I'm sorry everyone waited for a month to update the next article, because it took a long time to check the data and modify the details of the article. Again: this is a boring but hugely useful article. If you can calm down and read it, you will have a clear understanding of the debt situation of the United States.
Then understand the U.S. debt (1), so I don’t make too many descriptions, and go directly to the topic.
(7) Other measurement methods of US debt
Several measures of federal debt other than publicly held debt reflect the impact of government borrowing on financial markets and provide information for assessing the government's financial position: publicly held debt net of financial assets, total debt, and within statutory limits debt.
The Organization for Economic Co-operation and Development (OECD) uses another measure, general government net debt, to make international comparisons of member countries' debt.
(8) Debt measurement indicators among OECD member countries
The OECD uses general government net financial liabilities as a measure of national debt. In OECD usage, general government includes central as well as local government, and is therefore broader than the concept of federal debt, net of financial liabilities, and applies to all levels of government. For the United States, this indicator includes local, state and federal government debt.
The OECD defines net financial liabilities as “the total financial liabilities of the general government sector minus its financial assets. Assets may be cash, bank deposits, loans to the private sector, equity participations in private sector companies, holdings in public stock or foreign exchange reserves, depending on the country’s institutional structure and data availability.” Although this definition is interpreted differently in different countries and therefore not entirely directly comparable, the CBO considers the framework to be useful.
Since the onset of the global financial crisis in 2007, government debt has increased significantly worldwide. According to statistics from the Organization for Economic Co-operation and Development, as of the end of the 2007 calendar year, the net financial debt of the United States was equivalent to 45% of GDP, which was 38% lower than the level in 2018.
Relative to GDP, US net debt has grown less than several other member states: between 2007 and 2018, Japan's ratio increased by 53 percentage points, the UK's by 50 percentage points, and France's by 45 percentage points. Canada's share has not changed significantly over this period, while Germany's has dropped by 8 percentage points.
Among the larger member states, general government net financial liabilities relative to GDP ranged from a low of 23% (Canada) to a high of 125% (Japan) at the end of 2018 (below). The average across all OECD countries is 65%. According to the calculation of the Organization for Economic Cooperation and Development, as of the end of the 2018 calendar year, the general government net financial liabilities of the United States reached 83% of GDP, which is close to the level of France, Spain and the United Kingdom.
1. Debt held by the public after deducting financial assets
Debt held by the public excluding financial assets reflects the overall financial position of the government because government borrowing leads to holdings of financial assets: the government's cash balance and the value of assets held through various lending activities are deducted from debt held by the public .
However, due to the subjectivity of assigning the value of financial assets, this calculation process is not simple.
Between 2009 and 2019, financial assets held by the federal government increased substantially, largely due to an increase in federal loans for higher education.
The money the Treasury spends on these loans is not counted in the deficit (only the cost of the subsidy is counted), but the borrowing to finance these loans is included in all measures of federal debt. In addition, the loan is an asset of the government, which will bring principal repayment and interest income in the future.
Financial assets acquired by a government affect its financial position. If these assets are retained, they can generate income through interest, dividends, and principal repayments, reducing the government's need to borrow in the future. If they are sold, the proceeds could be used to pay down some of the federal debt.
Debt net of financial assets also paints a more complete picture of the government's overall influence on credit markets than debt held by the public. While the government borrows money to make loans that will be repaid in the future, the overall supply of credit is largely unchanged.
The issuance of such debt therefore does not crowd out or replace debt issued by the private sector to the same extent as debt issued for other purposes.
In 2011, the federal student loan program moved away from guaranteeing loans to banks and instead disbursed loans directly to borrowers, and as a result, financial assets held by the federal government began to increase significantly.
As of the end of 2019, the government's financial assets, including loans and cash, totaled about $1.8 trillion. Subtract that amount from the $16.8 trillion in publicly held debt, and you're left with $15 trillion in publicly held debt net of financial assets.
At the end of 2019, the scale of debt held by the public was equivalent to 79% of GDP, and the debt excluding financial assets was equivalent to 71% of GDP.
