United States public debt

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U.S. debt from 1940 to 2009. Red lines indicate the Debt Held by the Public (public debt) and black lines indicate the gross debt, the difference being that the gross debt includes funds held by the government (e.g. the Social Security Trust Fund). The second chart shows debt as a percentage of U.S. GDP or dollar value of economic production per year. Data from U.S. Budget historical tables at whitehouse.gov/omb and other tables listed when you click on the figure. Note that the top panel is deflated to 2009 dollars and not in nominal year dollars.

When the government spends more than it receives in tax revenue, it borrows the rest by issuing US Treasury Securities. The United States public debt, or the national debt, is the sum of all these outstanding securities.^[1] It should not be confused with the trade deficit, which is the difference between net imports and net exports. State and Local Government Series securities, issued by state and local governments, are not part of the United States government debt.^[2]

The national debt is presented by the United States Treasury as two calculations: “Debt Held by the Public”, defined as U.S. Treasury securities held by institutions outside the United States Government, and the “Gross Debt,” which includes intra-government obligations (e.g., the Social Security Trust fund).^[1]

As of June 1, 2010, the Total Public Debt Outstanding was approximately 88.9% of GDP, and for the first time exceeded $13 trillion.^[3][4] Within the remainder of this article the phrase “Public Debt” is employed as a shorthand for “Debt Held by the Public”.

The annual government deficit or surplus refers to the cash difference between government receipts and spending ignoring intra-governmental transfers. The gross debt increases or decreases as a result of this unified budget deficit or surplus. However, there is certain spending (supplemental appropriations) that add to the gross debt but are excluded from the deficit. The total debt has increased over $500 billion each year since fiscal year (FY) 2003, with increases of $1 trillion in FY2008 and $1.9 trillion in FY2009.^[5]

The US Federal Debt from 1800 to 1999

Graph of U.S. gross federal debt between 1940 and 2010 as a percentage of GDP, broken down by presidential terms

Graph of U.S. gross federal debt and Income Tax

The United States has had public debt since its inception. Debts incurred during the American Revolutionary War and under the Articles of Confederation led to the first yearly reported value of $75,463,476.52 on January 1, 1791. Over the following 45 years, the debt grew, briefly contracted to zero on January 8, 1835 under President Andrew Jackson but then quickly grew into the millions again.^[6]

The first dramatic growth spurt of the debt occurred because of the Civil War. The debt was just $65 million in 1860, but passed $1 billion in 1863 and had reached $2.7 billion following the war. The debt slowly fluctuated for the rest of the century, finally growing steadily in the 1910s and early 1920s to roughly $22 billion as the country paid for involvement inWorld War I.^[6]

The buildup and involvement in World War II plus social programs during the F.D. Roosevelt and Truman presidencies in the 1930s and 40′s caused a sixteenfold increase in the gross debt from $16 billion in 1930 to $260 billion in 1950.

After this period, the growth of the gross debt closely matched the rate of inflation where it tripled in size from $260 billion in 1950 to around $909 billion in 1980. Gross debt in nominal dollars quadrupled during the Reagan and Bush presidencies from 1980 to 1992. The Public debt quintupled in nominal terms.

In nominal dollars the public debt rose and then fell between 1992 and 2000 from $3T in 1992 to $3.4T in 2000. During the administration of President George W. Bush, the gross debt increased from $5.6 trillion in January 2001 to $10.7 trillion by December 2008,^[7] rising from 58% of GDP to 70.2% of GDP. During March 2009, the Congressional Budget Office estimated that gross debt will rise from 70.2% of GDP in 2008 to 100.6% in 2012.^[8]

Debt ceiling

The Second Liberty Bond Act of 1917 established a statutory limit on federal debt.^[11] 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 most recent increase in the U.S. debt ceiling to $14.3 trillion by H.J.Res. 45 and was signed into law on February 12, 2010.

Components

Public and government accounts

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

The national debt is broken down into 2 main categories:^[12]

1. Securities held by the public

   • Marketable securities
   • Non-marketable securities

2. Securities held by government accounts

The values for fiscal years 1999-2008 are published by the treasury^[12] and about 60% of the debt is held by the public.

As of 2008, Social Security Federal Old-Age and Survivors Insurance Trust Fund 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 billswith only about one trillion in bonds and inflation protected bonds.

