[Analytical Perspectives]
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FEDERAL BORROWING AND DEBT
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13. FEDERAL BORROWING AND DEBT
Debt is the largest legally binding obligation of the Federal
Government. At the end of 1997 the Government owed $3,771 billion of
principal to the people who had loaned it the money to pay for past
deficits. The gross Federal debt, which also includes the securities
held by trust funds and other Government accounts, was $5,370 billion.
This year the Government is estimated to pay around $249 billion of
interest to the public on its debt.
Although the present deficit is continuing to increase the amount of
Federal debt held by the public, the Omnibus Budget Reconciliation Act
of 1993 and the strong economic expansion have reduced the size of the
deficit for five consecutive years, from $290 billion in 1992 to $22
billion in 1997. Due to a favorable economic outlook and the Balanced
Budget Act of 1997, the Administration estimates that the budget will be
balanced in 1999. The small budget deficits and the surpluses beginning
in 1999 will significantly decrease the debt held by the public as a
percentage of the Nation's gross domestic product (GDP). Despite the
fact that the budget runs a small surplus in 1999, borrowing from the
public is estimated to be $10 billion because of other factors besides
the deficit that affect borrowing requirements. By 2001, however, debt
repayment will begin as the surplus grows.
Trends in Federal Debt
Federal debt held by the public has increased five-fold since 1980, as
shown in Table 13-1. In 1980 it was $709.8 billion; by the end of 1997
it stood at $3,771.1 billion. The data in this table are supplemented
for earlier years by Tables 7.1-7.3 in Historical
Table 13-1. TRENDS IN FEDERAL DEBT HELD BY THE PUBLIC
(Dollar amounts in billions)
----------------------------------------------------------------------------------------------------------------
Debt held by the public Debt held by the public as Interest on debt held by
---------------------------- a percentage of: the public as a percentage
---------------------------- of: \3\
Fiscal year Current FY 1992 Credit ---------------------------
dollars dollars \1\ GDP market debt Total
\2\ outlays GDP
----------------------------------------------------------------------------------------------------------------
1950........................ 219.0 1,210.1 80.1 55.3 11.4 1.8
1955........................ 226.6 1,097.4 57.3 43.3 7.6 1.3
1960........................ 236.8 1,019.5 45.7 33.8 8.5 1.5
1965........................ 260.8 1,049.0 38.0 26.9 8.1 1.4
1970........................ 283.2 946.2 28.1 20.8 7.9 1.5
1975........................ 394.7 969.5 25.4 18.4 7.5 1.6
1980........................ 709.8 1,197.4 26.1 18.5 10.6 2.3
1981........................ 785.3 1,206.0 25.8 18.5 12.0 2.7
1982........................ 919.8 1,319.3 28.6 19.8 13.6 3.1
1983........................ 1,131.6 1,551.4 33.1 21.9 13.8 3.3
1984........................ 1,300.5 1,716.6 34.1 22.1 15.7 3.5
1985........................ 1,499.9 1,913.9 36.6 22.3 16.2 3.7
1986........................ 1,736.7 2,154.7 39.7 22.6 16.1 3.6
1987........................ 1,888.7 2,277.4 41.0 22.3 16.0 3.5
1988........................ 2,050.8 2,389.9 41.4 22.3 16.2 3.5
1989........................ 2,189.9 2,448.4 40.9 22.0 16.5 3.5
1990........................ 2,410.7 2,588.0 42.4 22.6 16.2 3.6
1991........................ 2,688.1 2,767.0 45.9 24.1 16.2 3.7
1992........................ 2,998.8 2,998.8 48.8 25.6 15.5 3.5
1993........................ 3,247.5 3,163.9 50.2 26.5 14.9 3.2
1994........................ 3,432.1 3,265.0 50.1 26.6 14.4 3.1
1995........................ 3,603.4 3,342.0 50.1 26.5 15.8 3.3
1996........................ 3,733.0 3,384.1 49.6 26.1 15.8 3.3
1997........................ 3,771.1 3,345.0 47.3 25.2 15.7 3.1
1998 estimate............... 3,796.8 3,305.0 45.5 ............ 15.0 3.0
1999 estimate............... 3,807.3 3,249.1 43.8 ............ 14.3 2.9
2000 estimate............... 3,811.7 3,186.0 42.1 ............ 13.6 2.7
2001 estimate............... 3,798.3 3,106.5 40.2 ............ 13.1 2.5
2002 estimate............... 3,722.1 2,978.6 37.7 ............ 12.6 2.4
2003 estimate............... 3,652.1 2,859.7 35.3 ............ 11.7 2.2
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\1\ Debt in current dollars deflated by the GDP chain-type price index with fiscal year 1992 equal to 100.