(1) Government loans and guarantees
At the end of fiscal year 2019, the present value of government loans and loan guarantees totaled about $1.4 trillion. The value of direct loans represents almost the entire government credit program; the guaranteed loan program has net assets of just $32 billion.
The present value of loan guarantees, such as those provided by the FHA, is calculated based on expected fee income, net of expenses to cover default losses.
The Ministry of Education disburses most direct government loans. Based on Treasury Department data, the Congressional Budget Office projected outstanding education loans at the end of 2019 at $1.3 trillion.
Another $186 billion in financial assets came from other direct government lending programs (such as loans for rural areas and small and micro businesses) and guaranteed loan programs (such as loans for housing).
(2) cash
Treasury cash is another important component of financial assets, mainly in the form of bank deposits. Because cash flows fluctuate throughout the year with when taxes are paid and spent, the Treasury has deposits of varying sizes at the Federal Reserve and banks nationwide.
Between 2009 and 2019, the Treasury's year-end cash balances ranged from a low of $58 billion (in 2011) to a high of $385 billion (in 2018). Cash balances fluctuated wildly between 2013 and 2019 as debt ceilings constrained the Treasury's ability to maintain stable balances.
2. Total debt
In addition to public offerings, the Treasury Department issues bonds for various accounts of the U.S. government. Total debt is made up of debt held by the public and debt issued for those accounts, with federal trust funds holding about 90 percent of that debt, mostly for Social Security and retirement plans for federal employees and members of the military.
These statutory trusts are not fundamentally different from other funds, including special funds (for example, the U.S. Department of Defense fund that finances health care for veterans), revolving funds (including deposit insurance funds), and public utility funds (such as those for the Postal Service fund established).
All major trust funds, as well as other government funds, invest in the Treasury's non-negotiable government account series of bonds.
The various transactions that take place between the Trust and the Treasury each year are internal to the government and they have no net effect on the federal government's borrowing from the public or the overall budget. Each year the surplus cash flow from the project is retained with the Treasury, and the trust is credited with a corresponding amount of non-negotiable Treasury securities. The Treasury Department uses this cash to finance other government activities.
Interest rates on most GAS securities are similar to those on publicly issued debt, and the Treasury issues additional debt to the trust in an amount commensurate with the interest paid.
When the Trust's expenses exceed its cash receipts, the Governing Body will redeem bonds for cash as needed. The Treasury, in turn, must raise this cash through tax revenues, other revenues, or borrowing from the public. However, neither the issuance of bonds, the payment of interest nor any other transaction between the Treasury and trust funds will affect the budget.
Trust fund balances are legally important as a measure of the extent to which the government is legally obligated to spend under existing law for certain purposes, but are not economically significant unless statutory limits are met.
The Commonwealth Trust Fund is essentially an accounting mechanism. While their balances (in the form of government bonds) are assets of individual projects, they are liabilities of other government departments.
The funds needed to redeem government bonds held by trust funds to pay welfare payments or other expenses in a future year must come from that year's taxes, other government revenue, or public borrowing.
The size of Treasury securities held by trust funds reflects what has happened in the past, where cumulative revenues exceed spending, but those balances do not reflect the government's full future obligations for these programs. Therefore, total federal debt is not a good indicator of the government's overall financial health. For example, securities held by Social Security's pension and disability insurance programs reflect the policy intentions of setting a payroll tax over the past few decades. Surplus welfare expenditures to generate a surplus.
With costs now exceeding revenues, the Social Security trust fund runs in the red every year. As the fund redeems more bonds than it buys, the effect is a reduction in total debt. In fact, the government's future liabilities to Social Security far exceed the accumulated balances of funds in trust funds.
The Congressional Budget Office currently expects the Pension and Disability Trust Fund to deplete its balance in 10 years, in 2030, if the tax and benefit laws governing these programs remain unchanged. The contribution of these funds to total debt would disappear, but substantial liabilities would remain.
3. Debt within the limit
Congress has traditionally limited the amount of debt the Treasury can issue. Before World War I, Congress typically required separate approval for each debt issuance.
The Second Liberty Bond Act of 1917 instead set an overall cap on debt. Debt within the limit in its modern sense, now commonly referred to as the "debt ceiling," was introduced by Public Law 76-201 of 1939. The Act caps the total outstanding federal debt at any one time at $45 billion.
