The United States national debt is zero for the only time.

Understanding the United States National Debt

The national debt of the United States represents the cumulative financial obligations incurred by the federal government. More specifically, it is the total outstanding amount that the U.S. federal government owes to its various creditors, primarily holders of Treasury securities. These securities, which include Treasury Bills, Notes, Bonds, and Savings Bonds, are essentially IOUs issued by the U.S. Department of the Treasury to finance government operations and expenditures.

National Debt Versus Budget Deficit or Surplus

It's crucial to distinguish between the "national debt" and the "national deficit" or "national surplus."

Therefore, while deficits add to the debt and surpluses reduce it, the national debt itself is the cumulative sum of past deficits minus any surpluses, reflecting the total amount of money the government has borrowed over time and not yet repaid.

Components of the Gross National Debt

The gross national debt of the United States is primarily categorized into two distinct components:

Debt Held by the Public
This component comprises all marketable Treasury securities owned by individuals, corporations, state and local governments, foreign governments and investors, and even the Federal Reserve. For instance, when you purchase a U.S. Savings Bond, or an investment fund holds Treasury bonds, that contributes to the debt held by the public. The Federal Reserve often holds a significant portion of this debt as part of its open market operations to influence monetary policy and the economy.
Debt Held by Government Accounts (Intragovernmental Debt)
This portion of the debt represents non-marketable Treasury securities held in trust funds and other accounts administered by the federal government itself. These are essentially internal debts, or IOUs, between different parts of the government. Prominent examples include the Social Security Trust Funds, the Medicare Trust Funds, and the Civil Service Retirement and Disability Fund. These trust funds accumulate surpluses from dedicated taxes (like payroll taxes) and, by law, invest these surpluses in special Treasury securities. This ensures the funds earn interest and are available for future benefit payments, though the underlying cash has already been spent by the Treasury to fund other government operations.

Historical Context and Fiscal Sustainability

Historically, the U.S. public debt, when measured as a share of the nation's Gross Domestic Product (GDP), has seen significant fluctuations. It typically surges during major crises such as wars or severe economic recessions, when government spending increases dramatically (e.g., for military efforts or economic stimulus) and tax revenues may decline. For example, the debt held by the public as a share of GDP reached an extraordinary 113% in 1945, immediately following World War II, due to the immense wartime expenditures.

Following such peaks, the debt-to-GDP ratio has historically tended to decline. This reduction can occur through several mechanisms: sustained government budget surpluses, robust economic growth (which increases the GDP denominator relative to the debt), or inflation (which erodes the real value of the debt over time). However, in recent decades, concerns have intensified regarding the long-term sustainability of the federal government's fiscal policies. Factors such as the aging U.S. population and persistently rising healthcare costs place increasing pressure on entitlement programs like Social Security and Medicare, which are major drivers of future government spending and, consequently, the national debt.

The United States Debt Ceiling

A unique aspect of U.S. fiscal policy is the statutory debt ceiling. This is a legal limit on the total amount of money the United States government can borrow to meet its existing legal obligations. These obligations include Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments. When the national debt approaches this congressionally set limit, the Treasury Department must resort to "extraordinary measures" to avoid breaching it. If the debt ceiling is not raised or suspended in time, the U.S. government could potentially default on its obligations, leading to severe economic repercussions globally.

Current Status and Projections

The U.S. national debt continues to be a subject of significant economic and political discussion. As of August 31, 2020, the federal debt held by the public stood at approximately $20.83 trillion, while intragovernmental holdings were about $5.88 trillion, resulting in a total national debt of $26.70 trillion. By the end of 2020, the debt held by the public was roughly 99.3% of GDP, underscoring the substantial scale of government borrowing relative to the nation's economic output. Notably, approximately 37% of this publicly held debt was owned by foreign entities. In terms of overall external debt, the United States holds the largest amount globally, although its debt-to-GDP ratio was ranked 43rd out of 207 countries and territories as of 2017, indicating a relatively strong capacity to manage this debt given its large economy.

The ownership of U.S. Treasury securities by foreign countries saw an increase, rising from $6.63 trillion in June 2019 to $7.04 trillion in June 2020. The Congressional Budget Office (CBO), a non-partisan agency providing economic analysis to Congress, projected in a 2018 report that publicly-held debt would nearly reach 100% of GDP by 2028, with the possibility of climbing even higher if current policies were to be extended beyond their scheduled expiration dates.

Impact of Recent Events: The COVID-19 Pandemic

The fiscal landscape of the United States shifted dramatically during the COVID-19 pandemic. The federal government enacted unprecedented spending measures, allocating trillions of dollars towards virus aid, economic relief programs, and support for individuals and businesses. This massive fiscal response significantly increased the national debt. The CBO estimated that the budget deficit for fiscal year 2020 would surge to $3.3 trillion, representing about 16% of GDP. This figure was more than triple the deficit recorded in 2019 and marked the largest deficit as a percentage of GDP since World War II in 1945. Reflecting this substantial increase in borrowing, the total U.S. federal government debt surpassed the historic $30 trillion mark for the first time ever in February 2022.

Frequently Asked Questions About the U.S. National Debt

What is the primary difference between the national debt and the budget deficit?
The national debt is the total accumulated amount of money the government owes over time from all its past borrowing, whereas the budget deficit is the amount by which government spending exceeds its revenue in a single fiscal year. A deficit adds to the national debt, while a surplus reduces it.
Who owns the U.S. national debt?
The national debt is owned by a diverse group of entities. "Debt held by the public" is owned by individuals, corporations, investment funds, foreign governments, state and local governments, and the Federal Reserve. "Intragovernmental debt" is held by various federal government trust funds, such as Social Security and Medicare.
Why is the debt-to-GDP ratio an important metric?
The debt-to-GDP ratio is a crucial indicator of a country's ability to pay off its debt. It compares the size of the debt to the total economic output (GDP). A lower ratio generally suggests a healthier fiscal position and greater capacity to manage the debt burden.
How does the U.S. debt ceiling work?
The debt ceiling is a statutory limit set by Congress on the total amount of money the U.S. Treasury can borrow. It does not authorize new spending but rather limits the borrowing required to pay for spending already approved by Congress. If the debt ceiling is reached without being raised or suspended, the government risks defaulting on its financial obligations.
What are the long-term concerns regarding the U.S. national debt?
Key long-term concerns include the sustainability of entitlement programs like Social Security and Medicare due to an aging population and rising healthcare costs. Unchecked debt growth can also lead to higher interest payments, potentially crowding out other government investments, and could raise questions about the nation's fiscal stability.