The
United States government debt, commonly called the "
public debt" or the "
national debt", is the amount of money owed by the
Federal government of the United StatesThe federal government of the United States is the central government entity established by the United States Constitution, which shares sovereignty over the United States with the governments of the individual U.S. states. The federal government has three branches: the legislative, executive, and...
to holders of
U.S. debt instrumentsA United States Treasury security is a government debt issued by the United States Department of the Treasury through the Bureau of the Public Debt. Treasury securities are the debt financing instruments of the United States Federal government, and they are often referred to simply as Treasuries...
.
Gross Debt is the national debt plus intragovernmental debt obligations or debt held by trust funds like the
Social Security Trust FundThe Social Security Trust Fund is the means by which the federal government of the United States accounts for excess paid-in contributions from workers and employers to the Social Security system that are not required to fund current benefit payments to retirees, survivors, and the disabled or to...
. Types of securities sold by the government include, but are not limited to, Treasury Bills, Notes, Bonds, TIPS, United States Savings Bonds, and State and Local Government Series securities.
The annual government
deficit refers to the difference between government receipts and spending. Logically, the deficit is equal to annual increase in the debt. However, there is certain spending (supplemental appropriations and the surplus tax receipts in the Social Security program) that add to the debt but are excluded from the deficit. For example, during 2008 the budget deficit was $455 billion but the national debt increased by $1 trillion, the first time it has done so in a single year. The total debt has increased over $500 billion each year since FY 2003, considering both budgeted and non-budgeted spending.
History
The United States has had public debt since its inception. Debts incurred during the
American Revolutionary WarThe American Revolutionary War , also sometimes known as the American War of Independence, began as a war between the Kingdom of Great Britain and thirteen united former British colonies in North America, and concluded in a global war between several European great powers...
and under the
Articles of ConfederationThe Articles of Confederation and Perpetual Union, commonly referred to as the Articles of Confederation, was the first constitution of the United States of America and legally established the union of the states. The Second Continental Congress appointed a committee to draft the Articles in June...
led to the first yearly reported value of $75,463,476.52 on January 1, 1791. Over the following 45 years, the debt grew, briefly contracted to zero on January 8, 1835 under President
Andrew JacksonAndrew Jackson was the seventh President of the United States . He was military governor of Florida , commander of the American forces at the Battle of New Orleans , and eponym of the era of Jacksonian democracy...
but then quickly grew into the millions again.
The first dramatic growth spurt of the debt occurred because of the
Civil WarThe American Civil War , also known as the War Between the States and several other names, was a civil war in the United States of America. Eleven Southern slave states declared their secession from the United States and formed the Confederate States of America...
. The debt was just $65 million in 1860, but passed $1 billion in 1863 and had reached $2.7 billion following the war. The debt slowly fluctuated for the rest of the century, finally growing steadily in the 1910s and early 1920s to roughly $22 billion as the country paid for involvement in
World War IWorld War I , also known as the First World War, the Great War, and the War to End All Wars, was a global military conflict which involved most of the world's great powers, assembled in two opposing alliances: the Triple Entente and the Triple Alliance...
.
The buildup and involvement in
World War IIWorld War II, or the Second World War , was a global military conflict which involved a majority of the world's nations, including all great powers, organized into two opposing military alliances: the Allies and the Axis...
plus other social programs during the F.D. Roosevelt and Truman presidencies in the 1930s and 40's caused a sixteen-fold increase in the debt from $16 billion in 1930 to $260 billion in 1950. After this period, the debt's growth closely matched the rate of
inflationIn economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the price level rises, each unit of currency buys fewer goods and services; consequently, inflation is also an erosion in the purchasing power of money – a loss of real...
where it tripled in size from $260 billion in 1950 to around $909 billion in 1980. Nominal debt in dollars quadrupled during the Reagan and Bush presidencies from 1980 to 1992, and remained at about the same level by the end of the Clinton presidency in 2000. During the administration of President George W. Bush, the debt increased from $5.6 trillion in January 2001 to $10.7 trillion by December 2008, rising from 54% of GDP to 75% of GDP. The debt is projected to continue increasing significantly during President Obama's administration to 100% of GDP, its highest level since World War II.
| Year |
Gross Debt in Billions |
as % of GDP |
| 1910 |
2.6 |
n/a |
| 1920 |
25.9 |
n/a |
| 1930 |
16.2 |
n/a |
| 1940 |
43.0 |
52.4 |
| 1950 |
257.4 |
94.1 |
| 1960 |
290.5 |
56.1 |
| 1970 |
380.9 |
37.6 |
| 1980 |
909.0 |
33.3 |
| 1990 |
3,206.3 |
55.9 |
| 2000 |
5,628.7 |
58.0 |
| 2001 |
5,769.9 |
57.4 |
| 2002 |
6,198.4 |
59.7 |
| 2003 |
6,760.0 |
62.6 |
| 2004 |
7,354.7 |
63.9 |
| 2005 |
7,905.3 |
64.6 |
| 2006 |
8,451.4 |
65.0 |
| 2007 |
8,950.7 |
65.6 |
| 2008 |
9,985.8 |
70.2 |
| 2009 (est.) |
12,867.5 |
90.4 |
| 2010 (est.) |
14,456.3 |
98.1 |
| 2011 (est.) |
15,673.9 |
101.0 |
| 2012 (est.) |
16,565.7 |
100.6 |
| 2013 (est.) |
17,440.2 |
99.7 |
| 2014 (est.) |
18,350.0 |
99.8 |
As of 2007, the debt of the United States ranked as the 23rd-largest in the world as a percentage of GDP.
