U.S. debt from 1940 to 2011. Red lines indicate the debt held by the public (net public debt) and black lines indicate the total public debt outstanding (gross public debt), the difference being that the gross debt includes that held by the federal government itself. The second panel shows the two debt figures as a percentage of U.S. GDP (dollar value of U.S. economic production for that year). The top panel is deflated so every year is in 2010 dollars.

The United States public debt is the money borrowed by the federal government of the United States at any one time through the issue of securities by the Treasury and other federal government agencies. The US national public debt consists of two components:^[1]

• Debt held by the public includes Treasury securities held by investors outside the federal government, including that held by individuals, corporations, the Federal Reserve System and foreign, state and local governments.
• Debt held by government accounts or intragovernmental debt mainly includes non-marketable Treasury securities held in accounts administered by the federal government that are owed to program beneficiaries, such as the Social Security Trust Fund. Debt held by government accounts represents the cumulative surpluses, including interest earnings, of these accounts that have been invested in Treasury securities.

Public debt increases or decreases as a result of the annual unified budget deficit or surplus.^[2] The federal government budget deficit or surplus is the cash difference between government receipts and spending, ignoring intra-governmental transfers. However, there is certain spending (supplemental appropriations) that add to the debt but are excluded from the deficit.

Federal debt as a share of the nation's income has varied. Historically, the nation has run up deficits during wars and recessions, but then debt has subsequently declined. For example, debt as a share of the economy peaked just after World War II (112.7% of GDP in 1945), but then fell. In recent years, however, sharp increases in deficits and the resulting increases in debt have led to heightened concern about the long-term sustainability of the federal government's fiscal policies.^[3]

As of May 2012, debt held by the public was $10.95 trillion or approximately 71% GDP, while the intragovernmental debt was $4.76 trillion or approximately 29% GDP. These two amounts combined are defined as total public debt outstanding and equal $15.7 trillion, roughly 102% of GDP.^[4][5] The public debt has increased by over $500 billion each year since fiscal year (FY) 2003, with increases of $1 trillion in FY2008, $1.9 trillion in FY2009, $1.7 trillion in FY2010, and $1.2 trillion in FY2011.^[6][7] As of February 2012, $5.1 trillion or approximately 50% of the debt held by the public was owned by foreign investors, the largest of which were China and Japan at just over $1 trillion each.^[8] As of April 2012, nominal GDP of the United States was $15.46 trillion.^[9]

In the United States, there continues to be disagreement between Democrats and Republicans regarding the United States debt. On August 2, 2011, President Barack Obama signed into law the Budget Control Act of 2011, averting a possible financial default. During June 2011, the Congressional Budget Office called for "...large and rapid policy changes to put the nation on a sustainable fiscal course."^[10]

History[link]

U.S. federal debt held by the public as a percentage of GDP, from 1790 to 2009

Time series of U.S. federal debt overlaid with partisan affiliation of the White House and the Congress.

Federal debt as a share of the nation's income has varied. Historically, the nation has run up deficits during wars and recessions, but then debt has subsequently declined. For example, debt as a share of the economy peaked just after World War II (112.7% of GDP in 1945), but then fell. In recent years, however, sharp increases in deficits and the resulting increases in debt have led to heightened concern about the long-term sustainability of the federal government's fiscal policies (62% of GDP in 2010).^[11]

The United States has had a public debt since its founding in 1791. Debts incurred during the American Revolutionary War and under the Articles of Confederation amounted to $75,463,476.52 on January 1, 1791. From 1796 to 1811 there were 14 budget surpluses and 2 deficits. Another sharp increase in the debt that occurred was a result of the Civil War. The debt was just $65 million in 1860, but passed $1 billion in 1863 and reached $2.7 billion by the end of the war. During the following 47 years, there were 36 surpluses and 11 deficits. During this period 55% of the national debt was paid off. The next period of major increase in the national debt took place during World War I, reaching $25.5 billion at its conclusion. It was followed by 11 consecutive surpluses and saw the debt reduced by 36%.