Estimated ownership

Estimated ownership of US public debt in 2008.

Estimated ownership each year through time.

Because a large variety of people own the notes, bills, and bonds in the “public” portion of the debt, the U.S. 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. 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 2008, and the September 7, 2008 Federal Housing Finance Agency (FHFA) conservatorship of both government sponsored enterprises(GSEs). 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.^[13]

The government accounts for these corporations as if they are unconnected to its balance sheet. At the inception of the conservatorship, the U.S. Treasury contracted 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^[14][15]

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.^[16] The Congressional Budget Office 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.^[17] The 5-year credit default swap 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.^[17]

On January 8, 2009, Moody’s said that only 4 of the 12 Federal Home Loan Banks (FHLB) may be able to maintain minimum required capital levels and the U.S. government may need to put some of them into conservatorship. [5] According to Bloomberg, the FHLB is the largest U.S. borrower after the federal government. [6]

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 Program, are captured by the debt totals.

Foreign ownership

The US debt in the hands of foreign governments was 25% of the total in 2007,^[18] virtually double the 1988 figure of 13%.^[19] Despite the declining willingness of foreign investors to continue investing in US dollar denominated instruments as the US dollar fell in 2007,^[20] 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.^[21] About 66% of that 44% was held by the central banks of other countries, in particular the central banks of Japan and China. In May 2009, the US owed China $772 billion.^[22]

In total, lenders from Japan and China held 44% of the foreign-owned debt.^[23] 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.”^[24]

On May 20, 2007, Kuwait discontinued pegging its currency exclusively to the dollar, preferring to use the dollar in a basket of currencies.^[25] Syria made a similar announcement on June 4, 2007.^[26] In September 2009 China, India and Russia said they were interested in buying IMF gold to diversify their dollar-denominated securities.^[27]

The following is a list of the Foreign Owners of U.S. Treasury Securities as listed by the U.S. Treasury:^[23]

Statistics and comparables

• U.S. official gold reserves, totaling 261.5 million troy ounces, have a book value as of 30 November 2009 of approximately $11 billion,^[28] vs. a commodity value as of 17 December 2009 of approximately $288.5 billion.^[29]
• A total of 161,000 tonnes of gold have been mined in human history, as of 2009.^[30] This is roughly equivalent to 5.175 billion troy ounces, which, at $1000 per troy ounce, would be $5.2 trillion.^[31]
• Foreign exchange reserves $134 billion as of October 2009.^[32]
• The Strategic Petroleum Reserve had a value of approximately $69 billion as of December 2009, at a Market Price of $104/barrel with a $15/barrel discount for sour crude.^[33]
• The national debt equates to $30,400 per person U.S. population, or $60,100 per member of the U.S. working population,^[34] as of February 2008.
• In 2008, $242 billion was spent on interest payments servicing the debt, out of a total tax revenue of $2.5 trillion, or 9.6%. Including non-cash interest accrued primarily for Social Security, interest was $454 billion or 18% of tax revenue.^[35]
• Total U.S. household debt, including mortgage loan and consumer debt, was $11.4 trillion in 2005. By comparison, total U.S. household assets, including real estate, equipment, and financial instruments such as mutual funds, was $62.5 trillion in 2005.^[36]
• Total U.S Consumer Credit Card revolving credit debt was $931.0 billion in April 2009.^[37]
• Total third world debt was estimated to be $1.3 trillion in 1990.^[38]
• The U.S. balance of trade deficit in goods and services was $725.8 billion in 2005.^[39]
• The global market capitalization for all stock markets that are members of the World Federation of Exchanges was $32.5 trillion by the end of 2008.^[40]

Sources: IMF, World Economic Outlook (emerging market economies); OECD, Economic Outlook (advanced economies)^[41]

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

²The Czech Republic, Hungary and Poland

³Argentina, Brazil, Chile and Mexico

Risks and obstacles

Risks to the U.S. dollar and economy

A high debt level can affect inflation, interest rates, and economic growth. 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 currency. 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 Economist 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…”^[42]

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 Office (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.^[43] The 2010 U.S. budget indicates annual debt increases of nearly $1 trillion annually through 2019. By 2019 the total U.S. national debt is projected to be $18.4 trillion.^[44] Further, the subprime mortgage crisis 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.^[45]

