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The U.S. Debt and How It Got So Big
Five Reasons Why America Is in Debt
BY
KIMBERLY AMADEO
Updated August 13, 2018
The U.S. debt is the sum of all outstanding debt owed by the federal government. It exceeded $21 trillion on March 15, 2018. The U.S. Treasury Department's "
Debt to the Penny" shows the current total public debt outstanding. This figure changes everyday. The
debt clock in New York also tracks it.
Two-thirds is
debt held by the public. The government owes this to buyers of
U.S. Treasury bills, notes, and bonds. That includes individuals, companies, and foreign governments.
The remaining third is
intragovernmental debt. The Treasury owes this to its various departments who hold Government Account securities.
Social Security and other trust funds are the biggest owners. They have been running surpluses for years. The federal government uses these surpluses to pay for other departments. These securities will come due as
baby boomers retire over the next two decades. Since Social Security and trust funds are the largest owners, the answer as to
who owns the U.S. debt the most would be: everyone’s retirement money.
in the world for a single country. It runs neck and neck with that of the
European Union, an economic union of 28 countries.
The debt is greater than what America produces in a whole year. This high
debt-to-gross domestic product ratio tells investors that the country might have problems repaying the loans. That's a new and worrying occurrence for the United States. In 1988, the debt was only half of America's economic output.
budget deficits. Each new program and tax cut adds to the debt. These show up in
budget deficits by president. The largest deficit goes to
President Obama. He added the
American Recovery and Reinvestment Act stimulus package, the
Obama tax cuts, and $800 billion a year in
military spending. These initiatives halted the
2008 financial crisis.
Although the
national debt under Obama grew the most, dollar-wise, it wasn't the biggest percentage increase. That honor goes to
Franklin D. Roosevelt. He only added $236 billion, but it was a 1,048 percent increase. He did this to fight the
Great Depression and prepare the United States to enter World War II.
President Bush had the second largest deficit. He also fought the financial crisis with the
$700 billion bailouts. Bush added the
Economic Growth and Tax Relief Reconciliation Act and the
Jobs Growth and Tax Relief Reconciliation Act tax cuts to end the 2001 recession. He responded to the
9/11 attacks with the
War on Terror.
President Reagan cut taxes, increased defense spending, and expanded Medicare. All these presidents also suffered from lower tax receipts resulting from
recessions.
Second, every president borrows from the
Social Security Trust Fund. The Fund took in more revenue than it needed
through payroll taxes leveraged on baby boomers. Ideally, this money should have been invested to be available when the boomers retire. Instead, the Fund was "loaned" to the government to finance increased
spending. This interest-free loan helped keep Treasury Bond
interest rates low, allowing
more debt financing. But it must be repaid by increased taxes when the boomers do retire.
Third, countries like
China and
Japan buy Treasurys to keep their currencies low relative to the dollar. They are happy to lend to America, their largest customer, so it will keep
buying their exports. Even though China warns the United States to lower its debt, it continues to buy Treasuries. But
China has lowered its holdings of U.S. debt.
Fourth, the U.S. government has benefited from low interest rates. It couldn't keep running
budget deficits if interest rates skyrocketed like they did in Greece. Why have interest rates remained low? Purchasers of Treasury bills are confident that America has the economic power to pay them back. During the recession, foreign countries increased their holdings of
Treasury bonds as a safe haven investment. These holdings went from 13 percent in 1988 to 31 percent in 2011.
Fifth, Congress raises the
debt ceiling. Congress sets a limit on the debt but still increases it. That didn't happen between 2011 through 2013, though. That was because the
debt crisis resulted in a
government shutdown and budget
sequestration. In 2015, Congress suspended the ceiling until after the
2016 presidential elections. In 2017, it raised the debt ceiling until December 8, 2017.
How the Large Debt Affects the Economy