\2\ Total credit market debt owed by domestic nonfinancial sectors, modified to be consistent with budget
concepts for the measurement of Federal debt. Financial sectors are omitted to avoid double counting, since
financial intermediaries borrow in the credit market primarily in order to finance lending in the credit
market. Source: Federal Reserve Board flow of funds accounts. Projections are not available.
\3\ Interest on debt held by the public is estimated as the interest on the public debt less the ``interest
received by trust funds'' (subfunction 901 less subfunctions 902 and 903). It does not include the
comparatively small amount of interest on agency debt or the offsets for interest received by other Government
accounts (revolving funds and special funds).
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Tables, which is published as a separate volume of the budget.
After the end of World War II, Federal debt peaked at 109 percent of
GDP in 1946. From then until the 1970s, Federal debt grew gradually,
but, due to inflation, it declined in real terms. Because of an
expanding economy as well as inflation, Federal debt as a percentage of
GDP decreased almost every year. With households borrowing heavily to
buy homes and consumer durables, and with businesses borrowing heavily
to buy plant and equipment, Federal debt also decreased almost every
year as a percentage of the total credit market debt outstanding. The
cumulative effect was impressive. From 1950 to 1975, debt held by the
public declined from 80.1 percent of GDP to 25.4 percent, and from 55.3
percent of credit market debt to 18.4 percent. Despite rising interest
rates, interest outlays became a smaller share of the budget and were
roughly stable as a percentage of GDP.
During the 1970s, large budget deficits emerged as the economy was
disrupted by oil shocks and inflation. The nominal amount of Federal
debt more than doubled, and, despite high inflation, the real value of
Federal debt increased by a fourth. Federal debt relative to GDP and
credit market debt stopped declining after the middle of the decade.
The growth of Federal debt held by the public accelerated during the
early 1980s due to very large budget deficits. Since the deficits
continued to be large until recently, debt continued to grow
substantially. With inflation reduced, the rapid growth in nominal debt
meant a rapid growth in real debt as well. The ratio of Federal debt to
GDP rose from 26.1 percent in 1980 to 50.2 percent in 1993, the highest
ratio since the mid-1950s. The ratio of Federal debt to credit market
debt also rose, though to a much lesser extent, from 18.5 percent to
26.5 percent. Interest outlays on debt held by the public, calculated as
a percentage of both total Federal outlays and GDP, increased by about
two-fifths.
The growth of Federal debt held by the public has been decelerating
more recently, and in 1997 it increased only 1.0 percent, the smallest
rate since 1974. The amount outstanding has been declining since 1994
relative to both GDP and total credit market debt. Table 13-1 shows that
debt as a percentage of GDP is estimated to decline significantly more
in the next few years, falling from 47.3 percent in 1997 to 35.3 percent
in 2003. The improvement in the last few years reflects the deficit
reduction package enacted by the Omnibus Budget Reconciliation Act of
1993 and the long economic expansion. The further estimated improvement
reflects the Balanced Budget Act of 1997 and the expectation that
economic growth will continue at a steady pace without inflation for the
foreseeable future.\1\ Interest outlays on the debt held by the public
are estimated to decline substantially relative to both total outlays
and GDP over the next few years.
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\1\ Chapter 1 of this volume, ``Economic Assumptions,'' reviews recent
economic developments and explains the economic assumptions for this
budget.
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Debt Held by the Public, Gross Federal Debt, and Liabilities Other Than
Debt
The Federal Government issues debt securities for two principal
purposes. First, it borrows from the public in order to finance the
Federal deficit. Second, it issues debt to Government accounts,
primarily trust funds, that accumulate surpluses. By law, trust fund
surpluses must generally be invested in Federal securities. The gross
Federal debt is defined to consist of both the debt held by the public
and the debt held by Government accounts. Nearly all the Federal debt
has been issued by the Treasury and is formally called ``public debt,''
but a small portion has been issued by other Government agencies and is
called ``agency debt.'' \2\
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\2\ The term ``agency debt'' is defined more narrowly in the budget
than in the securities market, where it includes not only the debt of
the Federal agencies listed in Table 13-3 but also the debt of the
Government-sponsored enterprises listed in Table 8-10 at the end of
Chapter 8 and certain Government-guaranteed securities.