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 payments identity requires that a country (such as the USA) running a current accountdeficit also have a capital account (investment) surplus of the same amount. In 2005, Ben Bernanke addressed the implications of the USA’s high and rising current account (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.^[46]

Debt levels may also affect economic growth rates. Economists Kenneth Rogoff and Carmen Reinhart reported in 2010 that among the 20 advanced 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).^[47]

Rollover and maturity risks

In addition to the debt increase required to fund government spending in excess of tax revenues during a given year, some Treasury securities issued in prior years mature and must be “rolled-over” or replaced with new security issuance. During the financial crisis, the Treasury issued a sizable amount of relatively shorter-term debt, which caused the average maturity on total Treasury debt to reach a 25-year low of just more than 50 months in 2009. As of late 2009, roughly 43% of U.S. public debt needed to be rolled over within 12 months, the highest proportion since the mid-1980s. The relatively short maturity of outstanding Treasury debt, coupled with the increased reliance on foreign creditors, puts the U.S. at greater risk of sharply higher borrowing costs should risk perceptions change abruptly in credit markets.^[47]

Long-term risks to financial health of federal government

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

Several government agencies provide budget and debt data and analysis. These include the Government Accountability Office (GAO), the Congressional Budget Office, the Office of Management and Budget (OMB), and the U.S. Treasury Department. These agencies have reported that the federal government is facing a series of critical long-term financing challenges. This is because expenditures related to entitlement programs such as Social Security, Medicare, andMedicaid 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.^[48]

While there is significant debate about solutions,^[49] the significant long-term risk posed by the increase in entitlement spending is widely recognized^[50], with health care costs (Medicare and Medicaid) the primary risk category.^[51][52] If significant reforms are not undertaken, benefits under entitlement programs will exceed government income by over $40 trillion over the next 75 years.^[53] 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.^[54]

In 2006, Professor Laurence Kotlikoff argued the United States must eventually choose between “bankruptcy”, raising taxes, or cutting payouts. He assumes there will be ever-growing payment obligations from Medicare and Medicaid.^[55] Others who have attempted to bring this issue to the fore of America’s attention range from Ross Perot in his 1992 Presidential bid, to motivational speaker Robert Kiyosaki, and David Walker, former head of the Government Accountability Office.^[56][57]

Thomas Friedman has argued that increasing dependence on foreign sources of funding will render the U.S. less able to act independently.^[58]

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.^[48]

The present value of these deficits or unfunded obligations is an estimated $45.8 trillion. This is the amount that would have to be set aside during 2009 such that the principal and interest would pay for the unfunded commitments through 2084. Approximately $7.7 trillion relates to Social Security, while $38.2 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 and other federal commitments brings the total obligations to nearly $62 trillion.^[59]

The Congressional Budget Office (CBO) has indicated that: “Future growth in spending per beneficiary for Medicare and Medicaid—the federal government’s major health care programs—will be the most important determinant of long-term trends in federal spending. Changing those programs in ways that reduce the growth of costs—which will be difficult, in part because of the complexity of health policy choices—is ultimately the nation’s central long-term challenge in setting federal fiscal policy.”^[60]

Recent additions to the public debt of the United States

Deficit and debt increases 2001-2009.

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.^[61][62]

Interest expense

Components of interest on the debt.

Budgeted net interest on the public debt was approximately $240 billion in fiscal years 2007 and 2008. This represented approximately 9.5% of government spending. Interest was the fourth largest single budgeted disbursement category, after defense, Social Security, and Medicare.^[63] Despite higher debt levels, this declined to $189 billion in 2009 or approximately 5% of spending, due to lower interest rates. Average interest rates declined due to the crisis from 1.6% in 2008 to 0.3% in 2009.^[64]

During FY2008, the government also accrued a non-cash interest expense of $212 billion for intra-governmental debt, primarily the Social Security Trust Fund, for a total interest expense of $454 billion.^[65] This accrued interest is added to the Social Security Trust Fund and therefore the national debt each year and will be paid to Social Security recipients in the future.

