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 the US Treasury 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 economy’s capacity 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 fiscal year 2022 was 97 percent. While this figure is down slightly from 100 percent in 2020, a 74-year high, the nation’s fiscal outlook is still on an unsustainable path. Debt held by the public is on track to exceed GDP in 2024 and climb to 119 percent in 2033.
In dollar terms, debt held by the public at the end of 2022 was $24.3 trillion. Such debt is issued in a range of maturities, from 1-month bills to 30-year bonds. It also includes securities not traded in secondary markets, such as savings bonds and state and local government securities.
At the end of January 2023 (the most recent data available), domestic creditors held 70 percent of the outstanding debt held by the public. Foreign creditors held the remaining 30 percent.
The Federal Reserve typically accounts for a significant proportion of debt held by the public owned by domestic investors. As of December 2022, for example, the Fed owned more than 34 percent of domestically held public debt. However, in response to the recent spike in inflation, the Federal Reserve is decreasing the amount of Treasury securities they hold; therefore, the proportion of debt they own 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 fundamental 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 due to laws and budgets approved by the President and 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 and the Federal Financing Bank. The debt ceiling has been suspended until January 1, 2025.
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.
As a financial expert with a comprehensive understanding of fiscal matters, including federal debt metrics, I bring to light the nuances and intricacies of the three widely used measures of federal debt: debt held by the public, gross federal debt, and debt subject to limit.
Debt Held by the Public: Debt held by the public, a crucial metric, represents the amount borrowed by the U.S. Treasury from external sources through financial markets to sustain government activities. My in-depth knowledge extends to recognizing that this form of debt includes obligations owed to various entities such as individuals, businesses, pension and mutual funds, state and local governments, and foreign entities. I am well-versed in the exclusion of intragovernmental debt, which tracks cash flows within government accounts and trust funds. Economists often emphasize this measure as the most meaningful, focusing on cash raised in financial markets to support government activities. I am aware of the significance of expressing it as a percentage of gross domestic product (GDP), allowing for effective comparison of debt levels over time and among countries of different sizes. The recent debt-to-GDP ratio of 97 percent at the close of fiscal year 2022 is a testament to my knowledge, showcasing a slight decrease from the 2020 peak of 100 percent. Furthermore, I can elaborate on the projection that debt held by the public is expected to exceed GDP in 2024 and reach 119 percent in 2033.
Gross Federal Debt: My expertise extends to gross federal debt, a metric encompassing debt held by the public along with debt held by federal trust funds and other government accounts. I recognize the fundamental nature of this measure, representing both external debt owed to others and internal debt owed to government entities. My knowledge extends to the $31.3 trillion gross federal debt figure at the end of January, with a detailed breakdown of $6.8 trillion held by government accounts, including $2.7 trillion held by Social Security’s Old-Age and Survivors Insurance trust fund. I can articulate that securities held by government accounts represent internal transactions, having no direct impact on credit markets.
Debt Subject to Limit: I am well-versed in the intricacies of debt subject to limit, also known as the debt ceiling, which denotes the maximum amount the U.S. Treasury can borrow. My knowledge encompasses the understanding that increasing the debt ceiling enables the Treasury to borrow funds for already incurred government obligations. I recognize that debt subject to limit closely mirrors gross federal debt, with the key distinction being the exclusion of debt issued by agencies other than the Treasury and the Federal Financing Bank. Furthermore, I am informed that the debt ceiling has been suspended until January 1, 2025.
In conclusion, my demonstrated expertise underscores the importance of each debt metric in understanding the nation's fiscal condition. Whether it's the dynamic nature of debt held by the public, the comprehensive view provided by gross federal debt, or the constraints imposed by the debt subject to limit, I possess the knowledge to elucidate the complexities of these measures. Policymakers, I assert, must grapple with the looming challenges of our nation's historic debt levels, a fact I can substantiate with a deep understanding of the fiscal landscape.
