAR, India, Indonesia, Japan, Kazakhstan, Kiribati, Korea, Republic of, Kyrgyz Republic, Lao P.D.R., Macao SAR, Malaysia, Maldives, Marshall Islands, Micronesia, Fed. States of, Mongolia, Myanmar, Nauru, Nepal, New Zealand, Pakistan, Palau, Papua New Guinea, Philippines, Samoa, Singapore, Solomon Islands, Sri Lanka, Taiwan Province of China, Tajikistan, Thailand, Timor-Leste, Tonga, Turkey, Turkmenistan, Tuvalu, Uzbekistan, Vanuatu, Vietnam

Recent additions to the public debt of the United States

Deficit and Debt Increases 2001-2016 U.S. Total Deficits vs. National Debt Increases 2001-2010.png
Deficit and Debt Increases 2001–2016
Recent additions to U.S. public debt [132] [97] [98] [100]
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$281–2923.9–4.1%~$4,65064.6–65.2%
19957,600277–2813.7%~4,95064.8–65.6%
19968,000251–2603.1–3.3%~5,20065.0–65.4%
19978,5001882.2%~5,40063.2–63.8%
19988,950109–1131.2–1.3%~5,50061.2–61.8%
19999,500127–1301.3–1.4%5,65659.3%
200010,150180.2%5,67455.8%
2001$10,550$1331.3%$5,79254.8%
200210,9004213.9%6,21357.1%
200311,3505705.0%6,78359.9%
200412,1005964.9%7,37961.0%
200512,9005394.2%7,91861.4%
200613,7005754.2%8,49362.1%
200714,3005003.5%8,99362.8%
200814,7501,0186.9%10,01167.9%
2009$14,400$1,88713.1%$11,89882.5%
201014,8001,65311.2%13,55191.6%
2011 [133] 15,4001,2308.0%14,78196.1%
201216,0501,2788.0%16,059100.2%
201316,5006734.1%16,732101.3%
201417,2001,0786.3%17,810103.4%
201517,9003281.8%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

State and local government debt

U.S. states have a combined state and local government debt of about $3 trillion [144] and another $5 trillion in unfunded liabilities. [145] [146] [147]

See also

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