National debt of the United States: Difference between revisions

{{update|discoveries since 2018; date=January 2018|date=March 2020}}

{{Use mdy dates|date=August 2011}}

* "Debt held by government accounts" or "[[intragovernmental debt]]" – is non-marketable Treasury securities held in accounts of programs administered by the federal government, such as the [[Social Security Trust Fund]]. Debt held by government accounts represents the cumulative surpluses, including interest earnings, of various government programs that have been invested in Treasury securities.

 

 

 

During the [[COVID-19 pandemic in the United States|COVID-19 pandemic]], the [[U.S. federal government response to the COVID-19 pandemic|federal government spent trillions]] in virus aid and economic relief. The [[Congressional Budget Office]] (CBO) estimated that the budget deficit for fiscal year 2020 would increase to $3.3&nbsp;trillion or 16% GDP, more than triple that of 2019 and the largest as % GDP since 1945.<ref name="CBO_Aug2020">{{Cite web| title = An update to the budget outlook 2020 to 2030 | access-date = September 6, 2020| date = September 2, 2020| url=https://www.cbo.gov/publication/56517}}</ref>

 

[[File:Debt to GDP.webp|thumb|350px|Debt to GDP

==History==

{{Main|History of the United States public debt}}

The [[United States federal government]] has continuously had a fluctuating [[Government debt|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 [[GDP]]. The United States public debt as a percentage of GDP reached its highest level during [[Harry S. Truman|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 economic expansion|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]].

 

The national debt can also be classified into marketable or non-marketable securities. Most of the marketable securities are [[United States Treasury security|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 $2.82&nbsp;trillion (~${{Format price|{{Inflation|index=US-GDP|value=2820000000000|start_year=2017}}}} in {{Inflation/year|US-GDP}}) in 2017.<ref>{{cite web|url=http://www.ssa.gov/oact/tr/2012/tr2012.pdf |title=The 2012 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds |website=Ssa.gov |access-date=2016-08-27}}</ref>

 

 

===Accounting treatment===

 

===Foreign holdings===

[[File:MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES.webp|thumb|right|290px|Foreign holders of Treasury Securities <br> April 2021 - April 2022]]

As of October 2018, foreigners owned $6.2&nbsp;trillion of U.S. debt, or approximately 39% of the debt held by the public of $16.1&nbsp;trillion and 28% of the total debt of $21.8&nbsp;trillion.<ref>{{cite web|url=http://www.treasurydirect.gov/govt/reports/pd/mspd/2014/opds092014.pdf|title=Treasury Direct-Monthly Statement of the Public Debt Held by the U.S.|date=September 2014|access-date=November 30, 2014}}</ref> In December 2020, foreigners held 33% ($7 trillion out of $21.6 trillion) of publicly held US debt; of this $7 trillion, $4.1 trillion (59.2%) belonged to foreign governments and $2.8 trillion (40.8%) to foreign investors. Including both private and public debt holders, the top three December 2020 national holders of American public debt are [[Japan]] ($1.2 trillion or 17.7%), [[China]] ($1.1 trillion or 15.2%), and the [[United Kingdom]] ($0.4 trillion or 6.2%).<ref>{{cite report |author2=Jared C. Nagel |author1=Marc Labonte |date=July 9, 2021 |title=Foreign Holdings of Federal Debt |url=https://fas.org/sgp/crs/misc/RS22331.pdf |publisher=[[Congressional Research Service]] |page=ii |access-date=July 21, 2021}}</ref>

]]

[[File:U.S. Federal Net Interest as Pct GDP.png|thumb|right|upright=1.35|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.]]