Debt ceiling
The Second Liberty Bond Act of 1917 established a statutory limit on federal debt. Congress had previously approved each debt issuance separately. The debt limit provided the U.S. Treasury with more leeway in the administration of debt, allowing for modern management techniques in government finance.
The U.S. Treasury Department now conducts more than 200 sales of debt by auction every year. The Treasury has been granted authority by Congress to issue such debt as was needed to fund government operations as long as the total debt (excepting some small special classes) does not exceed a stated ceiling.
The
United States CongressThe United States Congress is the bicameral legislature of the federal government of the United States of America, consisting of two houses, the Senate and the House of Representatives. Both senators and representatives are chosen through direct election....
has raised the debt limit several times in recent years. The debt limit was most recently raised to $12.104 trillion by the
American Recovery and Reinvestment Act of 2009The American Recovery and Reinvestment Act of 2009, abbreviated ARRA , is an economic stimulus package enacted by the 111th United States Congress in February 2009. The Act of Congress was based largely on proposals made by President Barack Obama and was intended to provide a stimulus to the U.S....
(H.R.1), which was signed into law on February 17, 2009 (P.L. 111-5).
Public and government accounts
The national debt is broken down into 2 main categories:
- Securities held by the public
-
- Marketable securities
- Non-marketable securities
- Securities held by government accounts
The values for fiscal years 1999-2008 are published by the treasury and about 60% of the debt is held by the public.
As of 2008, Social Security Federal
Old-Age and Survivors Insurance Trust FundThe Social Security Trust Fund is the means by which the federal government of the United States accounts for excess paid-in contributions from workers and employers to the Social Security system that are not required to fund current benefit payments to retirees, survivors, and the disabled or to...
holds about half of the government held portion of the debt at 2.2 trillion dollars, with other large holders including the Federal Housing Administration, the Federal Savings and Loan Corporation's Resolution Fund and the Federal Hospital Insurance Trust Fund. Most of the public debt is in notes and bills with only about one trillion bonds and inflation protected bonds.
Estimated ownership
Because there is a large variety of people who own the notes, bills, and bonds in the "public" portion of the debt, the U.S. Treasury also publishes data which groups the types of holders by a few, general categories to get a good picture of who owns United States debt. In this data set, some of the public portion is moved and combined with the total government portion because this amount is owned by the Federal Reserve as part of United States monetary policy. (See
Federal Reserve SystemThe Federal Reserve System is the central banking system of the United States. It was created in 1913 by the enactment of the Federal Reserve Act, largely as a response to a series of financial panics or bank runs, particularly a severe panic in 1907...
) As is apparent from the chart, a little more 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. Below is a chart for the data as of June 2008:
Fannie Mae and Freddie Mac obligations excluded
Although not included in the figures reported by the government, the U.S. government has moved to more explicitly support the soundness of obligations of Freddie Mac and Fannie Mae, starting in July via the
Housing and Economic Recovery Act of 2008The Housing and Economic Recovery Act of 2008 designed primarily to address the subprime mortgage crisis, was passed by the United States Congress on July 24, 2008 and signed by President George W. Bush on July 30, 2008...
, and the September 7, 2008
Federal Housing Finance AgencyThe Federal Housing Finance Agency is an independent federal agency created as the successor regulatory agency resulting from the statutory merger of the Federal Housing Finance Board and the Office of Federal Housing Enterprise Oversight , absorbing the powers and regulatory authority of both...
(FHFA) conservatorship of both government sponsored enterprises (GSEs). The on- or off-balance sheet obligations of those two independent GSEs is just over $5 trillion.
The government accounts for these corporations as if they are unconnected to its balance sheet. The U.S. Treasury contracted at the inception of the conservatorship to receive US$1 billion in senior preferred shares, and a warrant for 79.9% of the common shares from each GSE, as a fee to fund, as needed, up to US$100 billion total for each GSE (in exchange for more senior preferred stock), in order to maintain solvency and adequate capital ratios at the GSEs, thereby supporting all senior (normal) liabilities, subordinated indebtedness, and guarantees of the two firms. Some observers see this as an effective nationalization of the companies that ultimately places taxpayers at risk for all their liabilities
The net exposure to taxpayers is difficult to determine at the time of the takeover and depends on several factors, such as declines in housing prices and losses on mortgage assets in the future. The
Congressional Budget OfficeThe Congressional Budget Office is a federal agency within the legislative branch of the United States government. It is a government agency that provides economic data to Congress....
has recommended incorporating the assets and liabilities of the two companies into the federal budget due to the degree of government control over the entities.
The 5-year
credit default swapA credit default swap is a swap contract in which the buyer of the CDS makes a series of payments to the seller and, in exchange, receives a payoff if a credit instrument goes into default...
spread for U.S. treasuries had risen to 18 basis points per annum as of 9 September 2008 as a result of market perception regarding the increased debt load of the government.
On January 8, 2009,
Moody'sMoody's Corporation is the holding company for Moody's Investors Service which performs financial research and analysis on commercial and government entities. The company also ranks the credit-worthiness of borrowers using a standardized ratings scale. The company has a 40% share in the world...
said that only 4 of the 12
Federal Home Loan BanksThe Federal Home Loan Banks provide stable, on-demand, low-cost funding to American financial institutions for home mortgage loans, small business, rural, agricultural, and economic development lending. With their members, the FHLBank System represents the largest collective source of home mortgage...
(FHLB) may be able to maintain minimum required capital levels and the U.S. government may need to put some of them into
conservatorshipConservatorship is a legal concept in the United States of America, where an entity or organization is subjected to the legal control of an external entity or organization, known as a conservator. Conservatorship is established either by court order or via a statutory or regulatory authority...
