The US needs to borrow almost $300 billion this week (2024)

FAQs

What would happen if the US paid off its debt? ›

Answer and Explanation:

If the U.S. was to pay off their debt ultimately, there is not much that would happen. Paying off the debt implies that the government will now focus on using the revenue collected primarily from taxes to fund its activities.

Federal Borrowing

The federal government borrows money from the public by issuing securities—bills, notes, and bonds—through the Treasury. Treasury securities are attractive to investors because they are: Backed by the full faith and credit of the United States government.

A deficit occurs when total revenue is less than total spending. When there is a federal deficit of $300 billion, it implies that government spending exceeds total tax revenue by $300 billion. This deficit must be financed through borrowing, i.e., an increase in debt.

There are two kinds of national debt: intragovernmental and public. Intragovernmental is debt held by the Federal Reserve and Social Security and other government agencies. Public debt is held by the public: individual investors, institutions, foreign governments.

Though trust funds are in place to support Social Security payments to recipients in the event of a debt default, they could be depleted if the United States enters into a debt default.

Under normal conditions, the Treasury sends Social Security payments one month in arrears. That means the check you receive in June covers your benefits for the month of May. If the debt ceiling isn't raised, the Social Security payments due to be sent to beneficiaries in June would most likely still go out.

China is one of the United States's largest creditors, owning about $859.4 billion in U.S. debt. 1 However, it does not own the most U.S. debt of any foreign country. Nations borrowing from each other may be as old as the concept of money.

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.

U.S. debt offers the safest haven for Chinese forex reserves, which effectively means that China offers loans to the U.S. so that the U.S. can keep buying the goods China produces.

The federal government needs to borrow money to pay its bills when its ongoing spending activities and investments cannot be funded by federal revenues alone. Decreases in federal revenue are largely due to either a decrease in tax rates or individuals or corporations making less money.

Who has the largest deficit in the world? ›

According to the Congressional Budget Office, the United States last had a budget surplus during fiscal year 2001, though the national debt still increased.

Under current policy, the United States has about 20 years for corrective action after which no amount of future tax increases or spending cuts could avoid the government defaulting on its debt whether explicitly or implicitly (i.e., debt monetization producing significant inflation).

The U.S. national debt has soared to historic levels relative to the size of the U.S. economy. Many economists say that a rapidly mounting debt load could soon diminish U.S. economic growth, restrict government spending on important programs, and raise the likelihood of financial crises.

China owes the United States $1.3 trillion, which is the most debt out of all the countries that are its debtors. Japan was the primary debt holder until 2008, but now comes in second place, with $1.2 trillion. Other countries with outstanding U.S. debt include Russia, India and South Korea.

It ultimately comes down to the U.S. taxpayers. That means in order to pay it off, or at least make a larger dent in the debt, the federal government would have to raise taxes and cut spending.

Under current policy, the United States has about 20 years for corrective action after which no amount of future tax increases or spending cuts could avoid the government defaulting on its debt whether explicitly or implicitly (i.e., debt monetization producing significant inflation).

By January of 1835, for the first and only time, all of the government's interest-bearing debt was paid off. Congress distributed the surplus to the states (many of which were heavily in debt). The Jackson administration ended with the country almost completely out of debt!

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).