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U.S. National Debt

National debt, also known as federal or state debt, is the unpaid financial debt of a country. The national debt of the United States is the amount owed by the federal government to creditors, including state and federal trusts, and is the sum of last year's budget deficit. Public debt is the amount the federal government has borrowed to cover the outstanding balance of expenses incurred over time.

Understanding National Debt

During this financial year when expenses (e.g. roads) exceeds revenues (for example, federal income taxes), then the budget is in deficit. To cover this shortfall, the federal government borrows money by selling negotiable securities such as Treasury bonds, promissory notes, notes, floating-rate notes, and Treasury Inflation Protected Securities. silver (TIPS). Public debt is the sum of these loans plus the interest earned by investors who purchased these securities. Because the federal government runs regular deficits, which often happens, the national debt increases. The US public debt in April 2023 was $31.5 trillion.

Simply put, public debt is like a person using a credit card to make a purchase and not paying the balance in full each month. The purchase value in excess of the amount paid constitutes the deficit, and the deficit that accumulates over time constitutes the total debt of the entity.

WHAT IS THE NATIONAL DEBT TODAY?

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Public debt is the total amount of money a country owes its creditors and the sum of past deficits. Economists focus on a country's debt-to-gross domestic product ratio as an indicator of that country's stability. The federal government's annual budget deficit, known as a budget deficit, is different from government debt. Federal debt is mainly owned by the US public, followed by foreign governments, US banks and investors.

The debt-to-GDP ratio is a measure of how much a country owes compared to how much it produces. It is calculated by dividing the total debt of a country by its gross domestic product (GDP), which is the value of all goods and services produced in a year. The debt-to-GDP ratio can indicate how well a country can pay back its debts and how attractive it is to investors. A low debt-to-GDP ratio means that a country has enough economic output to cover its debt obligations without borrowing more. A high debt-to-GDP ratio means that a country has a large debt burden relative to its economic size and may face difficulties in servicing its debt or attracting new loans.

According to the World Economics GDP Database, the U.S. national debt-to-GDP ratio was 120.21% at the end of 2022. This means that the U.S. owed more than it produced in that year. The U.S. had the seventh highest debt-to-GDP ratio in the world, behind Japan, Greece, Singapore, Italy, Cabo Verde, and Lebanon.  The U.S. debt-to-GDP ratio has increased significantly since 2008, when it was 68%. The main factors that contributed to this increase were the global financial crisis, the COVID-19 pandemic, and the fiscal stimulus measures adopted by the government to support the economy.

The debt-to-GDP ratio is not the only indicator of a country's fiscal health or economic performance. Some economists argue that other factors, such as the interest rate on the debt, the maturity structure of the debt, the currency denomination of the debt, and the growth potential of the economy, should also be considered when assessing a country's debt sustainability. Moreover, some countries, such as Japan and the U.S., have the advantage of issuing their own currency and having a large domestic market for their bonds, which reduces their risk of default or external pressure.

Breaking Down the Debt

The debt of the United States federal government consists of two main components: the public debt and the national public debt. The national debt is the amount that the federal government owes to outside organizations such as individuals, corporations, foreign governments, and the Federal Reserve. The national debt is the amount of money the federal government owes itself, mainly through various trusts like Social Security and Medicare.

According to the White House Office of Management and Budget, by the end of 2021, the public debt will amount to $24.2 trillion (109.7 percent of GDP) and the national debt to $6.4 trillion (29% of GDP) ). The difference in the growth rates of these two debt components reflects different factors that influence their dynamics.

Public debt rises when the federal government runs a budget deficit, meaning spending exceeds income. The budget deficit has widened significantly in recent years due to the COVID-19 pandemic and related stimulus measures, as well as tax cuts and other spending increases in 2017. The Congressional Budget Office (CBO) forecasts public debt will grow faster than GDP over the next decade, reaching a record high of 107.5% of GDP in 2031.

Public debt is essentially US Treasury securities - issued by the government IOU - owned by sovereign wealth funds, banks, insurance companies and other private investors, including individuals. This portion of the US public debt - the national debt - accounts for nearly 80% of the $31.4 trillion. According to the latest report of the Ministry of Finance, it is 24.6 trillion USD.

The national debt grows as some federal programs, such as Social Security and Medicare, generate more revenue than they spend. These surpluses are invested in special interest Treasury securities classified as domestic debt. However, these programs are expected to dry up in the future as the population ages and health care costs rise. As a result, the national debt to GDP ratio will gradually decrease over time as the federal government will have to buy back these securities to pay the subsidy. This part - domestic farms - currently accounts for about 20% of the public debt, about $6.9 trillion.

It's like the right hand lends money to the left hand. Usually, things like Social Security, Medicare, or other public services receive more income than they need in a year, and the excess income is invested in government bonds. Just as a private pension fund might want to invest in U.S. Treasury securities for a profit with little risk, government agencies like the Social Security Administration also want to invest their surplus money. they enter Treasury securities.

Thus, the difference in the growth rates of state and national debt is largely determined by multidimensional trends in federal budget balances and trust fund balances. Although both components of debt are legal obligations of the federal government, public debt is considered to make more economic sense because it reflects the amount of money the government borrows from the private sector and abroad.