.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aeB5GL6uSr3A&refer=home According to
BloombergBloomberg L.P. is a closely-held financial software, news and data company. It has a one-third share of the market, similar to Thomson Reuters. Bloomberg L.P...
, the FHLB is the largest U.S. borrower after the federal government.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aeB5GL6uSr3A&refer=home
Guaranteed obligations excluded
Starting in late 2008, the U.S. federal government is guaranteeing large amounts of obligations relating to mutual funds, banks, and corporations under several new programs designed to deal with the problems initiated by the Liquidity crisis of September 2008. Guarantees are off-balance sheet and therefore excluded in the calculation of federal debt. The funding of direct investments made in response to the crisis, such as those made under the
Troubled Assets Relief ProgramThe Troubled Asset Relief Program is a program of the United States government to purchase assets and equity from financial institutions to strengthen its financial sector...
, are captured by the debt totals.
Foreign ownership
A traditional defense of the national debt is that Americans "owe the debt to themselves", but that is becoming increasingly less accurate. The US debt in the hands of foreign governments was 25% of the total in 2007, virtually double the 1988 figure of 13%. Despite the declining willingness of foreign investors to continue investing in US dollar denominated instruments as the US dollar fell in 2007, the U.S. Treasury statistics indicate that, at the end of 2006, non-US citizens and institutions held 44% of federal debt
held by the public. About 66% of that 44% was held by the
central bankA central bank, reserve bank, or monetary authority is a banking institution granted the exclusive privilege to a lend a government its currency...
s of other countries, in particular the central banks of
Japanis an island country in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, People's Republic of China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
and
ChinaThe People's Bank of China is the central bank of the People's Republic of China with the power to control monetary policy and regulate financial institutions in mainland China...
. In May 2009, the US owed China $772 billion. In total, lenders from Japan and China held 44% of the foreign-owned debt. This exposure to potential financial or political risk should foreign banks stop buying Treasury securities or start selling them heavily was addressed in a recent report issued by the Bank of International Settlements which stated, "'Foreign investors in U.S. dollar assets have seen big losses measured in dollars, and still bigger ones measured in their own currency. While unlikely, indeed highly improbable for public sector investors, a sudden rush for the exits cannot be ruled out completely."
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. In September 2009 China, India and Russia said they were interested in buying IMF gold to diversify their dollar-denominated securities.
A list of the foreign owners of U.S. Treasury securities is listed by the U.S. Treasury:
| Foreign owners of US Treasury Securities (July 2009) |
| Nation |
billions of dollars |
percentage |
People's Republic of ChinaThe People's Republic of China , commonly known as China, is the largest country in East Asia and the most populous in the world with over 1.3 billion people, approximately one-fifth of the world's population...
|
800.5 |
23.35% |
Japanis an island country in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, People's Republic of China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
|
724.5 |
21.13% |
United KingdomThe United Kingdom of Great Britain and Northern Ireland is a sovereign state located off the northwestern coast of continental Europe. It is an island country, spanning an archipelago including Great Britain, the northeastern part of Ireland, and many small islands...
|
220.2 |
6.42% |
| Caribbean banking centers This is a list of the central banks and currencies of the Caribbean.The Eastern Caribbean Central Bank serves 8 countries and territories:-See also:*Central banks and currencies of Africa...
|
193.3 |
5.64% |
Oil exportersThe Organization of the Petroleum Exporting Countries is a cartel of twelve countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965, and hosts regular...
|
189.2 |
5.52% |
BrazilBrazil , officially the Federative Republic of Brazil , is a country in South America. It is the fifth largest country by geographical area, occupying nearly half of South America, the fifth most populous country, and the fourth most populous democracy in the world. Bounded by the Atlantic Ocean...
|
138.1 |
4.03% |
RussiaRussia , officially known as both Russia and the Russian Federation , is a country in northern Eurasia . It is a semi-presidential republic, comprising 83 federal subjects...
|
118.0 |
3.44% |
Hong KongHong Kong , officially the Hong Kong Special Administrative Region, is a highly autonomous territory of the People's Republic of China, facing Guangdong to the north and the South China Sea to the east, west and south...
|
115.3 |
3.36% |
LuxembourgLuxembourg , officially the Grand Duchy of Luxembourg , is a small, landlocked country in western Europe, bordered by Belgium, France, and Germany...
|
92.2 |
2.69% |
Taiwan R.O.C.The Republic of China , commonly known as Taiwan, is a state in East Asia that has evolved from a single-party state with full global recognition and jurisdiction over China into a democratic state with limited international recognition and jurisdiction only over Taiwan and minor islands, though it...
|
77.4 |
2.26% |
SwitzerlandSwitzerland , officially the Swiss Confederation , is a federal republic consisting of 26 states named cantons, with Bern as the seat of the federal authorities...
|
68.1 |
1.99% |
GermanyGermany , officially the Federal Republic of Germany , is a country in Central Europe. It is bordered to the north by the North Sea, Denmark, and the Baltic Sea; to the east by Poland and the Czech Republic; to the south by Austria and Switzerland; and to the west by France, Luxembourg, Belgium,...
|
56.3 |
1.64% |
SingaporeSingapore , officially the Republic of Singapore, is an island city-state located at the southern tip of the Malay Peninsula, lying north of the equator, south of the Malaysian state of Johor and north of Indonesia's Riau Islands. At , Singapore is a microstate and the smallest nation in Southeast...
|
42.4 |
1.24% |
IndiaIndia, officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the south, the Arabian Sea on the west, and the Bay of Bengal...
|
38.9 |
1.13% |
Republic of IrelandIreland is a country in north-western Europe. The modern sovereign state occupies about five-sixths of the island of Ireland, which was partitioned on 3 May 1921. It is a parliamentary democracy and a republic...
