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Current National U.S. Debt – Approaching $20,000,000,000,000

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Current National U.S. Debt – Approaching $20,000,000,000,000

The current national US debt is the total amount of intra-governmental and public debt owed by the U.S. federal government. About two-thirds of this debt is in the form of treasury bills, bonds and notes and is owned by the general public. General public includes investors, foreign governments and U.S. Federal Reserve. The remaining one-third comprises government account securities that are held by federal agencies. These include social security funds, military retirement funds and federal employee retirement funds.

The federal government accumulates national debt when it receives less in tax revenue compared to the amount it spends. The budget deficit of each year adds to the debt, while every budget surplus lowers the debt. There are 2 ways of reducing national debt that are cutting governmental spending or raising taxes. But both of these measures can retard the country’s economic growth.

It is important to compare the debt to a country’s ability to pay it off. The famous debt-to-GDP ratio calculation does exactly that. The calculation simply involves dividing the national debt by a country’s GDP. Investors tend to worry about the risk of default when this ratio exceeds 77%.

Amount of Current National US Debt

The current U.S. national debt is in excess of $19 trillion and quickly approaching $20 trillion. Both the U.S. Treasury Department and the national debt clock  websites will give you the latest information on the exact number. The amount of public debt is about $14.3 trillion while, intra-governmental debt is about $5.9 trillion.

If you break it down it comes out to over $61,000 per US citizen and $165,000 for every US Taxpayer.  Keep in mind this figure is continually growing.  Additionally the US is paying about $2.5 Trillion just in interest payments on the debt.  This comes out to nearly $7,700 per citizen.

Ownership of US National Debt

The U.S. Treasury is responsible for managing the national debt which falls under 2 broad categories: these are Intra-governmental Holdings and  Public Debt.

Intra-governmental Holdings

It is the amount of national debt which is owed to over 230 different federal agencies. It aggregates to about $5.9 trillion, which is almost one-third of the total debt. This implies that the government owes money to itself, you must be wondering why. The reason is that a few agencies, such as the Social Security Trust Fund, generate more revenue in the form of taxes than they require. Instead of sticking these funds under a huge mattress, they purchase U.S. Treasuries.

By investing in Treasuries, the excess funds are transferred to the general fund, where they are spent. Eventually these agencies will redeem their investment in treasury notes in exchange for cash. For redemption purposes, federal government will either have to issue further debt or raise taxes to generate the funds these agencies need.

The following is a breakdown of the amount of investment the agencies have made (on December 31, 2016).

  • Social security- $2.801 trillion
  • Personnel Management Retirement – $890 billion
  • Retirement fund for military – $670 billion
  • Medicare – $294 billion
  • Other retirement funds – $305 billion
  • Cash on hand – $580 billion

Public Debt

The rest of the national US debt is owned by public.  Foreign investors and governments hold about 50% of it. A quarter is owned by various governmental entities. Here is the breakup of the US public debt:

  • Foreign debt – $6.281 trillion
  • US Federal Reserve– $2.463 trillion
  • Various mutual funds– $1.379 trillion
  • Local and state governments  – $874 billion
  • Pension funds – $544 billion
  • Private banks – $570 billion
  • Insurance corporations – $304 billion

Understanding National Debt

The amount of US national debt is so huge that it is often difficult to put it in perspective. You can visualize it in 3 different ways. Firstly, it is about $60,000 for each citizen in the United States. (That’s about $19 trillion in debt divided by around 320 million which is the U.S. population.)  This is double when compared to per capita income in U.S. which is $28,757.

Secondly, U.S. national debt is the largest in the world. It is higher than the combined European Union debt, which comprises 28 countries. Lastly, the national debt is higher than the country’s yearly production. This implies that the U.S. would not be able to pay off its debt even if the total GDP went towards it.

Fortunately, investors have a great deal of confidence in the  U.S. economy. Foreign investors such as Japan and China still purchase U.S. Treasuries and consider it a safe investment. This helps in keeping interest rates low. In case, this trend falters, interest rates in the country will soar. That is why it was deemed that the Congress did much damage to the economy when it issued threats to default on the U.S. debt.

Difference between Debt and Deficit

Deficit and debt are probably the 2 most loaded terms in the context of macro finance and their distinct connotations inspire executive and legislative decisions that impact most of us. In short, deficit is the net amount of funds taken in, while debt means money that is owed.

