The real total debt of USA is expected to exceed the levels it touched during the World War as debt levels keep soaring.
What is the national debt of USA
The national debt of USA is the total debt, or unpaid borrowed funds, carried by the federal government of the United States. It is measured as the face value of the currently outstanding Treasury securities that have been issued by the Treasury and other federal government agencies.
Public holds almost two-thirds of the debt. The government owes this to buyers of U.S. Treasury bills, notes, and bonds, including individuals, companies, and foreign governments. The remaining one third is intra-governmental debt which it owes to its various departments who hold government account securities, such as Social Security which is one of the biggest owners.
Since these government account securities record surplus every year, the federal government uses these to repay to other departments.
Comparing US Debt To Other Countries
The United States debt-to-GDP ratio is among the highest in the developed world behind other major industrialized countries like Portugal, Italy, Greece, and Japan. With pandemic raising borrowing across the world, IMF estimates April global net government debt as a percentage of GDP to stand at 85% from the earlier month’s 70%. This would be driven by double-digit increases in the debt of Canada, France, Italy, Japan, Spain, the United Kingdom, and the United States
Why US Debt keeps increasing
There are a few reasons that are believed to be the causes for the massive size of national debt of USA which is more than the entire European Union put together. Federal Budget Deficits, Social Security Trust Fund, Other countries, low interest rates and debt ceiling.
Different Presidents have increased the budget deficits with new programs, tax cuts. President Obama had the largest deficit as he added the American Recovery and Reinvestment Act stimulus package, the Obama tax cuts, and an average of almost $702.4 billion per year in military spending.
President Bush had the second largest deficit as he combated the financial crisis with the $700 billion bailouts. Also, the Economic Growth and Tax Relief Reconciliation Act and the Jobs Growth and Tax Relief Reconciliation Act tax cuts were introduced to end the 2001 recession. He also responded to the September 2011 attacks with required funds.
Franklin D. Roosevelt added $236.1 million between 1933 to 1945 in order to fight the Great Depression and prepare the United States to enter World War II at the start of the 1940s.
Countries like China and Japan buy Treasury’s to invest their export proceeds that are denominated in U.S dollars. Also, U.S. government benefits from low interest rates which helps to run its budget deficits. During recessions, foreign countries purchase more Treasury bonds as a safe haven investment as they are confident that America has the economic power to pay them back.
With regards debt ceiling, President Donald Trump in 2019 signed the Bipartisan Budget Act of 2019 that increases discretionary spending limits for FY 2020 and FY 2021 and suspends the public debt limit through July 31, 2021. Thus, the debt limit will be whatever level the debt is on that day.
Impact of US Debt
The U.S. debt levels have short term benefits to the economy as deficit spending leads to economic growth and stability. However, in the long run these benefits may seem bleak with debt holders demanding larger interest payments. With a high debt to GDP ratio, buyers would want compensation for an increased risk.
Also, lower Treasury demand would lead to higher interest rates and downward pressure on the dollar. While dollar diminishes, investors would prefer investing in their own countries. Thereby, U.S. would be ending up paying inflated interest rates.
The Congress believes that a debt crisis is near way and in 40 years the Social Security Trust Fund won’t have enough to cover the retirement benefits promised to baby boomers. This would imply high taxes as higher debt would not attract loans from other countries.
Also Read: Why Boomers Aren’t Retiring
Current Statistics US Debt
For the fiscal year ended September 30, 2019, the budget deficit widened to $984 billion for the fourth consecutive time. The federal government spent $4.4 trillion while taking in just $3.5 trillion in revenue taking the deficit higher by 26% from 2018 levels. Total debt held by the public stood at $16.9 trillion in 2019 almost doubled since 2007 levels. It now accounts for 80% of GDP from around 40%.
As of May 1, 2020 federal debt held by the public was $19.05 trillion and intra-governmental holdings were $5.9 trillion, for a total national debt of $24.95 trillion At the end of 2019, debt held by the public was approximately 79.2% of GDP.
You can track the live United States national debt at: https://www.worldometers.info/us-debt-clock/
Due to the coronavirus pandemic, Congress and President Trump enacted the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES) on March 18, 2020.
Post the COVID-19 pandemic impact on the U.S. economy, the Congressional Budget Office (CBO) estimates that these factors will push the federal deficit to $3.7 trillion in 2020, more than 18% of GDP—the highest level since World War II.
Meanwhile, over the next 10 years almost $1.8 trillion would be added federal deficits. CBO says that by the end of 2027 total debt held by public will reach $27.3 trillion. Total public debt is expected to exceed the size of the economy in 2020, the first time since the 1940s.
By 2023, the U.S. deficit would have increased for eight consecutive years, the longest streak in U.S. history, surpassing a five-year run during World War II. Major drivers for future debt is still Social Security – Medicare and Medicaid – which accounts for 47% of its total federal spending currently.