|
38.6 |
1.13% |
KoreaKorea is a civilization and formerly unified nation currently divided into two states. Located on the Korean Peninsula, it borders China to the northwest, Russia to the northeast, and is separated from Japan to the east by the Korea Strait....
|
37.6 |
1.10% |
ThailandThe Kingdom of Thailand is an independent country that lies in the heart of Southeast Asia.It is bordered to the north by Laos and Burma, to the east by Laos and Cambodia, to the south by the Gulf of Thailand and Malaysia, and to the west by the Andaman Sea and Burma...
|
31.4 |
0.92% |
NorwayNorway , officially the Kingdom of Norway, is a country in Northern Europe occupying the western portion of the Scandinavian Peninsula, as well as Jan Mayen and the Arctic archipelago of Svalbard under the Spitsbergen Treaty...
|
28.9 |
0.84% |
MexicoThe United Mexican States , commonly known as Mexico , is a federal constitutional republic in North America. It is bordered on the north by the United States; on the south and west by the Pacific Ocean; on the southeast by Guatemala, Belize, and the Caribbean Sea; and on the east by the Gulf of...
|
27.7 |
0.81% |
TurkeyTurkey , known officially as the Republic of Turkey , is a Eurasian country that stretches across the Anatolian peninsula in Western Asia and Thrace in the Balkan region of southeastern Europe...
|
27.3 |
0.80% |
FranceFrance , officially the French Republic , is a country located in Western Europe, with several overseas islands and territories located on other continents. Metropolitan France extends from the Mediterranean Sea to the English Channel and the North Sea, and from the Rhine to the Atlantic Ocean...
|
24.6 |
0.72% |
NetherlandsThe Netherlands is a country in Northwestern Europe, constituting the major portion of the Kingdom of the Netherlands. It is a parliamentary democratic constitutional monarchy. The Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east...
|
21.5 |
0.63% |
CanadaCanada is a country occupying most of northern North America, extending from the Atlantic Ocean in the east to the Pacific Ocean in the west and northward into the Arctic Ocean...
|
20.2 |
0.59% |
EgyptEgypt , officially the Arab Republic of Egypt, is a country mainly in North Africa, with the Sinai Peninsula forming a land bridge in Western Asia...
|
18.6 |
0.54% |
ItalyItaly , officially the Italian Republic , is a country located on the Italian Peninsula in Southern Europe and on the two largest islands in the Mediterranean Sea, Sicily and Sardinia. Italy shares its northern, Alpine boundary with France, Switzerland, Austria and Slovenia...
|
17.4 |
0.51% |
IsraelIsrael officially the State of Israel , is a developed state in Western Asia located on the eastern shore of the Mediterranean Sea. It borders Lebanon in the north, Syria in the northeast, Jordan in the east, and Egypt on the southwest, and contains geographically diverse features within its...
|
16.9 |
0.49% |
SwedenSweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe...
|
16.5 |
0.48% |
BelgiumThe Kingdom of Belgium is a country in northwest Europe. It is a founding member of the European Union and hosts its headquarters, as well as those of other major international organizations, including NATO...
|
15.7 |
0.46% |
ColombiaColombia , officially the Republic of Colombia , is a constitutional republic in northwestern South America. Colombia is bordered to the east by Venezuela and Brazil; to the south by Ecuador and Peru; to the north by the Caribbean Sea; to the northwest by Panama; and to the west by the Pacific Ocean...
|
14.8 |
0.43% |
ChileChile, officially the Republic of Chile , is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east, and the Drake Passage in the far...
|
13.5 |
0.39% |
MalaysiaMalaysia is a country in Southeast Asia that consists of thirteen states and three Federal Territories, with a total landmass of . The capital city is Kuala Lumpur, while Putrajaya is the seat of the federal government. The population stands at over 28 million inhabitants...
|
11.9 |
0.35% |
PhilippinesThe Philippines officially known as the Republic of the Philippines, is a country in Southeast Asia with Manila as its capital city. It comprises 7,107 islands in the western Pacific Ocean....
|
11.4 |
0.33% |
| All other |
159.6 |
4.66% |
| Grand Total |
3428.0 |
|
Statistics and comparables
- U.S. official gold reserves
Gold reserves are held by central banks as a store of value. In 2006, it was estimated that all the gold ever mined totaled 158,000 tonnes. One tonne of gold equated to a value of US$30.27 million as of February 14, 2009...
(totaling 261.5 million troy ounceThe troy ounce is a unit of imperial measure. In the present day it is most commonly used to gauge the weight and therefore the price of precious metals....
s, as of August 2009) have a book value (at $800 per troy ounceThe troy ounce is a unit of imperial measure. In the present day it is most commonly used to gauge the weight and therefore the price of precious metals....
) of approximately $209 billion, foreign exchange reservesForeign exchange reserves in a strict sense are only the foreign currency deposits and bonds held by central banks and monetary authorities. However, the term in popular usage commonly includes foreign exchange and gold, SDRs and IMF reserve positions...
$63 billion and the Strategic Petroleum ReserveThe Strategic Petroleum Reserve is an emergency fuel store of oil maintained by the United States Department of Energy.The US SPR is the largest emergency supply in the world with the current capacity to hold up to . The second largest emergency supply of oil is Japan's with a 2003 reported...
$67 billion (at a Market Price of $104/barrel with a $15/barrel discount for sour crudeSour crude oil is crude oil containing the impurity sulfur. It is common to find crude oil containing some impurities. When the total sulfur level in the oil is > 0.5 % the oil is called "sour"....
).