 

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.<ref>[https://www.cbo.gov/publication/51384 CBO-Updated Budget Projections 2016–2026], cbo.gov; retrieved May 11, 2016.</ref> 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% of GDP, to $799 billion in 2024, or 3.0% of GDP—the highest ratio since 1996."<ref>[https://www.cbo.gov/publication/45684 CBO-Projection of Federal Interest Payments], cbo.gov, September 3, 2014.</ref>

 

In October 2023, yields for 10-year [[United States Treasury security#Treasury note|Treasury notes]] breached 5% as traders adjusted their assessment of United States' fiscal position and lowered their expectation that Congress or the White House would take any action to improve it. The impact was felt by homebuyers, with 30-year mortgage rate at its highest in two decades, and corporations facing higher costs of borrowing. Interests paid by the federal government jumped by $184 billion during the 2022 fiscal year and are still climbing.<ref>{{Cite news |date=2023-10-23 |title=Why Bond Yields Are Sending a Warning Signal to Washington |language=en |work=Bloomberg.com |url=https://www.bloomberg.com/news/newsletters/2023-10-23/with-us-debt-piling-up-bond-market-is-sending-a-warning-signal |access-date=2023-10-26}}</ref>

 

===Chinese holdings of U.S. debt===

 

A 2010 article by [[James K. Galbraith]] in ''[[The Nation]]'', defends deficits and dismisses concerns over foreign holdings of United States government debt denominated in U.S. dollars, including China's holdings.<ref name="james">: "...&nbsp;What about indebtedness to foreigners?&nbsp;... To acquire [U.S. gov't bonds], China must export goods to us, not offset by equivalent imports. That is a cost to China. It's a cost [[Government of China|Beijing]] is prepared to pay, for its own reasons: export industries promote learning, technology transfer and product quality improvement, and they provide jobs to migrants from the countryside. But that's China's business. For China, the bonds themselves are a sterile [[hoard]]. There is almost nothing that Beijing can do with them;&nbsp;... its stock of T-bonds will just go on growing. And we will pay interest on it, not with real effort but by typing numbers into computers. There is no burden associated with this; not now and not later." From [http://www.thenation.com/article/defense-deficits/ "In Defense of Deficits"] by [[James K. Galbraith]], ''[[The Nation]]'', March 4, 2010.</ref> In 2010, [[Warren Mosler]], wrote that "When[ever] the Chinese redeem those T-securities, the money is transferred back to China's checking account at the Fed. During the entire purchase and redemption process, the dollars never leave the Fed."<ref name="mosler">"...&nbsp;The Chinese buy U.S. T-securities by transferring U.S. dollars (not yuan) from their checking account at the Federal Reserve Bank to China's T-security account, also at the Federal Reserve Bank. When[ever] the Chinese redeem those T-securities, the money is transferred back to China's checking account at the Fed. During the entire purchase and redemption process, the dollars never leave the Fed." [http://moslereconomics.com/2010/09/23/what-policies-for-global-prosperity/ "What Policies for Global Prosperity?"] by [[Warren Mosler]], September 23, 2010.</ref> Australian economist [[Bill Mitchell (economist)|Bill Mitchell]] argued that the United States government had a "nearly infinite capacity...to spend."<ref name="mitchell">[[Bill Mitchell (economist)|Mitchell, Bill]], [[University of Newcastle (Australia)]]. [http://bilbo.economicoutlook.net/blog/?p=18813 "The nearly infinite capacity of the US government to spend"] (March 28, 2012); [http://bilbo.economicoutlook.net/blog/?p=25161 "The US government can buy as much of its own debt as it chooses"] (August 27, 2013)</ref> Against the backdrop of escalating Sino-U.S. tensions in 2020, Yuzo Sakai, a manager at Ueda Totan Forex Ltd., said that if China undertakes a massive sales of U.S. bonds, investors may flock to the [[Japanese yen]] as a safe-haven currency. Since 2018, China had been gradually decreasing its holdings of U.S. federal debt, bringing the total to $1.07 trillion in June 2020, behind Japan who became the biggest foreign creditor of the United States. Stephen Nagy, a professor at the [[International Christian University]], said a sell-off by China "might damage the United States in the short term" but also cause "critical economic instability" in the Chinese and global economy. [[Jeff Kingston]], a professor and director of Asian Studies at [[Temple University, Japan Campus|Temple University, Japan]], echoed the view, adding that dumping would lower the price of U.S. bonds, making it more attractive to other countries. According to an [[institutional investor]], however, it may be difficult for Japan to boost its already large holdings of U.S. government debt, as such a move could be seen as "currency manipulation".<ref>{{Cite web |last=Tachikawa |first=Tomoyuki |date=Aug 20, 2020 |title=Fears grow over China's possible massive sales of U.S. debt as weapon |url=https://english.kyodonews.net/news/2020/08/fb165250518a-focus-fears-grow-over-chinas-possible-massive-sales-of-us-debt-as-weapon.html |website=Kyodo News+}}</ref>

