National Debt

By: EconomyWatch Content   Date: 17 November 2009

About The Author

EconomyWatch Content

Follow The Money

EconomyWatch, Content Team

 

  • Dot Div
  •      

National debt pertains to the amount of money owed by the US Federal government to holders of US debt instruments. The holders can be:

  • Individuals

  • Business entities

  • Foreign governments 

These debt instruments or securities issued by the Federal government include:

  • Treasury bills

  • Bonds

  • Notes

  • Tips and state/ local government series securities 

In addition to public debt, the US national debt also includes the money loaned by the government to itself, known as intra-governmental holdings. This loan is in the form of various Government Account Securities. These are typically intended for funding Social Security and other trust funds.

Size of US National Debt

According to the CIA World Factbook, the size of US national debt is the largest in the world. It was recorded at $11.6 trillion as of July 2009. Prior to the economic recession, the US national debt increased by 50% from $6 to $9 trillion, between 2000 and 2007. This debt increased to $10.5 trillion in 2008, amidst economy bailout efforts.

Difference between National Debt and National Deficit

National deficit is the amount borrowed by the US government annually. Simply put, it is the difference between government revenue and expenditure. For instance, a government earns $2 billion in taxes, but spends $3 billion but the national deficit is $1 billion.

To compensate this difference, the government borrows money; thus adding to its debt. Hence, every year, a national deficit gets added to the national debt. Conversely, a surplus (when revenue exceeds expenditure) the national debt is reduced. Therefore, national debt is the overall accumulated borrowing of the federal government. However, this debt does not include intra-governmental holdings, as they lie within the purview of the government. 

National Debt: Default Risk

A large portion of the national debt is in dollars, as the national debt instruments are predominantly issued to US citizens. Therefore, the Federal government can merely print money or conduct open-market operations to pay-off or buy-back the debt.

Increasing money supply is a grave economic policy issue. However, the federal government has the authority to create money for servicing its debt. This authority differentiates national debt from private debt and state/local government debt. Therefore, the US Federal government national debt has no grounds for default or bankruptcy declaration.


  • Dot Div
  •      

Most Popular in Debt

Related Links
blog comments powered by Disqus