Social programs enacted during the Great Depression and the buildup and involvement in World War II during the F.D. Roosevelt and Truman presidencies in the 1930s and 1940s caused the largest increase — a sixteenfold increase in the gross public debt from $16 billion in 1930 to $260 billion in 1950. When Roosevelt took office in 1933, the national debt was almost $20 billion; a sum equal to 20 percent of the U.S. gross domestic product (GDP). During its first term, the Roosevelt administration ran large annual deficits between 2 and 5 percent of GDP. By 1936, the national debt had increased to $33.7 billion or approximately 43 percent of GDP.^[12] US public debt relative to GDP rose to over 110% to pay for WWII.^[13]

The debt burden fell rapidly after the end of World War II, as the US and the rest of the world experienced a post-war economic expansion. The outstanding debt held steady for the next 25 years, going up to $283 billion in 1970 from $242 billion in 1946. Increasing GDP meant that the debt-GDP ratio fell during that time.^[14]

After reaching its post-WWII low in 1974, debt relative to GDP rose rapidly in the 1980s. President Ronald Reagan's economic policies lowered tax rates and increased military spending, while congressional Democrats blocked attempts to reverse social welfare spending.^[14][15] As a result, public debt as a share of GDP increased to 41% by the end of the 1980s.^[16]

Debt held by the public continued to rise during the presidency of George H. W. Bush. It reached nearly 50% of GDP during Bill Clinton's first presidential term. However, it fell to 39% of GDP by the end of Clinton's presidency due in part to decreased military spending after the Cold War, 1990, 1993 and 1997 budgets that increased taxes, and increased tax revenue resulting from the Dot-com bubble.^[17][18][19] The budget controls instituted in the 1990s successfully restrained fiscal action by the Congress and the President and together with economic growth contributed to the budget surpluses that materialized by the end of the decade. These surpluses led to a decline in the debt held by the public, and from fiscal years 1998 through 2001, the debt-to-GDP measure declined from about 43 percent to about 33 percent.^[20]

Debt relative to GDP rose due to recessions and policy decisions in the early 21st century. From 2000 to 2008 debt held by the public rose from 35% to 40%, and to 62% by the end of fiscal year 2010.^[21] During the presidency of George W. Bush, the gross public debt increased from $5.7 trillion in January 2001 to $10.7 trillion by December 2008,^[22] due in part to the Bush tax cuts and increased military spending caused by the wars in the Middle East.^[23] In the aftermath of the Global Financial Crisis, the debt increased from $10.7 trillion in 2008 to $15.5 trillion by February 2012 under the presidency of Barack Obama.^[24]

The Congressional Budget Office (CBO) projected in 2001 that the federal government would erase its debt in 2006 and be $2.3 trillion in the black by 2011. The difference between projected and actual debt can be largely attributed to:^[25][26][27]

• $3.6 Trillion – Economic changes (including lower than expected tax revenues due to recession)
• $3.0 Trillion – Bush Tax Cuts
• $1.4 Trillion – War in Afghanistan and Iraq
• $1.4 Trillion – Stimulus spending in response to the 2008 Financial Crisis

Valuation and measurement[link]

Public and government accounts[link]

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

The total or gross national debt is the sum of the "debt held by the public" and "intragovernmental" debt. As of March 2012, the "debt held by the public" was $10.85 trillion and the "intragovernmental debt" was $4.74 trillion, for a total of $15.6 trillion.^[28]

The national debt can also be classified into marketable or non-marketable securities. As of March 2012, total marketable securities were $10.34 trillion while the non-marketable securities were $5.24 trillion.^[29] Most of the marketable securities are Treasury notes, bills, and bonds held by investors and governments globally. The non-marketable securities are mainly the "government account series" owed to certain government trust funds such as the Social Security Trust Fund, which represented $2.7 trillion in 2011.^[30] The non-marketable securities represent amounts owed to program beneficiaries. For example, in the case of the Social Security Trust Fund, the payroll taxes dedicated to Social Security were credited to the Trust Fund upon receipt, but spent for other purposes. If the government continues to run deficits in other parts of the budget, the government will have to issue debt held by the public to fund the Social Security Trust Fund, in effect exchanging one type of debt for the other.^[31] Other large intragovernmental holders include the Federal Housing Administration, the Federal Savings and Loan Corporation's Resolution Fund and the Federal Hospital Insurance Trust Fund (Medicare).

