The U.S. debt is the sum of all outstanding debt owed by the federal government. On Feb. 1, 2022, it surpassed $30 trillion for the first time, and soon after it set another record on Oct. 4, 2022 by passing the $31 trillion mark. The U.S. Treasury Department tracks the current total public debt outstanding and this figure changes daily. The debt clock in New York also tracks it.
The majority of the national debt is debt held by the public. The government owes it to buyers of U.S. Treasury notes including individuals, companies, and foreign governments.
The remaining portion is intragovernmental debt. The Treasury owes this debt to its various departments that hold Government Account Series securities. The biggest owner is the Social Security Trust Fund.
These Government Account Series securities have been running surpluses for years, and the federal government uses these surpluses to pay for other departments. They will come due as people born from 1946 to 1964 retire over the next two decades.
Key Takeaways
- The U.S. debt is the total federal financial obligation owed to the public and intragovernmental departments.
- The U.S. national debt is so big because Congress continues both deficit spending and tax cuts.
- If steps are not taken, the ability for the U.S. to pay back its debt will come into question, affecting the global economy.
The U.S. National Debt Over Time
The chart below tracks U.S. debt milestones from 1989 to 2021. It has increased by more than 800% during that time. In February 2022, the national debt exceeded $30 trillion and in October . This figure includes both debt held by the public as well as intragovernmental debt.
Why Does the U.S. Have So Much Debt?
There are a few significant reasons as to why the size of the national debt is so big.
Federal Budget Deficits
The national debt is an accumulation of federal budget deficits. Each new spending program and tax cut adds to the debt.
The largest deficit thus far goes to President Barack Obama. He added $8.3 trillion to the debt, a 70% increase. That's due to the American Recovery and Reinvestment Act (ARRA) stimulus package, which helped resolve the 2008 financial crisis. He also cut taxes and increased military spending.
Although the national debt under Obama grew the most dollar-wise, it wasn't the biggest percentage increase. That honor goes to President Franklin D. Roosevelt. He only added about $236.1 billion between 1933 and 1945, but that was an increase of about 1,048%. He did this to fight the Great Depression and prepare the U.S. to enter World War II at the start of the 1940s.
President Donald Trump is the second-largest contributor to the debt dollar-wise. He added $7.8 trillion to the debt. This was a 39% increase.
As of Feb. 1, 2022, President Biden has added $2.26 trillion to the national debt since taking office on Jan. 20, 2021. This outpaces both President Obama and President Trump's spending.
Note
More than $2 trillion of the debt that Trump added to was from stimulus spending to help families and businesses recover from the COVID-19 pandemic. Trump's fiscal year budgets also added to the debt before the pandemic hit.
Social Security Trust Fund
Every president borrows from the Social Security Trust Fund. Over the years, the Fund has taken in more revenue than it needed through payroll taxes leveraged on the baby boomer generation.
Ideally, this money should have been invested to be available when members of that generation retire. Instead, the Fund was "loaned" to the government to finance increased spending. This interest-free loan helps keep Treasury bond interest rates low, allowing more debt financing. But, it must be repaid by increased taxes as more individuals retire.
Investment From Other Countries
Foreign countries like China and Japan buy Treasurys to invest their export proceeds that are denominated in U.S. dollars. They are happy to lend to America—their largest customer—so that it will keep buying their exports.
Low Interest Rates
The U.S. government has benefited from low interest rates. It couldn't keep running budget deficits if interest rates skyrocketed. Why have interest rates remained low? Purchasers of Treasury bills are confident that the U.S. has the economic power to pay them back. During recessions, foreign countries increase their holdings of Treasury bonds as a safe-haven investment.
The Debt Ceiling
Congress sets a ceiling on the debt but raises it frequently. Since 1960, Congress has modified the U.S. debt limit 78 times, with more sure to come. President Trump signed the Bipartisan Budget Act of 2019 that suspended the public debt limit through July 31, 2021. On August 1, 2021, the debt ceiling became $28.4 trillion—equal to the amount of the national debt.
On December 14, 2021, the debt ceiling was raised once again, by $2.5 trillion—the new limit is around $31.4 trillion. This increase constituted the largest dollar amount increase of the national debt.
How the Large U.S. Debt Affects the Economy
In the short run, the economy and voters benefit from deficit spending because it drives economic growth and stability. The federal government pays for defense equipment, health care, building construction, and contracts with private businesses. New employees are then hired and they spend their salaries on necessities and wants, like gas, groceries, new clothes, and more. This consumer spending boosts the economy. As part of the components of GDP, federal government spending contributes around 7%.
Over the long term, debt holders could demand larger interest payments, because the debt-to-GDP ratio increases, and this high ratio of debt to gross domestic product (GDP) tells investors that the country might have problems repaying them. That's a newer—and worrying—occurrence for the U.S. Back in 1988, the national debt was only half of what the U.S. produced that year.