Public debt owned by foreigners has increased to approximately 50% of the total or approximately $3.4 trillion.^[66] As a result, nearly 50% of the interest payments are now leaving the country, which is different from past years when interest was paid to U.S. citizens holding the public debt. Interest expenses are projected to grow dramatically as the U.S. debt increases and interest rates rise from very low levels in 2009 to more typical historical levels. CBO estimates that nearly half of the debt increases over the 2009-2019 period will be due to interest.^[67]

Should interest rates return to historical averages, the interest cost would increase dramatically. Historian Niall Ferguson described the risk that foreign investors would demand higher interest rates as the U.S. debt levels increase over time in a November 2009 interview.^[68]

Debt clocks

The NYC debt clock in late 2009.

In several cities around the United States, there are national debt clocks—electronic billboards that illustrate government debt. 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 first and most famous debt clock, the National Debt Clock located near Times Square in New York City, was created by real estate investorSeymour Durst.^[69][70] With Seymour’s death, his son Douglas Durst took over responsibility for the clock through the Durst Organization.

Although the total debt continued to increase, the clock was deactivated in 2000 when the public debt began to decrease due to budget surpluses.^[71] However, following large increases in the debt (total and public) a few years later, the clock was reactivated in July 2002.^[72]

In 2004, the original clock was unmounted from its location near 42nd Street; the building has since made way for One Bryant Park. An updated model, which could run backwards, was installed one block away on a Durst building at 1133 Avenue of the Americas. Since September 30, 2008, when the debt surpassed $10 trillion, the clock’s dollar sign has been replaced by the extra digit. An upgrade adding to the digits had been announced for 2009, but so far has not been undertaken.

Calculating and projecting the debt

2010 Budget: Projected deficits and debt increases in President Obama’s 2010 Budget.

2010 Budget: Total Debt $ and % to GDP.

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 attacks, the George W. Bush administration projected in the 2002 budget that there would be a $1.288 trillion surplus from 2001 through 2004.^[73]

In the 2005 Mid-Session Review, however, this had changed to a projected deficit of $850 billion, a swing of $2.138 trillion.^[74] 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 2001 and 2003 Bush tax cuts), and the remaining 22 percent was due to “war, homeland, and other enacted legislation” (mainly expenditures for the War on Terror, Iraq War, and homeland security).

Projections between different groups will sometimes differ because they make different assumptions. For example, in August 2003, aCongressional Budget Office report projected a $1.4 trillion deficit from 2004 through 2013.^[75]

However, a mid-term and long-term joint analysis a month later by the Center on Budget and Policy Priorities, the Committee for Economic Development, and the Concord Coalition stated that “In projecting deficits, CBO follows mechanical ‘baseline’ rules that do not allow it to account for the costs of any prospective tax or entitlement legislation, no matter how likely the enactment of such legislation may be.” The analysis added in a proposed tax cut extension and Alternative Minimum Tax reform (enacted by a 2005 act), prescription drug plan (Medicare Part D, enacted in a 2003 act), and further increases in defense, homeland security, international, and domestic spending. According to the report, this “adjusts CBO’s official ten-year projections for more realistic assumptions about the costs of budget policies”, raising the projected deficit from $1.4 trillion to $5 trillion.^[76]

The 2010 Budget proposed by President Barack Obama projects significant debt increases, both in terms of dollars and relative to GDP.^[77][78] The debt is projected to nearly double to $20 trillion by 2015, but is expected to increase to nearly 100% of GDP by 2020 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.^[79]

During FY 2008, approximately 76.6% of federal spending was in the following categories: Departments of Health and Human Services (19.8%), Defense (20.3%) and Veterans Affairs (11.8%); Social Security Administration (18.2%); interest on the public debt (6.6%).^[80]

The Office of Management and Budget forecasts that, by the end of fiscal year 2012, gross federal debt will total $16.3 trillion. Thus, the debt will equal 101% of gross domestic product, which represents a milestone in the U.S. economy. Public debt alone, which excludes amounts that the government owes its citizens via various trust funds, will be 67% of GDP by the end of fiscal 2012.^[81]

Monitoring the risks of increasing debt levels

Various financial indicators may provide an early warning that market forces are reacting to an increasing level of debt. Examples include Treasury security interest rates (yields), Treasury auction results, credit default swap spreads, and TIPS spreads.