Since then, the limit has been frequently suspended or raised. In March 2019, the debt ceiling was raised to $22 trillion. This limit was then suspended until the end of July 2021.
(1) What does the debt within the limit include?
Except for securities issued by the Tennessee Valley Authority or other federal agencies that are permitted to issue bonds directly to the public, the debt ceiling applies to nearly all of the total federal debt.
Debt within limits also excludes debt issued by Federal Financing Banks and Fannie Mae and Freddie Mac (housing agency debt is also not included in other standard measures of federal debt).
(2) Options for the Ministry of Finance when there is a limit on debt issuance
When the Treasury has borrowed to the legal limit and is unable to issue new debt (other than refinancing maturing securities), it must resort to other alternative strategies (known as extraordinary measures) to continue financing government activities.
With the current government running deficits every year, these strategies would only allow the government to continue operating for a limited time without being able to borrow more money.
Suspension of funds flow, redemption of securities held in government accounts. When the federal debt limit is reached, the Treasury can defer deposits in certain accounts and redeem securities in three funds: the Thrift Savings Plan G Fund, the Exchange Equalization Fund, and the Civil Service Retirement and Disability Fund.
Since both G funds and ESFs invest in securities with a maturity of only one day, the Secretary of the Treasury can suspend daily reinvestment (i.e., withdraw all balances or reduce balances) in these funds at any time.
At the end of 2019, these balances exceeded $265 billion.
For CSRDF, the Treasury can redeem securities of equivalent value to cover expenditures in the short term. The Treasury can also suspend all additional income invested in the fund if the investment threatens to cause the debt ceiling to be breached. Once the debt ceiling is raised, the Ministry of Finance must repay the principal and interest losses to G Fund and CSRDF. There is no similar obligation for ESF.
Swap debt with federal financing banks. Debt issued by FFB cannot exceed $15 billion and is considered internal government debt and thus not subject to the debt ceiling.
In the past, the U.S. Treasury has reduced the amount of debt subject to the debt ceiling by swapping securities counted toward the debt ceiling for securities issued by FFB. As of the end of 2019, FFB had approximately US$9 billion in outstanding debt; if FFB's debt scale reaches the US$15 billion limit and is replaced with US Treasury bonds, the Treasury Department can have an additional US$6 billion in borrowing space from the public.
The sale of non-negotiable securities is suspended. When approaching the debt ceiling, the Treasury Department can suspend the sale of non-negotiable state and local government bonds. The move would not create more room under the debt ceiling, and since SLGS securities themselves are not traded in the secondary market, they would have essentially no impact on the bond market.
But stopping sales of these securities, which averaged $4 billion a month before the debt ceiling suspension in 2019, could reduce uncertainty about the path of debt, as the timing and size of state and local government debt issuance is difficult. predict.
(3) Consequences of the debt ceiling
Once the debt ceiling is reached, the Treasury cannot issue more debt to increase the size of outstanding debt (the Treasury can only issue new debt equal to maturing debt or debt that has been paid off as a result of extraordinary measures). If the debt ceiling had not been raised or suspended, the government would have run in the red (as it is now), a constraint that would eventually lead to delayed payments for government activities, or government default on its debt, or both.
By itself, setting a debt ceiling does not rein in the deficit because the decision to trigger the borrowing is made through other statutory actions, most of which take place before the debt ceiling is reached.
Before the cap needs to be raised, it is too late to cut federal spending or avoid paying outstanding obligations without negative consequences.
Still, the need to raise the debt ceiling to keep the government afloat could keep lawmakers focused on budget issues
(9) The Congressional Budget Office's projections for the federal debt
The size of the federal debt held by the American public tripled between 2008 and 2019, from $5.8 trillion in fiscal year 2008 to $16.8 trillion at the end of 2019.
Over the same period, the ratio to GDP doubled from 39% to 79%. The Congressional Budget Office predicts that the gap between government spending and revenue will still widen in the coming years if current laws governing taxation and spending remain unchanged.
