Congress and the White House have until the end of September to raise the national debt limit before the federal government is faced with the prospect of either not paying its bondholders on time or deferring other bills. Here’s a primer on the U.S. national debt, the debt limit and interest payments on the nation’s credit line:
1As of July 31, the federal government’s total debt stands at $19.845 trillion, according to the Treasury Department’s monthly reckoning. Nearly all of it is subject to the statutory debt ceiling, which is currently set at just under $19.809 trillion. As a result, as of the end of July there was just $25 million in unused debt capacity remaining.
2The nation’s debt is now bigger than its gross domestic product, which was an estimated $19.23 trillion in the second quarter. Debt as a share of GDP rose steeply during and after the 2008 financial crisis. Since 2013 it has equaled or exceeded GDP, which had not been seen since the end of World War II.
3Though U.S. government debt is perhaps the most widely held class of security in the world, as of the end of July 27.6% of the debt (about $5.48 trillion) is owed to another arm of the federal government itself. The single biggest creditors, in fact, are Social Security’s two trust funds, which together held more than $2.9 trillion in special non-traded Treasury securities, or 14.7% of the total debt. (Social Security revenues exceeded benefit payments for many years; the surplus was required by law to be invested in Treasuries.) Another big holder: the Federal Reserve system, which as of early August collectively held nearly $2.5 trillion worth of Treasuries, or 12.4% of the total debt. (The Fed’s holdings are included in the “debt held by public” category.)
4Net interest payments on the debt are estimated to total $276.2 billion this fiscal year, or 6.8% of all federal outlays. (The government projects it will pay out about $474.5 billion in interest in fiscal 2017, which ends Sept. 30. But that includes interest credited to Social Security and other government trust funds, as well as a relatively small amount of offsetting investment income.) By comparison, debt service was more than 15% of federal outlays in the mid-1990s; the share has fallen partly because lower rates have held down interest payments, but also because outlays have risen substantially: up about 27% over the past decade.
5Largely because of the Federal Reserve’s previous efforts to keep interest rates low during and after the Great Recession, the U.S. government is paying historically low rates on its debt. In fiscal 2016, according to the Treasury Department, the average interest rate on the public debt was 2.232%; while the Fed has begun nudging rates higher, the average interest rate in July was still just 2.279%. Though you might think such low rates would put off investors, U.S. government debt is considered to carry very little risk, and historically demand for it has remained strong. But the looming debt-ceiling crisis may be changing that dynamic, especially for short-term securities.
BONUS FACT: Though many people may believe that “China owns our debt,” as of June (the latest month available), mainland China only held about 5.8% of the total debt, or about $1.15 trillion. (Hong Kong, a “special administrative region” of China, held another $202.6 billion.) China was the top foreign holder of Treasury securities, ahead of Japan, which held just under $1.1 trillion.
Note: This is an update to a post originally published on Oct. 9, 2013.