What is the national debt?
It is the accumulated borrowing of the federal government over many years.
What is the budget deficit?
It is the yearly difference between federal expenditures and the amount of money collected through taxes.
What is the difference between the public national debt and the intragovernmental loan debt?
Public debt is money the government owes investors, primarily through Treasury securities. Currently, the debt held by the public is more than $29 trillion. Intragovernmental debt is money one part of the government owes to another (for example, the Social Security trust fund holds Treasury securities.) This type of debt totals more than $7 trillion.
Media reports often combine the two to report a current national debt of about $37 trillion, including interest.
How does the U.S. borrow money?
It issues Treasury bonds, bills, notes, floating rate notes and Treasury inflation-protected securities. Investors and other countries purchase these investment options
What is the debt ceiling?
Congress imposes artificial legal limits on the nation’s outstanding debt obligations. Once this is reached, the government no longer can pay bills or fund programs until Congress raises the ceiling higher.
Has the U.S. always carried a national debt?
Almost. The American Revolution racked up a debt of about $75 million, which was financed primarily through domestic investors and the French government. The national debt was completely paid off in 1835 during the administration of Andrew Jackson, but the government began borrowing again two years later when an economic depression hit.
Why can too much debt be bad?
The United States must pay interest yearly on the national debt, which fluctuates with interest rates. In fiscal year 2024, the nation’s interest obligation was $881 billion. That was higher than the military’s budget of $841.4 billion.
As interest payments rise, the government is left with less money to fund other obligations. Also, less money is available in the economy for private investments and innovation.
The nation’s ability to borrow relies on the faith of investors. Treasury investments often pay less in interest than other types of investments, but they are considered safe because they are backed by the full faith and credit of the United States. If debt payments grow too large, that confidence may be rattled. Investors might begin demanding higher interest rates to compensate for increased risk, which would increase the nation’s yearly debt payment, leading to demands for even higher rates. This type of destructive spiral could endanger the overall economy, possibly resulting in high inflation, tax hikes, cuts to government programs and severe unemployment.
Do all economists agree that government overspending is bad?
No. One school of thought holds that debt is manageable so long as it does not grow significantly faster than revenues.
What does it mean that the dollar is the world’s reserve currency?
After the end of WWII, the dollar became the principal currency for international trade. Worldwide demand for dollars allows the U.S. to borrow money cheaply and to use it in diplomacy — for instance, imposing sanctions.
(Sources: U.S. Department of the Treasury, the Committee For A Responsible Federal Budget, the Council on Foreign Relations.)