• Treasury note yields: A rising yield for a security of a given maturity could indicate lower demand for Treasury bonds among investors, or nervousness about future rates of inflation. The “yield curve” (a graph that relates the yields of similar securities of different maturities) provides similar information.
• Treasury auctions: The ease with which new securities can be sold reflects the demand for them. For example, a difference between the interest rate that debt trades prior to auction and the yield required to clear the market at auction is called the “tail.” A large auction “tail” would be a sign of declining interest from the market. The Treasury also reports the bid-to-cover ratio for each auction, which is the number of market bids received relative to the number of bids accepted and the ratio of international buyers.
• Credit default swap (CDS) spreads: CDS are insurance-like derivative products that offer protection against bond defaults. CDS spreads essentially measure the current market price of insurance against default. When the market perceives a bond is at an increased risk of default, the CDS written on those bonds will increase in price.
• TIPS spreads: A key measure of inflation expectations among U.S. bond market investors is the difference between the yield on nominal Treasury bonds and the yield for Treasury inflation-protected securities, or “TIPS.” This difference is a gauge of investors’ beliefs about future U.S. inflation rates. A growing spread between nominal Treasuries and TIPS would indicate that investors are concerned that U.S. fiscal and monetary policy could lead to higher inflation in the future.^[82]

Debate regarding a “danger level” of debt

Economists debate the level of debt relative to GDP that signals a “red line” or dangerous level, or if any such level exists. Economists Kenneth Rogoff and Carmen Reinhart reported in January 2010 that 90% of GDP represents this danger level.^[83] Reinhart testified to the U.S. Senate in February 2010, stating:^[84]

Our main finding is that across both advanced countries and emerging markets, high debt/GDP levels (90 percent and above) are associated with notably lower growth outcomes. Above 90 percent, median growth rates fall one percent, and average growth falls considerably more. In addition, for emerging markets, there appears to be a more stringent threshold for total external debt/GDP; when external debt reaches 60 percent of GDP, annual growth declines by about two percent and for higher levels, growth rates are roughly cut in half. Seldom do countries simply ‘grow’ their way out of deep debt burdens.

Economist Paul Krugman disputed the existence of a solid debt threshold or danger level, arguing that low growth causes high debt rather than the other way around.^[85] He also points out that in Europe, Japan, and the US this has been the case. In the US the only period of debt over 90% of GDP was after World War II when “when real GDP was falling, not because of debt problems, but because wartime mobilization was winding down and Rosie the Riveter was becoming a suburban housewife.”^[86] Fed Chair Ben Bernanke stated in April 2010:^[87]

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.

There is also a second debate regarding whether debt held by the public (a lower amount) or gross debt (a larger amount) is the appropriate measure to use in evaluating the debt burden, measured as a percent of GDP. 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 right figure. Certain members of the Commission are focusing on gross debt.^[85] 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.^[88]

This second debate relates to the economic nature of the intragovernmental debt that represents the difference between the two debt figures. As of April 30, 2010 the public debt was $8.4 trillion (59% GDP) and the gross debt was $12.9 trillion (90% of GDP), using a $14.3 trillion GDP estimate. The difference is the $4.5 trillion intra-governmental debt, mainly represented by the Social Security Trust Fund.^[89]

For example, the CBPP argues:^[88]

Debt held by the public is important because it reflects the extent to which the government goes into private credit markets to borrow. Such borrowing draws on private national saving and international saving, and therefore competes with investment in the nongovernmental sector (for factories and equipment, research and development, housing, and so forth). Large increases in such borrowing 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.

Current projections indicate the lower debt held by the public figure will hit 90% of GDP by 2020.^[90]

See also

US topics:

• History of the U.S. public debt – a table containing historical debt data
• US total cumulative debt per person
• National debt by U.S. presidential terms
• Emergency Economic Stabilization Act of 2008 – part of the Troubled Asset Relief Program
• United States federal budget – analysis of federal budget spending and long-term risks
• Economy of the United States – discusses U.S. national debt and economic context

General:

• Public debt – a general discussion of the topic
• Balance of payments
• Budget deficit
• Deficit
• Inflation
• Securities
• National bankruptcy
• Fiat currency

International:

• Global debt
• List of public debt – list of the public debt for many nations, as a percentage of the GDP

References

External links

• Documentary about the debt, “Ten Trillion and Counting”, by PBS Frontline
• Bureau of the Public Debt
  • The gross and public debt
• The United States Public Debt, 1861 to 1975
• GAO Citizen’s Guide – 2008
• The United States Public Debt placed in context to the Worlds Gold Supply

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