As a result, the national debt grows significantly, both in dollars and as a percentage of GDP, in the CBO's baseline forecast.
In these projections, CBO estimates the total size and composition of debt that the Treasury Department will issue over the next 10 years.
CBO's projections of the debt mix for the first few years take into account information such as recent Treasury auctions as well as announcements from the Treasury Department.
For the remaining years of the 10-year forecast period, CBO projects a mix of bonds that the Treasury will issue: a mix that brings the weighted average maturity of outstanding instruments closer to the historical mean.
Short-term Treasuries accounted for 15% of outstanding marketable debt at the end of fiscal 2019, well below the long-term average of 23%.
The Congressional Budget Office expects the Treasury to issue more short-term Treasury bills over the next 10 years, raising its share of take-price debt to 20 percent by 2030.
The Congressional Budget Office expects the medium-term national debt to fall from 60 percent in 2019 to 55 percent in 2030.
1. Debt held by the public
In the January 2020 Congressional Budget Office's baseline budget forecast, debt held by the public increased by an average of 5.9% per year (well above GDP growth projections) and reached $31.4 trillion in 2030.
The debt-to-GDP ratio rose from 79% in 2019 to 98% in 2030.
Much of the growth has come from persistently large fiscal deficits averaging around $1.3 trillion a year. The CBO estimates that the Treasury will need to borrow an additional $14.1 trillion from the public to finance the deficit through 2030.
Alternative financing methods will also increase the Treasury's borrowing needs. The Congressional Budget Office projects that borrowing for activities other than deficit financing will increase by about $530 billion through 2030 (mainly for new student loans).
All told, annual government interest payments on publicly held debt would total $858 billion in 2030, equivalent to 2.7 percent of GDP and about 11 percent of total federal spending.
2. Debt held by the public net of financial assets
At the end of 2019, the Treasury Department held approximately $1.8 trillion in financial assets. Debt held by the public after deducting financial assets is reduced by the same amount as the debt held by the public, totaling $15.0 trillion (see Table 3-2).
According to the Congressional Budget Office's baseline forecast, by 2030, the government's financial assets will increase to 2.4 trillion US dollars, which deducts the total financial assets and liabilities of 29.1 trillion US dollars.
Over the next decade, most of the projected growth in financial assets comes from outstanding education loans.
The Congressional Budget Office projects that under current law, the Treasury Department will hold $1.8 trillion in student loans in 2030. Other assets include cash balances held by the government and other loans and guarantees.
The outstanding value of these other credit activities is expected to decrease from $186 billion to $89 billion between 2019 and 2030 as interest income and principal repayments exceed expenditures.
3. Total debt and debt within the limit
As with debt growth by other measures, total federal debt and debt within statutory limits are projected to grow faster than GDP (the CBO baseline assumes that the debt ceiling will be raised if necessary).
At the end of 2019, total federal debt and debt within limits each totaled $22.7 trillion, of which about $16.8 trillion was held by the public and $5.9 trillion was held in government accounts.
In the Congressional Budget Office's baseline forecast, these measures of debt grow by an average of 4% per year, reaching $36.2 trillion in 2030.
The increase in total debt and debt within limits is expected to come primarily from an increase in debt held by the public. Overall, though, CBO expects these broader measures to grow more slowly over the next 10 years as trust funds hold less debt.
By far the largest balance of any government account is the trust fund for the Pension Social Security and Disability Insurance scheme. At the end of 2019, these trust funds accumulated 2.9 trillion in internal government debt.
In the CBO's baseline forecast, the total balance falls to $857 billion as securities are redeemed to pay benefits.
In contrast, other trust fund balances increased. For example, federal employee and military pension funds held a combined $1.8 trillion in government account series securities at the end of 2019; under current law projections, those balances will grow to $2.7 trillion by the end of 2030.
Overall, the total balance of all trust funds is projected to increase slowly through 2022; after that point, the decrease in Social Security will outweigh the increase in other fund balances, according to CBO projections.
By the end of 2030, the contribution of these trust funds to the total federal debt has been reduced from $5.2 trillion at the end of 2019 to just $3.9 trillion.