Accounting treatment[link]

Only debt held by the public is reported as a liability on the consolidated financial statements of the United States government. Debt held by government accounts is an asset to those accounts but a liability to the Treasury; they offset each other in the consolidated financial statements.^[32]

The deficit is presented on a cash rather than an accruals basis, although the accrual basis may provide more information on the longer-term implications of the government's annual operations.^[33]

Fannie Mae and Freddie Mac obligations excluded[link]

Although not included in the debt 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 2008 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, consisting mainly of mortgage payment guarantees.^[34] The extent to which the government will be required to pay these obligations depends on a variety of economic and housing market factors. The federal government provided over $110 billion to Fannie and Freddie by 2010.^[35]

Guaranteed obligations excluded[link]

U.S. federal government guarantees are not included in the public debt total, until such time as there is a call on the guarantees. For example, the U.S. federal government in late-2008 guaranteed large amounts of obligations of mutual funds, banks, and corporations under several programs designed to deal with the problems arising from the late-2000s financial crisis. The funding of direct investments made in response to the crisis, such as those made under the Troubled Assets Relief Program, are included in the debt.

Unfunded obligations excluded[link]

The U.S. government is obligated under current law to mandatory payments for programs such as Medicare, Medicaid and Social Security. The Government Accountability Office (GAO) projects that payouts for these programs will significantly exceed tax revenues over the next 75 years. The Medicare Part A (hospital insurance) payouts already exceed program tax revenues, and social security payouts exceeded payroll taxes in fiscal 2010. These deficits require funding from other tax sources or borrowing.^[36]

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 so that the principal and interest would pay for the unfunded obligations 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 will require nearly five times the level of funding than Social Security. Adding this to the national debt and other federal obligations would bring total obligations to nearly $62 trillion.^[37] However, these unfunded obligations are not counted in the national debt.

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."^[38]

Measuring debt relative to gross domestic product[link]

2010 Budget: Total Debt $ and % to GDP 2000–2010

GDP is a measure of the total size and output of the economy. One measure of the debt burden is its size relative to GDP. In the 2007 fiscal year, U.S. federal debt held by the public was approximately $5 trillion (36.8 percent of GDP) and total debt was $9 trillion (65.5 percent of GDP).^[39] Debt held by the public represents money owed to those holding government securities such as Treasury bills and bonds. Total debt includes intra-governmental debt, which includes amounts owed to the Social Security Trust Funds (about $2.2 trillion in FY 2007)^[40] and Civil Service Retirement Funds. By August 2008, the total debt was $9.6 trillion.^[41]

Based on the 2010 U.S. budget, total national debt will nearly double in dollar terms between 2008 and 2015 and will grow to nearly 100% of GDP, versus a level of approximately 80% in early 2009.^[42] Multiple government sources including the current and previous presidents, the GAO, Treasury Department, and CBO have said the U.S. is on an unsustainable fiscal path.^[43] However, ahead of predictions, total national debt reached 100% by the third quarter of 2011.^[44] If counted using the total public debt outstanding over the annual GDP in chained 2005 dollars, the ratio reached 115% on Feb. 2012.^[45]

As the debt ratio increases, the exchange value of the dollar may fall. Paying back debt with cheaper currency could cause investors (including other governments) to demand higher interest rates if they anticipate further dollar depreciation. Paying higher interest rates could slow domestic U.S. growth.