The [[COVID-19 pandemic in the United States]] impacted the economy significantly beginning in March 2020, as businesses were shut-down and furloughed or fired personnel. About 16&nbsp;million persons filed for [[Unemployment benefits|unemployment insurance]] in the three weeks ending April 9. It caused the number of unemployed persons to increase significantly, which is expected to reduce tax revenues while increasing [[automatic stabilizer]] spending for unemployment insurance and [[Supplemental Nutrition Assistance Program|nutritional support]]. As a result of the adverse economic impact, both state and federal budget deficits will dramatically increase, even before considering any new legislation.<ref>{{Cite news |last1=Cohen |first1=Patricia |last2=Hsu |first2=Tiffany |date=April 9, 2020 |title='Sudden Black Hole' for the Economy With Millions More Unemployed |newspaper=[[The New York Times]] |url=https://www.nytimes.com/2020/04/09/business/economy/unemployment-claim-numbers-coronavirus.html}}</ref>

 

 

CBO provided a preliminary score for the CARES Act on April 16, 2020, estimating that it would increase federal deficits by about $1.8&nbsp;trillion over the 2020-2030 period. The estimate includes:

The [[Committee for a Responsible Federal Budget]] estimated that the budget deficit for fiscal year 2020 would increase to a record $3.8&nbsp;trillion (~${{Format price|{{Inflation|index=US-GDP|value=3800000000000|start_year=2020}}}} in {{Inflation/year|US-GDP}}), or 18.7% GDP.<ref name="CRFB_CARES1">{{Cite web |title=NYT-Reuters-U.S. Deficit to Soar to Record $3.8 Trillion in 2020, Budget Watchdog Group Says-April 13, 2020 |url=https://www.nytimes.com/reuters/2020/04/13/us/13reuters-health-coronavirus-usa-budget.html |website=[[The New York Times]]}}</ref> For scale, in 2009 the budget deficit reached 9.8% GDP ($1.4&nbsp;trillion nominal dollars) in the depths of the [[Great Recession]]. CBO forecast in January 2020 that the budget deficit in FY2020 would be $1.0&nbsp;trillion (~${{Format price|{{Inflation|index=US-GDP|value=1000000000000|start_year=2020}}}} in {{Inflation/year|US-GDP}}), prior to considering the impact of the COVID-19 pandemic or CARES.<ref>{{Cite web |date=January 28, 2020 |title=The Budget and Economic Outlook: 2020 to 2030 &#124; Congressional Budget Office |url=https://www.cbo.gov/publication/56020 |website=www.cbo.gov}}</ref> CFRB further estimated that the national debt would reach 106% of U.S. GDP in September 2020, a record since the aftermath of World War II.<ref>{{cite news |last1=Lynch |first1=David J. |date=18 April 2020 |title=Record government and corporate debt risks 'tipping point' after pandemic passes |language=en |newspaper=[[The Washington Post]] |url=https://www.washingtonpost.com/us-policy/2020/04/18/record-government-corporate-debt-risk-tipping-point-after-pandemic-passes/ |access-date=19 April 2020}}</ref>

 

 

==Appendix==

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!2016

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!2018

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!2020

 

===Interest paid===

Note that this is all interest the U.S. paid, including interest credited to Social Security and other government trust funds, not just "interest on debt" frequently cited elsewhere.

[[File:Federal interest payments 2023.webp|thumb|350px|Federal interest payments <br> Quarterly data annualized]]

===Foreign holders of U.S. Treasury securities===

{{main|United States Treasury security#International}}

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