- The national debt equates to $30,400 per person U.S. population
In biology, a population is the collection of inter-breeding organisms of a particular species; in sociology, a collection of human beings. Individuals within a population share a factor may be reduced by statistical means, but such a generalization may be too vague to imply anything...
, or $60,100 per head of the U.S. working population, as of February 2008.
- In 2003 $318 billion was spent on interest
Interest is a fee paid on borrowed assets. It is the price paid for the use of borrowed money, or, money earned by deposited funds. Assets that are sometimes lent with interest include money, shares, consumer goods through hire purchase, major assets such as aircraft, and even entire factories in...
payments servicing the debt, out of a total taxTo tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law.Taxes are also imposed by many subnational entities...
revenue of $1.95 trillion—that is, 16.3% of total tax revenue.
- Total U.S. household debt, including mortgage loan
A mortgage loan is a loan secured by real property through the use of a document which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
and consumer debtConsumer debt is consumer credit which is outstanding. In macroeconomic terms, it is debt which is used to fund consumption rather than investment....
, was $11.4 trillion in 2005. By comparison, total U.S. household assets, including real estateReal estate is a legal term that encompasses land along with anything permanently affixed to the land, such as buildings, specifically property that is fixed in location.
"Real estate" The American Heritage Dictionary of the English Language, Fourth Edition. Houghton Mifflin...
, equipment, and financial instruments such as mutual fundA mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities. The mutual fund will have a fund manager that trades the pooled money on a regular basis...
s, was $62.5 trillion in 2005.
- Total U.S Consumer Credit Card revolving credit
Revolving credit is a type of credit that does not have a fixed number of payments, in contrast to installment credit. Examples of revolving credits used by consumers include credit cards...
debt was $931.0 billion in April 2009.
- Total third world debt
Developing countries' debt is external debt incurred by the governments of Third World countries, generally in quantities beyond the governments' political ability to repay...
was estimated to be $1.3 trillion in 1990.
- The U.S. balance of trade
The balance of trade is the difference between the monetary value of exports and imports of output in an economy over a certain period. It is the relationship between a nation's imports and exports...
deficit in goods and services was $725.8 billion in 2005.
- The global market capitalization
Market capitalization/capitalisation is a measurement of the size of a business enterprise equal to the share price times the number of shares outstanding of a public company...
for all stock marketA stock market is a public market for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately....
s was $40 trillion in September 2008.
Risks to the U.S. dollar
A variety of factors are placing increasing pressure on the value of the U.S. dollar, increasing the risk of devaluation or inflation and encouraging challenges to dollar's role as the world's
reserve currencyA reserve currency is a currency which is held in significant quantities by many governments and institutions as part of their foreign exchange reserves...
. If another currency or basket of currencies replaced the dollar as the reserve currency, the U.S. would face higher interest rates to attract capital, reducing economic growth for the long-term.
The EconomistThe Economist is an English-language weekly news and international affairs publication owned by The Economist Newspaper Ltd. and edited in an office in the City of Westminster, London. Continuous publication began under founder James Wilson in September 1843. While The Economist calls itself a...
wrote in May 2009: "Having spent a fortune bailing out their banks, Western governments will have to pay a price in terms of higher taxes to meet the interest on that debt. In the case of countries (like Britain and America) that have trade as well as budget deficits, those higher taxes will be needed to meet the claims of foreign creditors. Given the political implications of such austerity, the temptation will be to default by stealth, by letting their currencies depreciate. Investors are increasingly alive to this danger..."
Key drivers of these risks relate to the unwillingness of the U.S. to live within its means, both from a budget deficit and trade deficit standpoint. For example, the
Government Accountability OfficeThe Government Accountability Office is the audit, evaluation, and investigative arm of the United States Congress. It is located in the legislative branch of the United States government....
(GAO), the Federal Government's auditor, argues that the U.S. is on a fiscally "unsustainable" path and that politicians and the electorate have been unwilling to change this path. The 2010 U.S. budget indicates annual debt increases of nearly $1 trillion annually through 2019, with an unprecedented $1.0 trillion debt increase in 2009. By 2019 the U.S. national debt will be $18.4 trillion, approximately 148% of GDP, up from its approximately 80% level in April 2009. Further, the
subprime mortgage crisisThe subprime mortgage crisis is an ongoing real estate and financial crisis triggered by a dramatic rise in mortgage delinquencies and foreclosures in the United States, with major adverse consequences for banks and financial markets around the globe...
has significantly increased the financial burden on the U.S. government, with over $10 trillion in commitments or guarantees and $2.6 trillion in investments or expenditures as of May 2009, only some of which are included in the budget document.
The U.S. also has a large trade deficit, meaning imports exceed exports. Financing these deficits requires the USA to borrow large sums from abroad, much of it from countries running trade surpluses, mainly the emerging economies in Asia and oil-exporting nations. The
balance of paymentsIn economics, the balance of payments, measures the payments that flow between any individual country and all other countries. It is used to summarize all international economic transactions for that country during a specific time period, usually a year.The BOP is determined by the country's...
identityIn mathematics, the term identity has several different important meanings:*An identity is an equality that remains true regardless of the values of any variables that appear within it, to distinguish it from an equality which is true under more particular conditions. For this, the 'triple bar'...
requires that a country (such as the USA) running a
current accountIn economics, the current account is one of the two primary components of the balance of payments, the other being the capital account. It is the sum of the balance of trade , net factor income and net transfer payments .The current account balance is one of two major metrics of the...
deficit also have a
capital accountIn financial accounting, the capital account is one of the accounts in shareholders' equity. Sole proprietorships have a single capital account in the owner's equity. Partnerships maintain a capital account for each of the partners....