Higher debt increases interest payments on the debt, which already exceed $430 billion annually as discussed below, or about 15 cents of every tax dollar for 2008.^[46] According to the CIA Factbook, nine countries have debt to GDP ratios over 100% for 2010, the largest of which is Japan at approximately 197.5%.^[47]

Further, a high public debt to GDP ratio may also slow economic growth. Economists Carmen Reinhart and Kenneth Rogoff calculated that countries with public debt above 90 percent of GDP grow by an average of 1.3 percentage points per year slower than less indebted countries. The public debt-to-GDP ratio in March 2010 is about 60 percent of GDP; CBO projects it will reach 90 percent around 2020 under policies in place in 2010. If growth slows, all of the economic challenges the U.S. faces will worsen.^[48]

Calculating the annual change in debt[link]

Comparison of deficits to change in debt in 2008

The annual change in debt is not equal to the "total deficit" typically reported in the media. Social Security payroll taxes and benefit payments, along with the net balance of the U.S. Postal Service, are considered "off-budget", while most other expenditure and receipt categories are considered "on-budget." The total federal deficit is the sum of the on-budget deficit (or surplus) and the off-budget deficit (or surplus). Since FY1960, the federal government has run on-budget deficits except for FY1999 and FY2000, and total federal deficits except in FY1969 and FY1998–FY2001.^[49]

In large part because of Social Security surpluses, the total deficit is smaller than the on-budget deficit. The surplus of Social Security payroll taxes over benefit payments is spent by the government for other purposes. However, the government credits the Social Security Trust fund for the surplus amount, adding to the "intragovernmental debt." The total federal debt is divided into "intragovernmental debt" and "debt held by the public." In other words, spending the "off budget" Social Security surplus adds to the total national debt (by increasing the intragovernmental debt) while the surplus reduces the "total" deficit reported in the media.

Certain spending called "supplemental appropriations" is outside the budget process entirely but adds to the national debt. Funding for the Iraq and Afghanistan wars was accounted for this way prior to the Obama administration. Certain stimulus measures and earmarks are also outside the budget process.

For example, in FY2008 an off-budget surplus of $183 billion reduced the on-budget deficit of $642 billion, resulting in a total federal deficit of $459 billion. Media often reported the latter figure. The national debt increased by $1,017 billion between the end of FY2007 and the end of FY2008.^[50] The federal government publishes the total debt owed (public and intragovernmental holdings) at the end of each fiscal year^[51] and since FY1957 the amount of debt held by the federal government has increased each year.

Debt ceiling[link]

US debt ceiling at the end of each year from 1981 to 2010.

Under Article I Section 8 of the United States Constitution, Congress has the sole power to borrow money on the credit of the United States. From the founding of the United States until 1917 Congress directly authorized each individual debt issuance separately. In order to provide more flexibility to finance the United States' involvement in World War I, Congress modified the method by which it authorizes debt in the Second Liberty Bond Act of 1917.^[52] Under this act Congress established an aggregate limit, or "ceiling," on the total amount of bonds that could be issued.

The current debt ceiling, in which an aggregate limit is applied to nearly all federal debt, was substantially established by Public Debt Acts^[53][54] passed in 1939 and 1941. The Treasury is authorized to issue debt needed to fund government operations (as authorized by each federal budget) up to a stated debt ceiling, with some small exceptions.

The process of setting the debt ceiling is separate and distinct from the regular process of financing government operations, and raising the debt ceiling does not have any direct impact on the budget deficit. The US government proposes a federal budget every year, which must be approved by Congress. This budget details projected tax collections and outlays and, if there is a budget deficit, the amount of borrowing the government would have to do in that fiscal year. A vote to increase the debt ceiling is, therefore, usually treated as a formality, needed to continue spending that has already been approved previously by the Congress and the President. The Government Accountability Office (GAO) explains: "The debt limit does not control or limit the ability of the federal government to run deficits or incur obligations. Rather, it is a limit on the ability to pay obligations already incurred."^[55] The apparent redundancy of the debt ceiling has led to suggestions that it should be abolished altogether.^[56][57]

Since 1979, the House of Representatives passed a rule to automatically raise the debt ceiling when passing a budget, without the need for a separate vote on the debt ceiling, except when the House votes to waive or repeal this rule. The exception to the rule was invoked in 1995, which resulted in two government shutdowns.^[58]

When the debt ceiling is reached, Treasury can declare a debt issuance suspension period and utilize "extraordinary measures" to acquire funds to meet federal obligations but which do not require the issue of new debt.^[59] Treasury first used these measures on December 16, 2009, to remain within the debt ceiling, and avoid a government shutdown,^[60] and also used it during the debt-ceiling crisis of 2011. However, there are limits to how much can be raised by these measures.

