There are three widely used measures of federal debt: debt held by the public, gross federal debt, and debt subject to limit. What are the important differences between those measurements?
Debt Held by the Public
Debt held by the public is the amount the U.S. Treasury borrowed from outside lenders via financial markets to support government activities. That debt is held by individuals, businesses, pension and mutual funds, state and local governments, and foreign entities. It does not include intragovernmental debt, which is used to track the cash flows of trust funds and other government accounts.
Many economists regard debt held by the public as the most meaningful measure of debt because it focuses on cash raised in financial markets to support government activities. It is often expressed as a percentage of gross domestic product (GDP), a ratio that measures the economy’s capacity to support such borrowing. Debt as a percentage of GDP is particularly useful in comparing debt levels over time and among countries of different sizes.
The United States’ debt-to-GDP ratio at the close of fiscal year 2023 was 97 percent. While this figure is down slightly from 100 percent in 2020, a 74-year high, the nation’s fiscal outlook is still on an unsustainable path. Debt held by the public is on track to exceed GDP in 2025 and climb to 116 percent in 2034.
In dollar terms, debt held by the public at the end of 2023 was $26.3 trillion. Such debt is issued in a range of maturities, from 1-month bills to 30-year bonds. It also includes securities not traded in secondary markets, such as savings bonds and state and local government securities.
At the end of September 2023, domestic creditors held 77 percent of the outstanding debt held by the public. Foreign creditors held the remaining 23 percent.
The Federal Reserve typically accounts for a significant proportion of debt held by the public owned by domestic investors. As of December 2022, for example, the Fed owned more than 34 percent of domestically held public debt. However, in response to the recent spike in inflation, the Federal Reserve is decreasing the amount of Treasury securities they hold; therefore, the proportion of debt they own may drop.
Gross Federal Debt
Gross federal debt equals debt held by the public (explained above) plus debt held by federal trust funds and other government accounts. In fundamental terms, it can be thought of as debt that the government owes to others, plus debt that it owes to itself.
Gross federal debt stood at $33.0 trillion at the end of September — $6.7 trillion of which represented securities held by government accounts. Of that total, $2.7 trillion is held by Social Security’s Old-Age and Survivors Insurance trust fund. Securities held by such accounts represent internal transactions of the government and thus have no direct effect on credit markets.
Debt Subject to Limit
The debt ceiling, also known as the debt limit, is the maximum amount of money that the U.S. Treasury can borrow. Increasing the debt ceiling allows the Treasury to borrow funds to pay for government obligations that have already been incurred due to laws and budgets approved by the President and Congress.
Debt subject to limit is almost an identical measure to gross federal debt. The main difference between the two measures is that debt subject to limit excludes debt issued by agencies other than the Treasury and the Federal Financing Bank. The debt ceiling has been suspended until January 1, 2025.
Conclusion
Each measure of debt is useful in understanding our nation’s fiscal condition. However, no matter the measurement, our debt is heading toward historic highs. Policymakers must address the country’s unsustainable national debt.