(investment) surplus of the same amount, as the only option for American holders of net yen and euros is to spend them. In 2005,
Ben BernankeBen Shalom Bernanke is an American economist, the former chair of the department of Economics at Princeton University and the current Chairman of the Federal Reserve of the United States Federal Reserve. Bernanke succeeded Alan Greenspan on February 1, 2006...
addressed the implications of the USA's high and rising
current accountIn economics, the current account is one of the two primary components of the balance of payments, the other being the capital account. It is the sum of the balance of trade , net factor income and net transfer payments .The current account balance is one of two major metrics of the...
(trade) deficit, resulting from USA imports exceeding its exports. Between 1996 and 2004, the USA current account deficit increased by $650 billion, from 1.5% to 5.8% of GDP.
Long-term risks to financial health of federal government
Several government agencies provide budget and debt data and analysis. These include the
Government Accountability OfficeThe Government Accountability Office is the audit, evaluation, and investigative arm of the United States Congress. It is located in the legislative branch of the United States government....
(GAO), the
Congressional Budget OfficeThe Congressional Budget Office is a federal agency within the legislative branch of the United States government. It is a government agency that provides economic data to Congress....
, the Office of Management and Budget (OMB), and the U.S. Treasury Department. These agencies have reported that the federal government is facing a series of critical long-term financing challenges. This is because expenditures related to entitlement programs such as
Social SecurityThis article concerns proposals to change the Social Security system in the United States. Social Security is a social insurance program officially called "Old-Age, Survivors, and Disability Insurance" , in reference to its three components. It is primarily funded through a dedicated payroll tax...
,
MedicareMedicare is a social insurance program administered by the United States government, providing health insurance coverage to people who are aged 65 and over, or who meet other special criteria. The medicare program also funds residency training programs for the vast majority of physicians in the...
, and
Medicaid Medicaid is the United States health program for eligible individuals and families with low incomes and resources. It is a means-tested program that is jointly funded by the states and federal government, and is managed by the states. Among the groups of people served by Medicaid are certain...
are growing considerably faster than the economy overall, as the population grows older. These agencies have indicated that under current law, sometime between 2030 and 2040, mandatory spending (primarily Social Security, Medicare, Medicaid, and interest on the national debt) will exceed tax revenue. In other words, all discretionary spending (e.g., defense, homeland security, law enforcement, education, etc.) will require borrowing and related deficit spending. These agencies have used such language as "unsustainable" and "trainwreck" to describe such a future.
While there is significant debate about solutions, the significant long-term risk posed by the increase in entitlement spending is widely recognized, with health care costs (Medicare and Medicaid) the primary risk category. If significant reforms are not undertaken, benefits under entitlement programs will exceed government income by over $40 trillion over the next 75 years. According to the GAO, this will cause debt ratios relative to GDP to double by 2040 and double again by 2060, reaching 600 percent by 2080.
In 2006, Professor
Laurence KotlikoffLaurence Jacob Kotlikoff is a professor of economics at Boston University, fellow of the American Academy of Arts and Sciences, research associate of the National Bureau of Economic Research, fellow of the Econometric Society, and former senior economist, President’s Council of Economic Advisers...
argued the United States must eventually choose between "bankruptcy", raising taxes, or cutting payouts. He assumes there will be ever-growing payment obligations from Medicare and Medicaid. Others who have attempted to bring this issue to the fore of America's attention range from
Ross PerotHenry Ross Perot is an American businessman from Texas best known for running for President of the United States in 1992 and 1996. Perot founded Electronic Data Systems in 1962, sold the company to General Motors in 1984 and founded Perot Systems in 1988. It was bought by Dell for $3.9 billion in...
in his 1992 Presidential bid, to investment guru
Robert KiyosakiRobert Toru Kiyosaki is an investor, businessman, self-help author, motivational speaker and inventor. Kiyosaki is best known for his Rich Dad, Poor Dad series of motivational books and other material. He has written 15 books which have combined sales of over 26 million copies...
, and David Walker, former head of the
Government Accountability OfficeThe Government Accountability Office is the audit, evaluation, and investigative arm of the United States Congress. It is located in the legislative branch of the United States government....
.
Thomas FriedmanThomas Lauren Friedman is an American journalist, columnist and multi Pulitzer Prize winning author. He is an op-ed contributor to The New York Times, whose column appears twice weekly. He has written extensively on foreign affairs including global trade, the Middle East and environmental issues...
has argued that increasing dependence on foreign sources of funding will render the U.S. less able to act independently.
Unfunded obligations
The U.S. government is committed under current law to mandatory payments for programs such as Medicare, Medicaid and Social Security. The GAO projects that payouts for these programs will significantly exceed tax revenues over the next 75 years. The Medicare Part A (hospital insurance) payouts already exceed program tax revenues and Social Security payroll taxes fully cover payouts only until 2017. These deficits require funding from other tax sources or borrowing. The present value of these deficits or unfunded obligations is an estimated $41 trillion. This is the amount that would have to be set aside during 2008 such that the principal and interest would pay for the unfunded commitments through 2082. Approximately $7 trillion relates to Social Security, while $34 trillion relates to Medicare and Medicaid. In other words, health care programs are nearly five times as serious a funding challenge as Social Security. Adding this to the national debt during September 2008 of nearly $10 trillion and other federal commitments brings the total obligations to nearly $53 trillion.
The
Congressional Budget OfficeThe Congressional Budget Office is a federal agency within the legislative branch of the United States government. It is a government agency that provides economic data to Congress....