The debt ceiling was increased on February 12, 2010, to $14.294 trillion.^[61][62][63] On April 15, 2011, Congress finally passed the 2011 United States federal budget, authorizing federal government spending for the remainder of the 2011 fiscal year, which ends on September 30, 2011, with a deficit of $1.48 trillion,^{[citation needed]} without voting to increase the debt ceiling. The two Houses of Congress were unable to agree on a revision of the debt ceiling in mid-2011, resulting in the United States debt-ceiling crisis. The impasse was resolved with the passing on August 2, 2011, the deadline for a default by the US on its debt, of the Budget Control Act of 2011, which immediately increased the debt ceiling to $14.694 trillion, required a vote on a Balanced Budget Amendment, and established several complex mechanisms to further increase the debt ceiling and reduce federal spending.

On September 8, 2011, one of the complex mechanisms to further increase the debt ceiling took place as the Senate defeated a resolution to block a $500 billion automatic increase. The Senate's action allowed the debt ceiling to increase to $15.194 trillion, as agreed upon in the Budget Control Act.^[64] This was the third increase in the debt ceiling in 19 months, the fifth increase since President Obama took office, and the twelfth increase in 10 years. The August 2 Act also created the United States Congress Joint Select Committee on Deficit Reduction‎ for the purpose of developing a set of proposals by November 23, 2011, to reduce federal spending by $1.2 trillion. The Act requires both houses of Congress to convene an "up-or-down" vote on the proposals as a whole by December 23, 2011. The Joint Select Committee met for the first time on September 8, 2011.

The debt ceiling was raised once more on January 30, 2012, to a new high of $16.394 trillion.

Ownership of debt[link]

Estimated ownership each year.

Because a large variety of people own the notes, bills, and bonds in the "public" portion of the debt, Treasury also publishes information that groups the types of holders by general categories to portray who owns United States debt. In this data set, some of the public portion is moved and combined with the total government portion, because this amount is owned by the Federal Reserve as part of United States monetary policy. (See Federal Reserve System.)

As is apparent from the chart, a little less than half of the total national debt is owed to the "Federal Reserve and intragovernmental holdings". The foreign and international holders of the debt are also put together from the notes, bills, and bonds sections. To the right is a chart for the data as of June 2008:

Foreign ownership[link]

Composition of US Long-Term Treasury Debt held by foreign states, Nov. 2005–Nov. 2010. June figures are results of comprehensive Treasury Department surveys.

As of January 2011, foreigners owned $4.45 trillion of U.S. debt, or approximately 47% of the debt held by the public of $9.49 trillion and 32% of the total debt of $14.1 trillion.^[65] The largest holders were the central banks of China, Japan, Brazil, Taiwan, Switzerland, Russia, and the United Kingdom.^[67] The share held by foreign governments has grown over time, rising from 13% of the public debt in 1988^[68] to 25% in 2007.^[69]

As of May 2011 the largest single holder of US government debt was China, with 26 percent of all foreign-held US Treasury securities (8% of total US public debt).^[70] China's holdings of government debt, as a percentage of all foreign-held government debt, have decreased a bit between 2010 and 2011, but are up significantly since 2000 (when China held just 6 percent of all foreign-held U.S. Treasury securities).^[71]

Major Foreign Holders of U.S. Treasury Securities, 2000–2010 Source: http://FutureofUSChinaTrade.com

Major foreign holders of U.S. Treasury securities, June 2010-May 2011^[72]

This exposure to potential financial or political risk should foreign banks stop buying Treasury securities or start selling them heavily was addressed in a June 2008 report issued by the Bank of International Settlements, which stated, "Foreign investors in U.S. dollar assets have seen big losses measured in dollars, and still bigger ones measured in their own currency. While unlikely, indeed highly improbable for public sector investors, a sudden rush for the exits cannot be ruled out completely."^[73]

