National debt FAQs

In February the national debt hit $30 trillion.

As bad as it is, we aren’t the worst offenders. Relative to GDP and population, Japan’s is much worse, along with a handful of other countries. Still.

This certainly isn’t the first spike in American history, but it is the highest. Blame it on policies, pandemics or presidents (although Congress sets the limit), few who grumble know much about it. Including yours truly.

Case in point: Term confusion. National debt, federal debt, public debt — to help sort out what’s what, following are a few FAQs culled from the Federal Reserve Bank, the U.S. Treasury, Center on Budget and Policy Priorities, and old reliable AARP:

Definitions

The “national debt” (a.k.a. the federal debt) is the total amount of money the U.S. government has borrowed.

The “public debt” is (essentially) federal debt held by citizens, corporations, state and local governments, foreign governments and other entities outside the U.S. Government. Examples include treasury bills and savings bonds (U.S. and state or municipal). Got a U.S. Savings Bond? You’re funding part of the debt.

The “deficit” is the difference between what the U.S. Government takes in from taxes and other revenues (receipts) and what it spends (outlays). As of August 2021, the U.S. deficit was $2.7 trillion. That’s down from 2020, when it was $3.13 trillion.

How’d the national debt get so big?

Federal spending has been increasing faster than revenues for the better part of the last century. The national debt has been rising (mostly) and falling (occasionally) since 1900, but its steady rise really kicked in around 2005, worsening around the 2009 recession and going crazy since 2020 and the pandemic.

The biggest dollar items include Social Security and Medicare (large generation of Boomers retiring all at once), as well as national defense.

There’s also a snowball effect; not all the increase is actually spending. As debt expands, so do the interest payments. Toss in inflation and it goes nuts.

Is there a limit?

Technically. There’s a debt ceiling but Congress passes legislation to raise it, often at times of perceived federal crisis. This allows the government to borrow more money to cover expenses, incur more debt … Round it goes.

How does it affect us?

Economic theory tells us more government borrowing can burden the system and leave less room and available cash for private investment/borrowing, driving interest rates up, making borrowing more expensive. This doesn’t affect bigger private borrowers as much as it can the little guy.

On the other hand, public deficits aren’t the only things affecting interest rates. Other factors include the growth rate of the economy and expectations for inflation. And lately, supply chain interruptions.

How much American debt is owned by other countries?

According to Federal Reserve and Treasury Department statistics, foreign nations held a total of $7.5 trillion in U.S. treasury securities as of September 2021, including oil exporters. Japan ($1.3 trillion) and China ($1 trillion) hold the most. Foreign-held shares have grown over time, rising from 13 percent of the public debt in 1988 to 25 percent in 2007, but so has U.S. investment in other nations. As the world interacts and does more business across borders, investments and holdings in one another’s nations have increased across the decades.

To learn more see Treasurydirect.gov/govt/resources/faq/faq_publicdebt.htm.

Sholeh Patrick is a columnist for the Hagadone News Network. Email Sholeh@cdapress.com.