Note
Weakened demand for U.S. Treasurys could increase interest rates and that would slow the economy.
Lower demand for Treasurys also puts downward pressure on the dollar because its value is tied to the value of Treasury securities. As the dollar value declines, foreign holders get paid back in a currency that is worth less than when they invested, which further decreases demand. Many of these foreign holders would become more likely to invest in their own countries.At that point, the U.S. would have to pay higher interest payments.
Congress knows a debt crisis isn’t far away. In less than 20 years, the Social Security Trust Fund won't have enough to cover the retirement benefits promised to people born from 1946 to 1964. That could mean higher taxes once the high U.S. debt rules out further loans from other countries.
Frequently Asked Questions (FAQs)
How much debt is the U.S. in?
The U.S. debt is constantly on the rise, but it hit a new milestone of $31 trillion in Oct. 2022.
What is the U.S. debt clock?
The U.S. national debt clock is a running tally of how much debt the U.S. is racking up. It's not a real-time tally, but rather an estimation based on continually updated data. An actual clock is displayed in New York City, and you can find other versions online.
Which country is the most in debt?
Japan is the most in-debt developed nation, with a debt-to-GDP ratio of over 260%. The U.S. has a debt-to-GDP ratio of approximately 108%.
FAQs
The U.S. debt is the total federal financial obligation owed to the public and intragovernmental departments. The U.S. national debt is so big because Congress continues both deficit spending and tax cuts.
How did the US national debt get so big? ›
Flashpoints that greatly contributed to the debt over the past 50 years include the wars in Iraq and Afghanistan, the 2008 financial crisis and the 2020 COVID-19 pandemic -- the latter two prompting sweeping stimulus measures from Congress that cost trillions of dollars.
When did the US get in so much debt? ›
Between 1980 and 1990, the debt more than tripled. The debt shrank briefly after the end of the Cold War, but by the end of FY 2008, the gross national debt had reached $10.3 trillion, about 10 times its 1980 level.
What makes up the most of the US debt? ›
Breaking Down the National Debt
Public debt is made up of both public debt and intragovernmental debt. The majority of the debt—about $24.5 trillion—is debt held by the public. This includes Treasury bills, notes, and bonds owned by U.S. investors, the Federal Reserve, and foreign governments.
Who owns most of U.S. debt? ›
Domestic Holders of Federal Debt
The Federal Reserve, which purchases and sells Treasury securities as a means to influence federal interest rates and the nation's money supply, is the largest holder of such debt.
Could the US ever get out of debt? ›
Eliminating the U.S. government's debt is a Herculean task that could take decades. In addition to obvious steps, such as hiking taxes and slashing spending, the government could take a number of other approaches, some of them unorthodox and even controversial. Below are some of these options.
Has the US ever been debt free? ›
On January 8, 1835, president Andrew Jackson paid off the entire national debt, the only time in U.S. history that has been accomplished.
What happens if U.S. debt gets too high? ›
Rising debt means fewer economic opportunities for Americans. Rising debt reduces business investment and slows economic growth. It also increases expectations of higher rates of inflation and erosion of confidence in the U.S. dollar.
Who holds all the US debt? ›
1 Foreign governments hold a large portion of the public debt, while the rest is owned by U.S. banks and investors, the Federal Reserve, state and local governments, mutual funds, pensions funds, insurance companies, and holders of savings bonds.
How can the US pay off its debt? ›
Raising taxes can generate revenue that the government can use to pay down debt as well as invest in programs that support the economy. But it can cut into tax revenue and hurt the economy if the government raises taxes too high. Finding the correct balance is expressed by a concept known as the "Laffer Curve."
Bailouts and debt defaults can also help a government solve a debt problem, but these approaches have notable drawbacks as well.
- Issuing Debt With Bonds.
- Interest Rate Manipulation.
- Instituting Spending Cuts.
- Raising Taxes.
- Lowering Debt Successes.
- National Debt Bailout.
- Controversy with Every Method.
As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).
Does China have more debt than the US? ›
Therefore, China's national debt has surged almost three times that of the United States in the past 12 months. In the third spot, Japan has a national debt of $13.36 trillion, indicating a drop of $1.49 trillion YoY.
Why does China buy U.S. debt? ›
Key Takeaways. China invests heavily in U.S. Treasury bonds to keep its export prices lower. China focuses on export-led growth to help generate jobs. To keep its export prices low, China must keep its currency—the renminbi (RMB)—low compared to the U.S. dollar.
What happens if U.S. hits debt ceiling? ›
But in the case of a debt ceiling breach, all federal spending is affected, including Medicare payments, Social Security checks and veterans benefits. Federal workers would likely still be required to report to work, but may not get paid on time.