On May 20, 2007, Kuwait discontinued pegging its currency exclusively to the dollar, preferring to use the dollar in a basket of currencies.^[74] Syria made a similar announcement on June 4, 2007.^[75] In September 2009 China, India and Russia said they were interested in buying International Monetary Fund gold to diversify their dollar-denominated securities.^[76] However, in July 2010 China's State Administration of Foreign Exchange "ruled out the option of dumping its vast holdings of US Treasury securities" and said gold "cannot become a main channel for investing our foreign exchange reserves" because the market for gold is too small and prices are too volatile.^[77]

Forecasting the debt[link]

USA national debt live panel in NY, as in April 20, 2012

Tracking current levels of debt is a cumbersome but fairly straightforward process. Making future projections is much more difficult for a number of reasons. For example, before the September 11 attacks in 2001, the George W. Bush administration projected in the 2002 budget that there would be a $1.288 trillion surplus from 2001 through 2004.^[78]

In the 2005 Mid-Session Review this had changed to a projected four-year deficit of $851 billion, a swing of $2.138 trillion.^[79] The latter document states that 49% of this swing was due to "economic and technical re-estimates", 29% was due to "tax relief" (mainly the Bush Tax Cuts), and the remaining 22% 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, a Congressional Budget Office report projected a $1.4 trillion deficit from 2004 through 2013.^[80]

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.^[81]

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 projected debt will equal 101% of projected 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.^[82]

Historical analysis of government spending or debt relative to GDP can be misleading, according to the GAO, the CBO and Treasury Department. This is because demographic shifts and per-capita spending are causing Social Security and Medicare/Medicaid expenditures to grow significantly faster than GDP. If this trend continues, government simulations under various assumptions project mandatory spending for these programs will exceed taxes dedicated to these programs by more than $40 trillion over the next 75 years on a present value basis.^[83]

According to the GAO, this will double debt-to-GDP ratios by 2040 and double them again by 2060, reaching 600% by 2080.^[84] A GAO simulation indicates that Social Security, Medicare, and Medicaid expenditures alone will exceed 20% of GDP by 2080, which is approximately the historical ratio of taxes collected by the federal government. In other words, these mandatory programs alone will take up all government revenues under this simulation.^[83]

CBO long-term scenarios[link]

CBO-Public Debt Under "Extended" and "Alternate" Scenarios

The CBO reported during June 2011 two scenarios for how debt held by the public will change during the 2010–2035 time period. The "extended baseline scenario" assumes that the Bush tax cuts (extended by Obama) will expire per current law in 2012. It also assumes the alternative minimum tax (AMT) will be allowed to affect more middle-class families, Medicare reimbursement rates to doctors will go down, and that revenues will reach 23% of GDP by 2035, much higher than the historical average of 18%. Under this scenario, government spending on everything other than the major mandatory health care programs, Social Security, and interest on federal debt (activities such as national defense and a wide variety of domestic programs) would decline to the lowest percentage of GDP since before World War II. Under this scenario, public debt rises from 69% GDP in 2011 to 84% by 2035, with interest payments absorbing 4% of GDP vs. 1% in 2011.^[85]

CBO estimated in August 2011 that if laws currently "on the books" were enforced without changes, meaning the "extended baseline scenario" described above is implemented along with deficit reductions from the Budget Control Act of 2011, the deficit would decline from 8.5% GDP in 2011 to around 1% GDP by 2021.^[86]

The "alternative fiscal scenario" more closely assumes the continuation of present trends, such as permanently extending the Bush tax cuts, restricting the reach of the AMT, and keeping Medicare reimbursement rates at the current level (the so-called "Doc Fix" versus declining by one-third as mandated under current law.) Revenues are assumed to remain around the historical average 18% GDP. Under this scenario, public debt rises from 69% GDP in 2011 to 100% by 2021 and approaches 190% by 2035.^[85]

The CBO reported: "Many budget analysts believe that the alternative fiscal scenario presents a more realistic picture of the nation’s underlying fiscal policies than the extended-baseline scenario does. The explosive path of federal debt under the alternative fiscal scenario underscores the need for large and rapid policy changes to put the nation on a sustainable fiscal course."^[85]

Risks and obstacles[link]

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

Components of interest on the debt.