4. Uncertainty in CBO forecasts
Even if federal law remains largely unchanged over the next decade, actual budget outcomes will differ from CBO's baseline projections as economic conditions and many other factors affecting federal spending and revenues change.
The agency's goal is to make projections about the distribution of likely outcomes given underlying assumptions about federal tax and spending policies, recognizing that actual outcomes will often differ from those projected.
CBO projections, including those on the federal debt, are based in part on economic projections for the next decade that depend on CBO projections for other variables such as interest rates, inflation and productivity growth.
Discrepancies between CBO's forecasts and actual economic conditions can lead to significant differences between its baseline budget projections and actual budget conditions. The possibility that other input variables also vary also contributes to uncertainty in CBO's projections.
Experience tells us how uncertain the CBO projections are. From 1985 to 2018, the average absolute error in the CBO's projections of public-held debt for the second base year (often referred to as the budget year) was 1.7 percent of GDP (this result excludes legislation enacted after the CBO completed its projections. Influence). By comparison, the mean absolute error in the forecast for year six is 7.1 percent of GDP. Errors in debt forecasts widen over time, so that forecast uncertainty is greater for years further into the future. For example, in the January 2020 Congressional Budget Office baseline, the projected federal debt held by the public in 2025 was equivalent to 89% of that year's GDP.
Taking into account errors in past projections, the CBO estimates that under current law there is a two-thirds chance that the federal debt-to-GDP ratio for the year is roughly between 80% and 98%.
5. Long-term outlook for debt
The fiscal outlook for the next decade is daunting. Growing budget deficits will push up the federal debt significantly over the next 30 years, according to Congressional Budget Office projections.
While long-term projections are highly uncertain, an aging population and growth in per capita health spending will almost certainly raise federal spending as a share of GDP by 2030 if current laws generally remain unchanged.
Spending will rise even further on expectations that increased federal borrowing will lead to a significant rise in interest costs. Federal revenues will also continue to grow relative to GDP, but not at the same pace as spending.
As a result, debt is projected to reach 180% of GDP by 2050, well above the previous US record.
6. Consequences of debt growth
If the federal debt-to-GDP ratio continues to grow as the CBO predicts based on current law, the U.S. economy will be significantly affected in two ways: Over time, the national debt will depress economic output growth, and higher interest costs will increase the payments by foreign creditors, thereby increasingly reducing the income of American households.
The increase in debt projected by the Congressional Budget Office would also pose significant risks to the fiscal and economic outlook, although these risks are not currently apparent in financial markets.
In addition, high levels of debt may make policymakers feel constrained from implementing deficit-financed fiscal policies in response to unforeseen events or for other purposes, such as boosting economic activity or strengthening national defense.
Negative economic and financial impacts were less sudden but still significant, such as the increased likelihood of higher expected inflation or higher public and private financing burdens. These effects would exacerbate the consequences associated with the high and still growing federal debt.
U.S. debt is high by historical standards and is expected to continue to increase. High and growing federal debt would increase the likelihood of a fiscal crisis as it erodes investor confidence in the government's finances and could lead to a significant reduction in the valuation of U.S. Treasuries, which would push up interest rates on federal debt as Investors will demand higher yields to buy government bonds.
However, there is no clear cut-off point for the debt-to-GDP ratio, as the risk of a crisis erupts is influenced by other factors, including the long-term budget outlook, short-term borrowing needs and the health of the economy.
Also, since the US currently benefits from the US dollar's status as the world's reserve currency and the federal government borrows in dollars, the likelihood of a financial crisis in the US similar to that of Argentina, Greece or Ireland is low. While no one can predict if and when a fiscal crisis will unfold, or how it will play out, high and growing federal debt almost certainly raises the risk.
However, not all projected debt paths are negative. In addition to allowing policymakers to maintain current spending and revenue policies, this path would lead to a higher base rate than it would otherwise, giving the Fed more flexibility in conducting monetary policy.
Still, to put the debt on a sustainable path, lawmakers will need to drastically change tax and spending policies, raising revenues under existing laws, cutting spending to lower-than-expected levels, or a combination of the above. It is likely that the longer the period before changes, the greater the burden of those changes on future generations.
Add