How long would it take for the US to pay off its debt? ›
To pay back one million dollars, at a rate of one dollar per second, would take you 11.5 days. To pay back one billion dollars, at a rate of one dollar per second, would take you 32 years. To pay back one trillion dollars, at a rate of one dollar per second, would take you 31,688 years.
What countries have no debt? ›
The 20 countries with the lowest national debt in 2022 in relation to gross domestic product (GDP)
| Characteristic | National debt in relation to GDP |
|---|
| Macao SAR | 0% |
| Brunei Darussalam | 2.06% |
| Kuwait | 2.92% |
| Hong Kong SAR | 4.26% |
9 more rowsMay 11, 2023
It might appear impossible, but many consumers succeed in living their entire lives without any debt. People of a variety of ages and income levels have made this choice. It's not an easy feat, but if it's something you truly want, don't let naysayers talk you out of it.
How many Americans are 100% debt free? ›
Fewer than one quarter of American households live debt-free. Learning ways to tackle debt can help you get a handle on your finances.
How did Jackson eliminate national debt? ›
So Jackson decided to pay off the debt. To do that, he took advantage of a huge real-estate bubble that was raging in the Western U.S. The federal government owned a lot of Western land — and Jackson started selling it off. He was also ruthless on the budget. He blocked every spending bill he could.
With $1.1 trillion in Treasury holdings, Japan is the largest foreign holder of U.S. debt. Japan surpassed China as the top holder in 2019 as China shed over $250 billion, or 30% of its holdings in four years. This bond offloading by China is the one way the country can manage the yuan's exchange rate.
How likely is the US to default? ›
There's just a 2% possibility the U.S. government will default on its loans, according to analysts at Deutsche Bank, despite days of stalled-out negotiations.
What country has the most debt? ›
According to data published by London-based investment fintech Invezz, Japan, Greece, Italy, Portugal, and the US are the top five nations with the highest level of government debt.
How long will it take to pay off the US national debt? ›
To pay back one million dollars, at a rate of one dollar per second, would take you 11.5 days. To pay back one billion dollars, at a rate of one dollar per second, would take you 32 years. To pay back one trillion dollars, at a rate of one dollar per second, would take you 31,688 years.
Why does the US owe so much money to China? ›
U.S. debt to China comes in the form of U.S. Treasuries, largely due to their safety and stability. Although there are worries about China selling off U.S. debt, which would hamper economic growth, doing so in large amounts poses risks for China as well, making it unlikely to happen.
What happens if the US goes over the debt limit? ›
Even short of default, hitting the debt ceiling would hamstring the government's ability to finance its operations, including providing for the national defense or funding entitlements such as Medicare or Social Security.
When was the last time the US was not in debt? ›
When was the last time the U.S. was debt free? January 1835 was the first and only time all of the government's interest-bearing debt was paid off, according to the Treasury Department.
Do any countries owe the US debt? ›
In total, other territories hold about $7.4 trillion in U.S. debt. Japan owns the most at $1.1 trillion, followed by China, with $859 billion, and the United Kingdom at $668 billion.
What happens if we don't raise the debt ceiling? ›
If the debt ceiling binds, and the U.S. Treasury does not have the ability to pay its obligations, the negative economic effects would quickly mount and risk triggering a deep recession. The economic effects of such an unprecedented event would surely be negative.
Who pays the US debt? ›
The public includes foreign investors and foreign governments. These two groups account for 30 percent of the debt. Individual investors and banks represent 15 percent of the debt. The Federal Reserve is holding 12 percent of the treasuries issued.
A default on U.S. debt could trigger a worldwide recession and upend stock markets in addition to wreaking havoc in Americans' financial lives.
What if the national debt was paid off? ›
If the U.S. paid off its debt there would be no more U.S. Treasury bonds in the world. "It was a huge issue ... for not just the U.S. economy, but the global economy," says Diane Lim Rogers, an economist in the Clinton administration. The U.S. borrows money by selling bonds.
What country is most in debt? ›
Norway is the country with the highest level of household debt based on OECD data followed by Denmark and the Netherlands.
How much does Russia owe the US? ›
How much does Russia owe? About $40 billion US in foreign bonds, about half of that to foreigners. Before the start of the war, Russia had around $640 billion US in foreign currency and gold reserves, much of which was held overseas and is now frozen.
What if China dumps U.S. debt? ›
If the China bloc disposes of net foreign assets amounting to more than 20% of GDP by offloading US bloc bonds over 10 years, the IMF finds that the China bloc's domestic interest rates would fall by four basis points.
What would happen if China called in the US debt? ›
The biggest effect of a broad scale dump of US Treasuries by China would be that China would actually export fewer goods to the United States. Overall, foreign countries each make up a relatively small proportion of U.S. debt-holders.
