March 3, 2023

How Much Is the National Debt? What are the Different Measures Used?

There are three widely used measures of federal debt: debt held by the public, gross federal debt, and debt subject to limit. What are the important differences between those measurements?

Debt Held by the Public

Debt held by the public is the amount that the U.S. Treasury has borrowed from outside lenders via financial markets to support government activities. That debt is held by individuals, businesses, pension and mutual funds, state and local governments, and foreign entities. It does not include intragovernmental debt, which is used to track the cash flows of trust funds and other government accounts.

Many economists regard debt held by the public as the most meaningful measure of debt because it focuses on cash raised in financial markets to support government activities. It is often expressed as a percentage of gross domestic product (GDP), a ratio that measures the capacity of the economy to support such borrowing. Debt as a percentage of GDP is particularly useful in comparing debt levels over time and among countries of different sizes.

The United States’ debt-to-GDP ratio at the close of 2022 was 97 percent. While this figure is down slightly from 100 percent in 2020, which was a 74 year high, the nation’s fiscal outlook is on an unsustainable path. Debt held by the public is on track to exceed GDP in 2024, and climb to 115 percent in 2032.

In dollar terms, debt held by the public at the end of 2022 was $24.26 trillion. Such debt is issued in a range of maturities from 1-month bills to 30-year bonds. It also includes securities that are not traded in secondary markets, such as savings bonds and state and local government securities.

At the end of 2022 (the most recent data available), domestic creditors held 70 percent of the outstanding debt held by the public. The remaining 30 percent was held by foreign creditors.

The Federal Reserve typically accounts for a significant proportion of debt held by the public owned by domestic investors. At the end of fiscal year 2022, for example, the Fed owned more than one-third of domestically held public debt. However, in response to the recent spike in inflation, the Federal Reserve is decreasing the amount of Treasury securities that they hold and, therefore, the proportion of debt owned by them may drop.

Gross Federal Debt

Gross federal debt equals debt held by the public (explained above) plus debt held by federal trust funds and other government accounts. In very basic terms, it can be thought of as debt that the government owes to others plus debt that it owes to itself.

Gross federal debt stood at $31.3 trillion at the end of January — $6.8 trillion of which represented securities held by government accounts. Of that total, $2.7 trillion is held by Social Security’s Old-Age and Survivors Insurance trust fund. Securities held by such accounts represent internal transactions of the government and thus have no direct effect on credit markets.

Debt Subject to Limit

The debt ceiling, also known as the debt limit, is the maximum amount of money that the U.S. Treasury can borrow. Increasing the debt ceiling allows the Treasury to borrow funds to pay for government obligations that have already been incurred as the result of laws and budgets approved by the President and the Congress.

Debt subject to limit is almost an identical measure to gross federal debt. The main difference between the two measures is that debt subject to limit excludes debt issued by agencies other than the Treasury as well as debt issued by the Federal Financing Bank. The debt ceiling is currently at $31.4 trillion.

Conclusion

Each measure of debt is useful in understanding our nation’s fiscal condition. However, no matter the measurement, our debt is heading toward historic highs. Policymakers must address the country’s unsustainable national debt.