Going Behind the Debt Numbers

At more than $19 trillion, the federal debt’s size is indeed staggering. But keep in mind that the raw numbers do not tell the full story.

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The government currently owes more than $13.5 trillion to the public. Foreign and international investors hold just more than $6 trillion in Treasury securities—a level that increased dramatically throughout the 2000s.

The difference between the $19 trillion and $13.5 trillion is $5.5 trillion in U.S. debt the government owes itself. Government-owned debt is similar to your taking a loan from your 401(k)—a default on a loan to yourself would not result in a default to your creditors and does not need to be financed in the public debt markets. The U.S. government holds its own debt in various trust funds, such as the Social Security and the highway trust funds.

How Large is Large? At $13.5 trillion, the debt the U.S. government owes the public is large enough to buy: 392 million new cars, Food for 1 billion families for a year, 1 college education per U.S. household.

1 Based on $34,428 average price in December 2015 from kbb.com.
2 Assumes each family comprises two adults and two children (6-8 and 9-11 years). Average $12,755/year cost from Official USDA Food Plans moderate-cost plan, March 2015.
3 Based on 124,600,000 households in 2015 from U.S. Census Bureau, four years at a public university, $20,846 cost in 2016, and assumed 3.3 percent increase per year. In-state costs include tuition, fees, books, and room and board (transportation and miscellaneous expenses not included.) Source: Trends in College Pricing ©2015 collegeboard.com, Inc. Figure shown has been rounded.

Procrastinating on Debt Management May Prove Costly

In the case of a country, the public debt-to-gross domestic product (GDP) ratio is an important measure of the government’s ability to pay its debt. Currently, the U.S. ratio is 74 percent— nearly double the 50-year average of 38 percent.

A high debt-to-GDP ratio increases the risk that investors might, at some point, begin to doubt the government’s ability or willingness to pay off the public debt. That could result in benchmark interest rates rising and drastic austerity measures being necessary to maintain creditor support of Treasury debt.

Even if debt-reduction measures are not implemented for several years, the economy would likely be better off if decisions were made sooner so that both individuals and businesses could plan for certainty of fiscal reforms.

While the U.S. currently has a debt level that is very high from an historical perspective, the danger zone for U.S. debt levels is not in the near term—but rather over the long term—should the debt burden continue to grow.

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