(CBO) has indicated that: "Future growth in spending per beneficiary for Medicare and Medicaid—the federal government’s major health care programs—will be the most important determinant of long-term trends in federal spending. Changing those programs in ways that reduce the growth of costs—which will be difficult, in part because of the complexity of health policy choices—is ultimately the nation’s central long-term challenge in setting federal fiscal policy."
Recent additions to the public debt of the United States
Recent additions to U.S. public debt
Fiscal year (begins
10/01 of prev. year) |
Value |
% of GDP |
| 2001 |
$144.5 billion |
1.4% |
| 2002 |
$409.5 billion |
3.9% |
| 2003 |
$589.0 billion |
5.5% |
| 2004 |
$605.0 billion |
5.3% |
| 2005 |
$523.0 billion |
4.3% |
| 2006 |
$536.5 billion |
4.1% |
| 2007 |
$459.5 billion |
3.4% |
| 2008 |
$1017.0 billion |
(proj.) 7.4% |
There is a significant difference between the reported budget deficit and the change in debt. The key differences are: 1) The Social Security surplus, which reduces the "off-budget" deficit often reported in the media; and 2) Non-budgeted spending, such as for the Iraq and Afghanistan wars. The debt increased by approximately $550 billion on average each year during the 2003-2007 period, but then increased over $1 trillion during FY 2008.
The cumulative debt of the United States in the past 8 completed fiscal years was approximately $4.3 trillion, or about 43% of the total national debt of ~$10.0 trillion as of September 2008.
Debt clocks
In several cities around the United States, there are national debt clocks—electronic billboards which try to illustrate the amount of money owed by the government. Some also attempt to show the money owed per capita or per family. There is a significant level of fluctuation day-to-day, both up and down, so any "clocks" must be continually re-set with proper values.
The most famous debt clock, the
National Debt ClockThe National Debt Clock is a billboard-sized running total dot-matrix display which constantly updates to show the current United States public debt and each American family's share of it...
located in
Times SquareTimes Square is a major intersection in Manhattan, a borough of New York City, at the junction of Broadway and Seventh Avenue and stretching from West 42nd to West 47th Streets...
in
New York CityNew York is the most populous city in the United States, and the center of the New York metropolitan area, which is among the most populous urban areas in the world. A leading global city, New York exerts a powerful influence over worldwide commerce, finance, culture, fashion and entertainment...
, was created by real estate investor
Seymour DurstSeymour B. Durst was a New York real estate investor and developer. He was also a philanthropist and the inventor of the National Debt Clock.Durst was born in New York City. He attended the Horace Mann School...
. The clock is now owned by his son Douglas Durst. Although the total debt continued to increase, the Durst's clock was deactivated in 2000 when public debt began to decrease due to budget surpluses. However, following large increases in the debt (total and public) a few years later, the clock was reactivated in July 2002 , though it had to be moved to make way for One Bryant Park. Since September 30, 2008, when the debt surpassed $10 trillion, the clock's dollar sign has been replaced by the extra digit. A new clock, enabling the recording of a
quadrillionQuadrillion may mean either of the two numbers :* 1,000,000,000,000,000 - for all short scale countries - increasingly common meaning in English language usage* 1,000,000,000,000,000,000,000,000 - for all long scale countries...
dollars of debt, is expected early 2009.
Calculating and projecting the debt
Tracking current levels of debt is a cumbersome but rather straightforward process. Making future projections is much more difficult for a number of reasons. For example, before the
September 11, 2001 attacksThe September 11 attacks were a series of coordinated suicide attacks by Al-Qaeda upon the United States on September 11, 2001. On that morning, 19 Al-Qaeda terrorists hijacked four commercial passenger jet airliners...
, the
George W. Bush administrationThe Presidency of George W. Bush began on his inauguration on January 20, 2001 as the 43rd President of the United States of America. The oldest son of former president George H. W. Bush, George W...
projected in the 2002 budget that there would be a $1.288 trillion surplus from 2001 through 2004. In the 2005 Mid-Session Review, however, this had changed to a projected deficit of $850 billion, a swing of $2.138 trillion. The latter document states that 49 percent of this swing was due to "economic and technical re-estimates", 29 percent was due to "tax relief", (mainly the
2001The Economic Growth and Tax Relief Reconciliation Act of 2001 , was a sweeping piece of tax legislation in the United States. It is commonly known by its abbreviation EGTRRA, often pronounced "egg-tra" or "egg-terra", and sometimes also known simply as the 2001 act...
and
2003 Bush tax cutsThe Jobs and Growth Tax Relief Reconciliation Act of 2003 , was passed by the United States Congress on May 23, 2003 and signed by President Bush on May 28, 2003....
), and the remaining 22 percent was due to "war, homeland, and other enacted legislation" (mainly expenditures for the War on Terror,
Iraq WarThe Iraq War, also known as the Occupation of Iraq or Operation Iraqi Freedom, is an ongoing military campaign which began on March 20, 2003 with the invasion of Iraq by a multinational force led by troops from the United States and the United Kingdom.Prior to the war, the governments of the United...
, and
homeland securityHomeland security is an umbrella term for security efforts to protect the United States against perceived internal and external threats. The term arose following a reorganization of many U.S. government agencies in 2003 to form the United States Department of Homeland Security after the September...
).
Projections between different groups will sometimes differ because they make different assumptions. For example, in August 2003, a
Congressional Budget OfficeThe Congressional Budget Office is a federal agency within the legislative branch of the United States government. It is a government agency that provides economic data to Congress....
report projected a $1.4 trillion deficit from 2004 through 2013.
However, a mid-term and long-term joint analysis a month later by the
Center on Budget and Policy PrioritiesThe Center on Budget and Policy Priorities is a non-profit think tank that describes itself as a "policy organization ... working at the federal and state levels on fiscal policy and public programs that affect low- and moderate-income families and individuals."The Center examines the short- and...