A high debt level may 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. 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.^[36] 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.^[87] The U.S. also has a large trade deficit, meaning imports exceed exports.

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).^[88] Economist Paul Krugman has argued, however, that it is low growth with causes national debt to increase, rather than the other way around^[89].

The CBO reported several types of risk factors related to rising debt levels in a July 2010 publication:

• A growing portion of savings would go towards purchases of government debt, rather than investments in productive capital goods such as factories and computers, leading to lower output and incomes than would otherwise occur;
• If higher marginal tax rates were used to pay rising interest costs, savings would be reduced and work would be discouraged;
• Rising interest costs would force reductions in government programs;
• Restrictions to the ability of policymakers to use fiscal policy to respond to economic challenges; and
• An increased risk of a sudden fiscal crisis, in which investors demand higher interest rates.^[90]

While there is significant debate about solutions,^[91] the significant long-term risk posed by the increase in entitlement spending is widely recognized,^[92] with health care costs (Medicare and Medicaid) the primary risk category.^[93][94] In a June 2010 opinion piece in the Wall Street Journal, former chairman of the Federal Reserve, Alan Greenspan noted that "Only politically toxic cuts or rationing of medical care, a marked rise in the eligible age for health and retirement benefits, or significant inflation, can close the deficit."^[95] If significant reforms are not undertaken, benefits under entitlement programs will exceed government income by over $40 trillion over the next 75 years.^[94]

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.^[96] However, according to Paul Krugman, "It’s true that foreigners now hold large claims on the United States, including a fair amount of government debt. But every dollar’s worth of foreign claims on America is matched by 89 cents’ worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors. If your image is of a nation that’s already deep in hock to the Chinese, you’ve been misinformed. Nor are we heading rapidly in that direction."^[97]

Debates[link]

Economists debate whether the level of debt relative to GDP that signals a "red line" or dangerous level, or if any such level exists. In January 2010, Economists Kenneth Rogoff and Carmen Reinhart stated that 90% of GDP might be an indicative danger level.^[98] Fed Chair Ben Bernanke stated in April 2010 that "Neither experience nor economic theory clearly indicates the threshold at which government debt begins to endanger prosperity and economic stability. But given the significant costs and risks associated with a rapidly rising federal debt, our nation should soon put in place a credible plan for reducing deficits to sustainable levels over time."^[99]

Economists also debate the definition of public debt. Krugman argued in May 2010 that the debt held by the public is the right measure to use, while Reinhart has testified to the President's Fiscal Reform Commission that gross debt is the appropriate measure.^[89] 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.^[100]

There is debate regarding the economic nature of the intragovernmental debt, which was approximately $4.6 trillion in February 2011.^[101] For example, the CBPP argues: that "large increases in [debt held by the public] can also push up interest rates and increase the amount of future interest payments the federal government must make to lenders outside of the United States, which reduces Americans’ income. By contrast, intragovernmental debt (the other component of the gross debt) has no such effects because it is simply money the federal government owes (and pays interest on) to itself."^[100] However, if the U.S. continues to run "on budget" deficits as projected by the CBO and OMB for the foreseeable future, it will have to issue marketable Treasury bills and bonds (i.e., debt held by the public) to pay for the projected shortfall in the Social Security program. This will result in "debt held by the public" replacing "intragovernmental debt".^[102][103]

The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that “the buck stops here.” Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.

—Sen. Barack Obama speaking on the floor of the Senate on March 20, 2006.^[104][105]

Appendix[link]

National debt for selected years[link]

Fiscal years 1940–2009 GDP figures are derived from February 2011 Office of Management and Budget figures which contained revisions of prior year figures due to significant changes from prior GDP measurements. Fiscal years 1950–2010 GDP measurements are derived from December 2010 Bureau of Economic Analysis figures which also tend to be subject to revision, especially more recent years. The two measures in Fiscal Years 1980, 1990 and 2000–2009 diverge only slightly.

