The total amount of the federal government's outstanding debt is what is referred to as the national debt of the United States. It did so for the first time on February 1, 2022, surpassing $30 trillion in value. The current total public debt outstanding is monitored by the Treasury Department of the United States, and this number is subject to daily modification. In addition to that, the debt clock in New York keeps track of it. The majority of the country's debt is made up of debt that is held by the general public. The federal government is responsible for repaying purchasers of United States Treasury notes, which can include private persons, corporations, and even foreign governments. The remainder is comprised of debt held within the government. This debt is owed by the Treasury to the many departments within the government that own securities from the Government Account Series. The Social Security Trust Fund makes up the largest portion of the ownership. The federal government has been running surpluses in these Government Account Series securities for years, and it utilizes these surpluses to pay for other departments. Over the next twenty years, they will become delinquent as baby boomers (those born between 1946 and 1964) enter their retirement years.
Key Takeaways
- The sum total of the federal government's financial obligations to the general public and to its own agencies is referred to as the national debt.
- The continued practice of Congress simultaneously running budget deficits and reducing tax revenue has contributed significantly to the size of the national debt of the United States.
- If efforts are not taken, the United States' ability to repay its debt will be called into question, which will have an impact on the economy of the entire world.
- The Growth of the National Debt of the United States
- The years 1989 through 2021 are represented in the graphic below as milestones for the United States' debt. Over the course of that time period, its value has climbed by more than 800 percent. In February of 2022, the national debt passed the $30 trillion mark for the first time. This figure accounts for both the debt held by the public as well as the debt owed between different levels of government.
Why Does the United States Have Such a Large Debt?
There are several important factors that contribute to the enormous level of the national debt that we currently face.Federal Budget Deficits
The accumulation of previous years' worth of federal budget shortfalls is what makes up the national debt. The national debt increases with every new spending program and a tax cut that is enacted. The current president, Barack Obama, is responsible for the greatest deficit yet. He contributed an additional $8.3 trillion to the debt, which represents a 70 percent increase. This is because of a stimulus package known as the American Recovery and Reinvestment Act (ARRA), which helped put an end to the financial crisis that occurred in 2008. Additionally, he reduced tax rates while raising spending on the military. Although the national debt increased by a greater monetary amount under the Obama administration, it was not the greatest growth by percentage. This distinction is due to former U.S. President Franklin D. Roosevelt. Between 1933 and 1945, he was only able to contribute approximately $236.1 billion, yet this represented a rise of almost 1,048 percent. He did this in order to combat the Great Depression and have the United States ready to enter World War II at the beginning of the 1940s. He undertook this preparation work. In terms of dollars contributed, President Donald Trump is the second-largest donor to the national debt. He contributed an additional $7.8 trillion to the total debt. This represented an increase of 39 percent. Since he took office on January 20, 2021, President Biden has contributed $2.26 trillion to the ever-increasing national debt as of the 1st of February, 2022. This spending is significantly more than that of either President Obama or President Trump. Spending on economic stimulus programs that assisted individuals and businesses in recovering from the COVID-19 epidemic contributed more than two trillion dollars to the total debt that Trump racked up as president. Before the epidemic hit, Trump's budgets for the fiscal year added to the nation's debt as well.The Trust Fund for Social Security
Every president has taken money out of the Social Security Trust Fund at some point. Because of the baby boomer generation's outsized contribution to payroll taxes, the Fund has been able to accumulate more revenue than it requires during the course of its existence. In an ideal world, this money would have been invested so that it would still be accessible when people of that generation reach retirement age. Instead, money from the Fund was "borrowed" by the government so that it could pay for its increased spending. This loan does not accrue interest. Hence it helps to keep interest rates on Treasury bonds at a low level, which allows for increased debt financing. However, it will need to be paid back with higher taxes when more people reach retirement age.Investment Coming From Outside of Our Country
Treasury bonds are purchased by countries such as China and Japan with the earnings from their exports of goods and services that are paid for in U.S. dollars. They are more than pleased to extend credit to the United States of America, which is their most important consumer, in the hopes that it will continue to purchase their goods. Historically Low-Interest Rates The United States federal government has reaped the benefits of historically low-interest rates. If interest rates were to increase, it would be impossible for them to continue running budget deficits. Why have interest rates stayed at such historically low levels? Those who invest in Treasury notes do so with the full conviction that the United States will be able to honor its obligation to repay them. As a safe-haven investment, foreign countries boost their holdings of Treasury bonds when a recession is underway in their own economy.The limit placed on the debt
The debt limit is predetermined by Congress, but it is routinely increased afterward. Since 1960, Congress has increased or decreased the threshold for the maximum amount that the United States can owe its creditors 78 times, with additional increases or decreases likely in the near future. The Bipartisan Budget Act of 2019, which suspended the constitutional limit on the national debt until July 31, 2021, was signed into law by President Trump. The debt ceiling was increased to $28.4 trillion on August 1, 2021, making it equal to the total amount of the national debt. The limit on the national debt was raised for the fifth time, by $2.5 trillion, on December 14, 2021; the new cap is approximately $31.4 trillion. This increase was the one that resulted in the highest growth in terms of monetary amount for the national debt.How the Massive Amount of Debt in the United States Affects the Economy
In the short run, deficit spending is beneficial to both the economy and voters since it fosters growth and stability in the economic sector. The United States Department of Defense, the Department of Health and Human Services, and the United States Department of Housing and Urban Development all get funding from the Federal Government. After then, new employees are employed, and those employees spend their pay on things that are both necessary and desirable, such as groceries, gas, and new clothing, among other things. Spending on goods and services by consumers helps the economy. Spending by the federal government accounts for somewhere in the neighborhood of 7 percent of GDP's constituent parts. Because of the rising debt-to-GDP ratio, debt holders may demand higher interest payments over the long run. This is because a high ratio of debt to gross domestic product (GDP) signals to investors that the country may have trouble repaying them. This is a more recent phenomenon in the United States, and it is cause for concern. In 1988, the national debt was only equal to half of what the United States produced that year. Today, it is twice as high. A decrease in the demand for United States Treasury bonds could lead to an increase in interest rates, which would have the effect of slowing down the economy. Because the value of the dollar is related to the value of Treasury securities, a decrease in demand for Treasurys likewise exerts downward pressure on the value of the dollar. As the value of the dollar falls, foreign investors get paid back in a currency that is worth less than it did when they initially invested; this further reduces demand for dollars. There would be a significant increase in the likelihood that many of these overseas holders will invest in their home countries. After that point, the United States would be required to make interest payments at a higher rate. Congress is well aware that a debt crisis is on the horizon. In fewer than 20 years, the Social Security Trust Fund will not have the resources to pay out the retirement benefits that were promised to persons who were born between 1946 and 1964. This could result in greater taxes once the high level of U.S. debt makes it impossible for the country to get additional loans from other nations.Questions That Are Typically Asked (FAQs)
How much debt does the United States currently have?
The national debt of the United States is continuously growing, but it reached a new benchmark of $30 trillion in February 2022.What exactly is the United States debt clock?
The national debt clock in the United States keeps a running total of how much additional debt the country has racked up. It is not a count in real time; rather, it is an estimate derived from data that is constantly being updated. You can find several versions of the clock online, in addition to the one that is really displayed in New York City.Which nation has the highest overall level of debt?
With a debt-to-GDP ratio that is greater than 260 percent, Japan is the developed nation that is the most burdened by debt. The United States of America has a debt-to-gross domestic product ratio of roughly 108 percent.