Peter G. Peterson Foundation
JUNE 5, 2020
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 that the U.S. Treasury has 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 capacity of the economy 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 March 2020 was 82 percent. That figure is up from 79 percent at the end of 2019, and is the highest since 1948. However, the outlook has radically changed over the past few months. As a result of the economic effects of the coronavirus (COVID-19) pandemic as well as legislation passed in response to it, debt held by the public is on track to equal the size of our annual GDP this year.
In dollar terms, debt held by the public at the end of March 2020 was $17.7 trillion. Such debt is issued in a range of maturities from 1-month bills to 30-year bonds. It also includes securities that are not traded in secondary markets, such as savings bonds and state and local government securities.
At the end of March 2020 (the most recent data available), domestic creditors held 61 percent of the outstanding debt held by the public. The remaining 39 percent was held by foreign creditors.
The Federal Reserve typically accounts for a significant proportion of debt held by the public owned by domestic investors. At the end of fiscal year 2019, for example, the Fed owned roughly one-quarter of domestically held public debt. However, as part of the response to the pandemic, the Federal Reserve is massively increasing the amount of Treasury securities that they hold and, therefore, the proportion of debt owned by them will rise significantly.
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 very basic 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 $23.7 trillion at the end of March 2020 — $6.0 trillion of which represented securities held by government accounts. $2.8 trillion of that total 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
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 as well as debt issued by the Federal Financing Bank. Total debt subject to limit at the end March 2020 was $23.7 trillion.The debt limit is currently suspended through July 31, 2021.
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. At the moment, the country’s top priority is to address the substantial health and economic damage caused by COVID-19; however, once the crisis has abated, policymakers must also prepare to address the country’s unsustainable national debt.