Absolute differences from advance (one month after) BEA reports of GDP percent change to current findings (as of January 2011) found in revisions are stated to be 1.2% ± 1.8% or a 95% probability of being within the range of 0.0–3.0%, assuming the differences to occur according to standard deviations from the average absolute difference of 1.2%. E.g. with an advance report of a $500 billion increase of a $15 trillion GDP, for example, one could be 95% confident that the range would be 0.0 to 3.0% different than 3.3% (500 ÷ 15,000) or $0 to $450 billion different than the hypothetical $500 billion.

Fiscal years 1940–1970 begin July 1 of the previous year (for example, Fiscal Year 1940 begins July 1, 1939 and ends June 30, 1940); fiscal years 1980–2010 begin October 1 of the previous year.

Intergovernmental debts before the Social Security Act are presumed to equal zero.

1909–1930 calendar year GDP estimates are from MeasuringWorth.com^[111] Fiscal Year estimates are derived from simple linear interpolation.

(a1)Audited figure was "about $5,659 billion."^[112]

(a2)Audited figure was "about $5,792 billion."^[113]

(a3)Audited figure was "about $6,213 billion."^[113]

(a)Audited figure was said to be "about" the stated figure.^[114]

(a4)Audited figure was "about $7,918 billion."^[115]

(a5)Audited figure was "about $8,493 billion."^[115]

(a6)Audited figure was "about $8,993 billion."^[116]

(a7)Audited figure was "about $10,011 billion."^[116]

(a8)Audited figure was "about $11,898 billion."^[117]

(a9)Audited figure was "about $13,551 billion."^[118]

Foreign holders of U.S. Treasury securities[link]

Foreign holders account for approximately one-third of all holders.^[119] The following is a list of the foreign holders of U.S. Treasury securities as listed by the U.S. Treasury (revised by March 2012 survey completed May 15, 2012):^[120]

¹Saudi Arabia, Venezuela, Libya, Iran, Iraq, the United Arab Emirates, Bahrain, Kuwait, Oman, Qatar, Ecuador, Indonesia, Algeria, Gabon, and Nigeria

²Bahamas, Bermuda, Cayman Islands, Netherlands Antilles, British Virgin Islands and Panama

Statistics[link]

• U.S. official gold reserves, totaling 275.0 million troy ounces, have a book value as of 31 December 2010 (2010 -12-31)^[update] of approximately $11.6 billion,^[122] vs. a commodity value as of 23 January 2011 (2011 -01-23)^[update] of approximately $445 billion.^[123]
• Foreign exchange reserves $133 billion as of December 2010^[update].^[124]
  

  

  United States balance of trade (1980–2011), with negative numbers denoting a trade deficit.
  File:Revenue and Expense to GDP Chart 1993 - 2008.png

  Revenue and Expense as % GDP.
  

  

  A graph depicting the total U.S. federal debt from 1940 to 2009.
• The Strategic Petroleum Reserve had a value of approximately $65 billion as of January 2011^[update], at a Market Price of $98/barrel with a $15/barrel discount for sour crude.^[125]
• The national debt equates to $44,900 per person U.S. population, or $91,500 per member of the U.S. working population,^[126] as of December 2010.
• 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.^[116]
• 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.^[127]
• Total U.S Consumer Credit Card revolving credit was $931.0 billion in April 2009.^[128]
• Total third world debt was estimated to be $1.3 trillion in 1990.^[129]
• The U.S. balance of trade deficit in goods and services was $725.8 billion in 2005.^[130]
• 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.^[131]

Table: International debt comparisons[link]

Sources: Eurostat^[132], International Monetary Fund, World Economic Outlook (emerging market economies); Organisation for Economic Co-operation and Development, Economic Outlook (advanced economies)^[133]

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

²Argentina, Brazil, Chile and Mexico

Recent additions to the public debt of the United States[link]

Deficit and debt increases 2001–2009.

The more precise FY 1999–2010 debt figures are derived from Treasury audit results.

The variations in the FY 2009–2010 figures are due to double-sourced or relatively preliminary GDP figures.

Historical debt ceiling levels[link]

See also[link]

• Debt levels and flows
• History of the United States public debt
• List of countries by public debt
• Emergency Economic Stabilization Act of 2008
• Troubled Asset Relief Program
• Fiat money
• Sovereign default

References[link]