The Growing National Debt

The United States was indebted from the very beginning. Debts incurred during the American Revolutionary War amounted to more than $75 million on January 1, 1791. Over the next 45 years, the debt grew until 1835, when it fell dramatically due to the sale of federally owned land and cuts to the federal budget. Shortly after, due to the economic crisis, the debt amounted to billions of dollars again. The debt grew by more than 4,000% during the Civil War, rising from $65 million in 1860 to $1 billion in 1863 and about $2.7 billion shortly after the war ended in 1865. about $22 billion. after it financed its entry into World War I.  

Notable recent events that increased debt include the wars in Afghanistan and Iraq, the Great Recession of 2008, and the COVID-19 pandemic. Spending increased by about 50% from fiscal year 2019 to fiscal year 21, mainly due to the COVID-19 pandemic. Tax cuts, stimulus programs, increased government spending and reduced tax revenue due to widespread unemployment often explain the sharp rise in public debt.

However, a high debt-to-GDP ratio can also have negative consequences for a country's economy and society. A high debt-to-GDP ratio can limit the government's ability to spend on public goods and services, such as education, health care, and infrastructure. It can also crowd out private investment and reduce economic growth and productivity. Furthermore, a high debt-to-GDP ratio can increase the vulnerability of a country to external shocks, such as changes in interest rates, exchange rates, or investor confidence. A high debt-to-GDP ratio can also affect the intergenerational equity and social justice of a country, as future generations may have to bear the burden of paying back the debt or facing higher taxes or lower public spending.

Statistic: United States: National debt from 2018 to 2028 (in billion U.S. dollars) | Statista   
Find more statistics at Statista

The statistic shows the national debt of the United States from 2018 to 2021, with projections up until 2028. The amount of the debt of the United States amounted to around 29.48 trillion U.S. dollars in 2021.

Comparing a country's debt to gross domestic product (GDP) shows a country's ability to repay its debt. This index is considered a better indicator of a country's financial health than a simple measure of public debt, as it shows the debt burden in relation to the country's overall economic performance. and thus the country's ability to repay its debt. The US debt-to-GDP ratio exceeded 100% in 2013, when both debt and GDP were around $16.7 trillion.

Maintaining the National Debt

The federal government must pay interest on the lender's use of funds, just as lenders charge individual interest on a car loan or mortgage. How much interest the government pays depends on the total amount of government debt and the interest rates on different securities.

The U.S. government has centuries of experience in paying debts on time, both the money they owe to private investors and obligations to other government entities like Social Security. This is why US Treasuries are considered very attractive for investment worldwide. It’s that track record - that “faith and credit” of the U.S. government.

These debt ceiling numbers cover total debt, which includes domestic loans from one government to another… that total is important. This is the maximum amount of debt that should be raised.

4 facts about the U.S. national debt

Within a few years, the country's debt exceeded gross domestic product, which in the fourth quarter of 2022 amounted to $26.13 trillion. relative, comparing it to the size of the national economy. From this perspective, debt as a share of GDP has experienced three major growth periods over the past decades. This corresponds to periods when the federal government ran large budget deficits: the Reagan and Bush eras in the 1980s and early 1990s; the financial crisis of 2008 and the Great Recession that followed; and a pandemic-induced recession in 2020, when federal debt hits a record 134.8% of GDP. Since then, the rate has dropped slightly but is still much higher than pre-pandemic levels.

Although U.S. government debt is perhaps the most popular security in the world, 21.8% of U.S. government debt, or $6.87 trillion, belongs to another division of the U.S. government. the federal government. This includes Medicare; specialized trust funds, for example, for highways and bank deposit insurance; retirement program for civil servants and military. But the largest portion of these "inside assets" goes to Social Security. At the end of January, pension and annuity trusts collectively held more than $2.8 trillion in unsold special Treasury securities, or 9% of total debt. (For many years, Social Security collected more payroll taxes than it paid; the law required that any surplus be invested in Treasury bills. This made Social Security, for a time, becoming the largest creditor of the federal government.)

Currently, the Federal Reserve System is the largest creditor of the United States. Although the Fed regularly buys and sells Treasuries to guide monetary policy, during the COVID-19 pandemic, it has purchased large amounts of Treasuries to keep the US economy from collapsing. against the pressure of closures and blockades. At its peak in April 2022, the Fed held more than $6.25 trillion in US government debt, more than double the level just before the pandemic hit the US in March 2020. $6.1 trillion in government bonds - nearly a fifth of all public debt - since September. 30, 2022, latest data available. In contrast, ten years ago, the Fed's debt ratio was just under 11%. (Since the Fed is officially independent of the federal government, its resources do not count toward the national resources discussed above.)

Currently, the Federal Reserve System is the largest creditor of the United States. Although the Fed regularly buys and sells Treasuries to enforce monetary policy, during the COVID-19 pandemic, it has purchased large amounts of Treasuries to keep the US economy from collapsing against the pressure of closures and blockades.

At its peak in April 2022, the Fed held more than $6.25 trillion in US government debt, more than double the level just before the pandemic hit the US in March 2020. $6.1 trillion in government bonds - nearly a fifth of all public debt - since September. 30, 2022, latest data available. In contrast, ten years ago, the Fed's debt ratio was just under 11%. (Because the Fed is officially independent of the federal government, its shares do not count toward the intrastate holdings discussed above.)

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