Federal Debt Exceeds $20 Trillion and Might Rise Higher as Result of Recent Legislation

The recent passage of a budget continuing resolution, along with the submission of the President’s proposed budget, has placed a spotlight on the level of the national debt.

The current market value of gross federal debt now exceeds $20 trillion, a value that was first passed in early 2016. The primary subset of the overall debt is federal debt which is privately held, which is more than $12 trillion. The difference between privately held and total federal debt is “net federal debt,” with the remaining debt largely representing money the federal government owes to itself – for example, the social security trust fund. The more significant figure is debt held by private entities, which involve the payment of interest to holder of that debt, and will eventually require either a repayment of principal or a rollover of same.

The amounts shown in Figure 1 are “market value” of federal debt. For many uses, market value more accurately represents the debt burden faced by the U.S. government than the par value. The par value of government debt, which is reported by the U.S. Treasury Department, reflects interest rates at the time the debt was issued while the market value is adjusted to reflect market interest rates as of the observed period.

Figure 2 shows the ratio of the federal debt to GDP. This shows that the debt/GDP ratio rose sharply during the great recession to roughly 100%, where it has remained since late 2012. The concern is that projected deficits arising from the recent budget actions, along with the potential impact of the Tax Cuts and Jobs Act, will potentially start that ratio on another upward course. Economists generally are concerned about a country’s ability to manage national debt as the ratio exceeds 100%, but it remains to be seen how the United States might handle such debt, given low current interest rates, along with special advantages the United States holds as the issuer of the world’s major reserve currency.

Contact ACA’s Allen Irish for more information.

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