In this guide to the United States National Debt, we discuss the amount of the country’s debt, what’s included in it, who manages the debt, the country’s debt ceiling, how it raises loans, and who holds the US debt.
What Is the US National Debt?
The national debt of the United States is counted as all of the debt owed by the national government. Debts owed by states are not included in the figure.
Does the US Have the Most Debt?
According to the IMF, the US national debt is the 7th highest in the world when expressed as a percentage of the country’s GDP (the country’s annual income).
The list below shows all of the countries that have a higher debt-to-GDP ratio than the United States as of 2020:
| Rank | Country | Debt as a Percent of GDP |
|---|---|---|
| 1 | Japan | 266.2 |
| 2 | Sudan | 259.4 |
| 3 | Greece | 205.2 |
| 4 | Italy | 161.8 |
| 5 | Portugal | 137.2 |
| 6 | Singapore | 131.2 |
| 7 | USA | 131.2 |
How Is the US National Debt Calculated?
The US national debt is subdivided into two sections:
- Debt held by the public
- Intragovernmental holdings.
The IMF figure for the USA’s debt-to-GDP ratio of 131.2% includes both of these figures.
Debt Held by the Public
Some sources count only the debt held by the public as the national debt. According to the Congressional Budget Office, debt held by the US public is 79% of GDP ($16.8 trillion) at the end of 2019. It is expected to reach 98% of GDP by 2030.
Intragovernmental Holdings
Intragovernmental holdings include the nation’s obligations to pay pensions and disability benefits to ex-government employees. This fund is held in trust and is called the Civil Service Retirement and Disability Fund (CSRDF). The assets of this fund are Treasury bonds.
Debts Not Included
The Federal National Mortgage Association (known as Fannie Mae) and the Federal Home Loan Mortgage Corporation (known as Freddie Mac) are two mortgage financing institutions that are wholly owned by the US Federal government.
These two government-sponsored agencies were judged to be independent and their debts did not count as being owed by the nation. They each had independent credit ratings and raised funds on the market outside of the Treasury’s mechanisms.
Financial Crisis Leads to Conservatorship
During the 2008 financial crisis, both Fannie Mae and Freddie Mac approached bankruptcy caused by the collapse in payments from subprime mortgages which were underwritten by these two institutions.
As a result, the US government took both institutions into “conservatorship,” which gave these debts a guarantee from the government.
The White House Budget Director at the time ruled that the construct of a conservatorship kept the debts of these two institutions at arm’s length and not a part of government obligations.
Estimated Amount in Conservatorship
Despite being kept separate from government finances, the Committee for a Responsible Federal Budget estimates that the total cost to the nation of stabilizing Fannie Mae and Freddie Mac added $238 billion to the national debt.
Nonetheless, the structure that allows the Federal government to exclude the balance sheets of these two institutions from the Federal account prevents a total of $5 trillion from being regarded as US national debt.
What Is the US Debt Ceiling?
The United States Congress oversees all American government departments including the Treasury. Until 1917, the Treasury had to seek the approval of Congress for every bond auction. Since then, the debt-raising capability of the Treasury has been limited by a debt ceiling that is set by Congress.
The debt ceiling covers all US government debt, including intragovernmental holdings.
How Is the Debt Ceiling Raised?
Inflation and legislation that expands government activities require the debt ceiling to be raised.
If the debt ceiling is not raised, the Treasury must resort to alternative measures to raise funds. Once those measures are exhausted, the government would go bankrupt. Politics can result in Congress refusing to raise the debt ceiling to gain concessions on other areas of policy.
Possibility of Bankruptcy
Thus far, the debt ceiling has always been raised before the Treasury runs out of “extraordinary measures.”
However, without an agreement to increase the ceiling, the US government would not be able to pay its bills. If this occurred, the government would be in default or could even become bankrupt.
Who Is in Charge of the US National Debt?
US government debt is the responsibility of the Treasury Department. Money is raised in the form of bonds, which are known as “Treasury bonds,” “Treasury bills,” or “T-bills.”
Bonds are sold in auctions, which are conducted by the Federal Financing Bank each sale event can raise a maximum of $15 billion.
Who Owns the US Federal Debt?
US banks, insurance companies, the Federal Reserve Bank, and pension funds are major holders of US Treasury bonds. Private investors can also own government bonds as well as foreign investors and public institutions.
Intragovernmental Debt Holders
| Programs and Trust Funds | Billions |
|---|---|
| Social Security | $2,940 |
| Military retirement & health care | $1,080 |
| Civil service retirement & disability | $960 |
| Other | $720 |
| Medicare | $300 |
Debt Held by the Public
| Ownership | Billions |
|---|---|
| International investors | $6,720 |
| Domestic private investors | $6,552 |
| Federal Reserve Bank | $2,352 |
| State and local governments | $1,008 |
Does the Federal Reserve Sell United States Government Bonds?
The Federal Reserve Bank (also known as “The Fed”) is a private institution and not a part of the US Treasury. As such, the Fed does not have the right to issue government bonds.
However, it is allowed to buy bonds and it is by this mechanism that the Federal Reserve enabled the US Treasury to raise funds during the 2008 financial crisis without increasing interest rates.
Quantitative Easing
The US government needed a large amount of money to help refund banks that were in trouble. The Fed bought Treasury bonds from US banks and also directly from the Federal Financing Bank. As a result of this action, which is called “quantitative easing,” the Federal Reserve is now a major holder of US government debt.
FAQ
Below we answer some common questions about the United States national debt.
How has the COVID-19 pandemic affected US debt?
According to the Congressional Budget Office, debt held by the American public will rise to 98% of GDP due to the economic impact of the coronavirus pandemic and legislative actions taken as a result. The CBO says that the main driver of the increased debt is a federal budget shortfall of $3.3 trillion, the largest since 1945.
Who owns most of US debt?
The largest percentage of US debt is held by foreign investors. International investors hold 29.5% of all US debt. However, these investors hold 40% of all debt held by the public, which amounts to about $6.7 billion. In terms of countries, the US Treasury department lists Japan ($1.3 billion) and China ($1 billion) as the largest foreign investors, holding 18% and 15%, respectively, of all foreign securities.
How much would each American owe to pay off its national debt?
The US Census Bureau estimates the American population is 324,356,000 at the end of 2019. The US national debt as of 2019 was approximately $22.7 trillion. Thus, every American, regardless of age, would have to pay nearly $70,000 to resolve the US national debt. If only adults are taken into account, then the per capita debt would be about $90,500.
Does the national debt affect American citizens?
The US national debt does have the potential for ramifications that individual citizens may be impacted by. According to the Congressional Budget Office, US citizens could feel the effects of a large national debt in higher taxes, lower ability to fund benefits and services, and less money to meet economic crises like wars or natural disasters like the coronavirus pandemic.
Can the United States pay off its national debt?
The current US debt, at around $30 trillion, is unlikely to be paid off with any speed. In fact, as the world’s principal reserve currency, there are some ways in which the American national debt is good for other countries: Foreign investors can purchase US Treasury bonds to help fund their own countries.
The most likely way that the United States can pay off its debt is through budget surpluses, which boost a country’s GDP. However, the last time the US had a budget surplus was 2001.
More Facts About American National Debt
- You could wrap $1 bills around the Earth 113,516 times with the debt amount.
- If you lay $1 bills on top of each other they would make a pile 3,184,701 km, or 1,978,881 miles high.
- That's equivalent to 8.28 trips to the Moon.
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Further Reading
Here are some interesting data studies from our blog:
- State & Local Governments With the Most Debt Per Capita
- States Spending the Most on Welfare
- States Most Dependent On Federal Aid
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