The Wayback Machine - https://web.archive.org/web/20070316083227/http://useconomy.about.com:80/od/fiscalpolicy/p/US_Debt.htm
You are here:About>News & Issues>U.S. Economy> Fiscal Policy> US Debt - A Definition of the US Debt and How the US Debt Affects the US Economy
About.comU.S. Economy

The U.S. Debt and How It Got So Big

From Kimberly Amadeo,
Your Guide to U.S. Economy.
FREE Newsletter. Sign Up Now!
What the U.S. Debt Is: The U.S. debt is the sum of all outstanding notes and bonds that issued by the Federal Government. About half of the debt is in Treasury Bills, Notes and Bonds that can be bought by anyone in the world. The other half is in government agency-specific bonds or Savings Bonds. (Source: Summary of Treasury Securities, Bureau of the Public Debt .)
The Size of the U.S. Debt: At over $8 trillion, the U.S. debt is the highest in the world. In 2005, it was 23% of the global total, so it is of concern to everyone. The only reason it was allowed to get this high is that the U.S. economy has been so strong and so stable for so long that everyone reasonably expects they will be paid back. In other words, the U.S. is such a rich and reliable customer that it is allowed to run a huge tab. (Source: CIA World Factbook .)
The U.S. Debt Level: The debt level is the debt as a percent of the total country's production, or GDP. In 2005, it was 63% of U.S. GDP, up from 51% in 1988. (Source: Bureau of the Public Debt , Bureau of Economic Analysis. )
The budget forecast from the Office of Management and Budget shows total debt rising from $8.6 trillion in 2006 to $11.5 trillion in 2011. The percent of GDP is forecast to rise slightly from the current 63% to 67% in 2011. (Source: Calculations made from Table S-13 Government Financing and Debt, Supplemental Table to the Proposed 2007 Budget
How the U.S. Debt Level Compares to Other Countries: The U.S. debt level is higher than most other developed countries, but not unreasonable.
  • Germany and France are at 66%, but they are working to reduce it to keep in line with the standards mandated by the European Union.
  • Britain and Spain are at 43%.
  • China is only 23%, but it has a current account surplus and could pay off its debt at any time.
  • Japan is at 128%, but it too has a current account surplus. It is deliberately incurring debt to spur its economy out of deflation.

(Source: CIA World Factbook.)

Foreign Ownership of U.S. Debt Is Increasing: Of more concern is the increased foreign holdings of U.S. debt, which went from 13% in 1988 to 27.5% in 2006. (Source: U.S.Treasury Foreign Holdings of U.S. Portfolio Securities)
  • Of the total foreign holdings, Japan owns 20% and China owns 10%. The Bureau of International Settlements suspects that much of the holdings by Belguim, Cayman Islands and Luxembourg (21%) are fronts for various oil-exporting countries that do not wish to be identified. (Source: U.S. Treasury report ”Petrodollars and Global Imbalances”, February 2006 .)
  • If these countries decide to invest less in U.S. debt, and more in their own economies, the effect could destabilize the U.S. economy. At best, since their demand for U.S. debt instruments has helped keep interest rates low, diminished demand would increase U.S. interest rates, thus slowing the economy.
DIY Computing Projects

Install a DVD or CD BurnerCreate a Family Tree in PowerPointInstall Memory in a MacCreate an iMovie SlideshowBrighten Pictures in Photoshop

 All Topics | Email Article | |
Advertising Info | News & Events | Work at About | SiteMap | Reprints | HelpOur Story | Be a Guide
User Agreement | Ethics Policy | Patent Info. | Privacy Policy©2007 About, Inc., A part of The New York Times Company. All rights reserved.