We can compare these two terms; debt is usually higher than deficit. The national U.S. debt is in excess of $19 trillion, while the deficit is only $1 trillion, and this situation will not be the other way around. Debt is the amount that has accumulated over the lifetime on a daily basis, while deficit is calculated over a given period of time.

If the national debt were to increase by $200 billion tomorrow, it would raise the total debt to $19.2 trillion, which will remain constant until the next decrease or increase (this excludes the effect of interest). So it does not reset to zero at the end of the current period. On the other hand, deficit is an amount that resets after the end of a certain interval. You will be familiar with terms such as the national deficit for the fourth quarter of 2016. Associating federal debt with a particular period makes no sense as it is measured at a certain point in time, while deficit is calculated over a period of time.

What’s Worse? Debt or Deficit?

It can be argued that debt is the more ominous number, but it is not necessarily indicative of a weak or poor economy. It is vital to keep in mind that debt by its definition is negative, and cannot be positive. So as long as a nation has to fund anything costly, whether it is the interstate highway system or the payroll of armed forces, it will have to issue debt to raise those funds. It may seem paradoxical to people, but increasing governmental spending usually raises government debt, while receipts tend to lower it.

A huge number of economists in the U.S. tend to argue that debt should also cover the trillions of dollars that are circulating in the economy in the form of fiat currency and are not backed by tangible assets.

Why is the National US Debt so High?

Deficit spending has the tendency of boosting economic growth in the short run. This is why voters and politicians have become obsessed with it. But the increase in national debt gradually reduces economic growth in the long run.

This is due to the fact that investors always know that the debt has to be repaid one day. It has happened in the past with municipal bonds when certain cities had to choose between honoring pension commitments and raising taxes, cutting retirement benefits, or defaulting on their debt. This is always on the horizon with social security in the United States. In case investor confidence erodes, the federal government will be in a similar position as these cities.

Another reason for high national debt is the massive amount of funding that is needed for various mandatory programs such as Medicare, Social Security and Medicaid. In addition, the U.S. federal government ends up paying about $250 billion yearly on interest expense alone.

Although high spending levels usually improve GDP to a level that lowers the debt-to-GDP ratio, this has not been the case in the recent recovery. There are several reasons for this phenomenon; first was the imposition of austerity measures by Congress that shattered business confidence. These measures included fiscal cliff, the famous debt ceiling crises, and governmental shutdown.

This slowed economic growth and momentum from 2011 to 2013. Secondly, the Fed pushed its expansive monetary policies too far which caused a liquidity trap to develop. It is akin to inundating a car’s engine by pushing too heavily on the gas pedal.

How Does the US National Debt Compare to Other Countries

In terms of absolute levels of debt, the US national debt overwhelms the other countries.  Japan is second with $11.5 Trillion in debt.  What is even more risky is the amount of debt to GDP.  They need to be very careful.  More info could be found in the data here

National Debt GDP Public Debt to GDP Ratio External Debt to GDP Ratio
USA $19,962,486,210,506 $19,114,972,996,204 75.7% 99.1%
China $2,016,378,302,408 $11,697,137,952,093 17.2% 8.2%
Japan $11,516,016,990,168 $4,731,358,399,234 243.4% 187.1%
Germany $2,453,194,373,530 $3,495,298,025,934 70.2% 133.0%
UK $2,123,272,769,122 $2,647,907,058,958 80.2% 329.7%
France $2,436,916,971,600 $2,488,684,230,725 97.9% 215.3%
India $1,293,805,053,636 $2,252,791,074,545 57.4% 23.4%
Italy $2,545,776,290,682 $1,852,372,302,012 137.4% 110.2%
Brazil $1,425,569,777,392 $1,768,969,812,344 80.6% 28.6%
Canada $1,611,498,801,388 $1,531,818,880,102 105.2% 114.3%

National Debt Calculator

The national debt calculator prepares an amortization schedule for a debt in the form of a bond. Keep in mind that when you preview or print this amortization schedule, it does not mention the term National Debt. This is by design. In addition, this calculator helps with the concept of shared debt. For example, a father splits student loan payments with their child.  The debt calculator will be helpful in this situation and divide the amount of payment in half, and an amortization schedule will be produced for the new debt.

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