, the
Committee for Economic DevelopmentThe Committee for Economic Development is an independent, non-profit, non-partisan think tank based in Washington, DC. Its membership consists of some 200 senior corporate executives and university leaders...
, and the
Concord CoalitionThe Concord Coalition is a political advocacy group in the United States, formed in 1992. A bipartisan organization, it was founded by former U.S. Senator Warren Rudman, former Secretary of Commerce Peter George Peterson, and the late U.S. Senator Paul Tsongas. The Concord Coalition's advocacy...
stated that "In projecting deficits, CBO follows mechanical 'baseline' rules that do not allow it to account for the costs of any prospective tax or entitlement legislation, no matter how likely the enactment of such legislation may be." The analysis added in a proposed tax cut extension and
Alternative Minimum TaxAlternative Minimum Tax is part of the Federal income tax system of the United States. There is an AMT for those who owe personal income tax, and another for corporations owing corporate income tax...
reform (enacted by a
2005 actThe Tax Increase Prevention and Reconciliation Act of 2005 was enacted on May 17, 2006.This bill prevents several tax provisions from sunseting in the near future. The two most notable pieces of the bill are the extension of the reduced tax rates on capital gains and dividends and extension of the...
), prescription drug plan (
Medicare Part DMedicare Part D is a federal program to subsidize the costs of prescription drugs for Medicare beneficiaries in the United States. It was enacted as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 and went into effect on January 1, 2006.- Program specifics...
, enacted in a
2003 actThe Medicare Prescription Drug, Improvement, and Modernization Act is a law of the United States which was enacted in 2003. It produced the largest overhaul of Medicare in the public health program's 38-year history.The MMA was signed by President George W...
), and further increases in defense, homeland security, international, and domestic spending. According to the report, this "adjusts CBO's official ten-year projections for more realistic assumptions about the costs of budget policies", raising the projected deficit from $1.4 trillion to $5 trillion.
The 2010 Budget proposed by President
Barack ObamaBarack Hussein Obama II is the 44th and current President of the United States. He is the first African American to hold the office, as well as the first president born in Hawaii...
projects a minor debt increases. The debt is projected to nearly double to $20 trillion by 2015, but is expected to increase to nearly 50% of GDP by 2010 and remain at that level thereafter. These estimates assume real GDP growth (after inflation) ranging from 2.6% to 4.6% annually from 2010 through 2019, which exceeds Blue Chip consensus estimates. Approximately 70% of federal spending is in four categories: Defense, Medicare, Social Security, and interest on the debt. As of June 2009, Obama's policies enacted into law were only a minor influence on debt and deficit projections. However, Obama himself has been criticized for not having a realistic plan for addressing the increasing debt.
See also
- Balance of payments
In economics, the balance of payments, measures the payments that flow between any individual country and all other countries. It is used to summarize all international economic transactions for that country during a specific time period, usually a year.The BOP is determined by the country's...
- Budget deficit
- Deficit
A budget deficit occurs when an entity spends more money than it takes in. The opposite of a budget deficit is a budget surplus. Debt is essentially an accumulated flow of deficits. In other words, a deficit is a flow, and debt is a stock....
- Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the price level rises, each unit of currency buys fewer goods and services; consequently, inflation is also an erosion in the purchasing power of money – a loss of real...
- Economy of the United States
The economy of the United States is the largest national economy in the world in both nominal value and by purchasing power parity. Its nominal gross domestic product was estimated as $14.4 trillion in 2008, which is about three times that of the world's second largest economy, Japan Its GDP by...
- discusses U.S. national debt and economic context
- Fiat currency
- Fractional-reserve banking
Fractional-reserve banking is the banking practice in which banks keep only a fraction of their deposits in reserve and lend out the remainder, while maintaining the simultaneous obligation to redeem all these deposits upon demand...
- FRED (Federal Reserve Economic Data)
- Global debt - the "big picture"
- History of the U.S. public debt
At the end of September 2008, the overall U.S. public debt was more than ten trillion dollars. The first yearly reported value was $75,463,476.52 on January 1, 1791. The debt was briefly reduced to zero on January 8, 1835.-Prior fiscal years:-By decade:...
- a table containing historical debt data
- List of countries by current account balance
- List of public debt - list of the public debt for many nations, as a percentage of the GDP
- National bankruptcy
National bankruptcy is the formal declaration of a government to not or only partially pay/meet its debts or the de facto cessation of due payments.-Insolvency/over-indebtedness of the state:...
- National debt by U.S. presidential terms
-Gross federal debt:This table lists the gross federal debt as a percent of GDP by Presidential term since World War II. It is currently the highest since 1951. For net jobs changes, see Jobs created during U.S. presidential terms. The elected representatives of the United States share...
- Proposed bailout of U.S. financial system (2008)
The Emergency Economic Stabilization Act of 2008 , commonly referred to as a bailout of the U.S. financial system, is a law enacted in response to the subprime mortgage crisis authorizing the United States Secretary of the Treasury to spend up to US$700 billion to purchase distressed assets,...
- Public debt - a general discussion of the topic
- United States federal budget
The Budget of the United States Government is the President's proposal to the U.S. Congress which recommends funding levels for the next fiscal year, beginning October 1. Congressional decisions are governed by rules and legislation regarding the federal budget process...
- analysis of federal budget spending and long-term risks
- Securities
- US total cumulative debt per person
The United States total cumulative debt per person is an estimate of the mean value of debt in the economy of the United States. According to the Generally Accepted Accounting Principles, the population of a country such as the US has several kinds of debt imposed on it, including corporate,...
External links