Borrowing from the public, whether by the Treasury or by some other
Federal agency, has a significant impact on the economy. Borrowing from
the public is normally a good approximation to the Federal demand on
credit markets. Even if the proceeds are used productively for tangible
or intangible investment, the Federal demand on credit markets has to be
financed out of the saving of households and businesses, the State and
local sector, or the rest of the world.\3\ Federal borrowing thereby
competes with the borrowing of other sectors for financial resources in
the credit market and affects interest rates. Borrowing from the public
moreover affects the size and composition of assets held by the private
sector and the perceived wealth of the public. It also affects the
amount of taxes required to pay interest to the public on Federal debt.
Borrowing from the public is therefore an important concern of Federal
fiscal policy.\4\
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\3\ The Federal sector of the national income and product accounts
provides a better measure of the deficit for analyzing the effect of
Federal fiscal policy on national saving than the budget deficit or
Federal borrowing from the public. The Federal sector and its
differences from the budget are discussed in chapter 18 of this volume,
``National Income and Product Accounts.'' Also see chapter 6 of this
volume, Part IV, the section on the analysis of saving and investment.
\4\ Debt held by the public was measured until 1988 as the par value
(or face value) of the security, which is the principal amount due at
maturity. The only exception was savings bonds. However, most Treasury
securities are sold at a discount from par, and some are sold at a
premium. Treasury debt held by the public is now measured as the sales
price plus the amortized discount (or less the amortized premium). At
the time of sale, the value equals the sales price. Subsequently, the
value equals the sales price plus the amount of the discount that has
been amortized up to that time. In equivalent terms, the measured value
of the debt equals par less the unamortized discount. (For a security
sold at a premium, the definition is symmetrical.) Agency debt, except
for zero-coupon certificates, is recorded at par. For further analysis
of these concepts, see Special Analysis E, ``Borrowing and Debt,'' in
Special Analyses, Budget of the United States Government, Fiscal Year
1990, pp. E-5 to E-8, although some of the practices it describes have
been changed. In 1997 Treasury began to sell a new type of instrument,
inflation-protected securities. The recorded value of these securities
includes a periodic adjustment for inflation.
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Issuing debt securities to Government accounts performs an essential
function in accounting for the operation of these funds. The balances of
debt represent the cumulative surpluses of these funds due to the excess
of their tax receipts and other collections compared to their spending.
These balances can be used in later years for future payments to the
public. The interest on the debt compensates these funds--and the
members of the public who pay earmarked taxes or user fees into these
funds--for spending some of their collections at a later time than when
they receive it. Public policy
[[Page 247]]
Table 13-2. FEDERAL GOVERNMENT FINANCING AND DEBT \1\
(In billions of dollars)
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Estimate
1997 -----------------------------------------------------
Actual 1998 1999 2000 2001 2002 2003
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Financing:
Surplus or deficit (-)......................... -21.9 -10.0 9.5 8.5 28.2 89.7 82.8
(On-budget).................................. -103.3 -106.3 -95.7 -104.9 -94.1 -44.6 -62.8
(Off-budget)................................. 81.4 96.3 105.3 113.5 122.3 134.4 145.5
Means of financing other than borrowing from
the public:
Changes in: \2\
Treasury operating cash balance............ 0.6 3.6 ....... ....... ....... ....... .......
Checks outstanding, etc.\3\................ 4.0 -2.2 -4.5 ....... ....... ....... .......
Deposit fund balances...................... -0.4 -1.6 -* ....... ....... ....... .......
Seigniorage on coins......................... 0.5 0.4 0.7 0.7 0.7 0.7 0.7
Less: Net financing disbursements:
Direct loan financing accounts............. -21.0 -15.0 -15.4 -13.2 -15.4 -14.1 -13.4
Guaranteed loan financing accounts......... 0.1 -0.9 -0.7 -0.5 -0.1 -0.1 -0.1
Total, means of financing other than
borrowing from the public............... -16.2 -15.7 -20.0 -13.0 -14.8 -13.5 -12.8
--------------------------------------------------------------
Total, requirement for borrowing from
the public............................ -38.2 -25.7 -10.5 -4.4 13.4 76.2 70.0
Change in debt held by the public............. 38.2 25.7 10.5 4.4 -13.4 -76.2 -70.0
Debt Outstanding, End of Year:
Gross Federal debt:
Debt issued by Treasury...................... 5,336.5 5,514.5 5,710.1 5,888.7 6,052.9 6,178.8 6,313.4
Debt issued by other agencies................ 33.2 29.1 28.0 27.1 26.0 24.9 22.8
--------------------------------------------------------------
Total, gross Federal debt.................. 5,369.7 5,543.6 5,738.1 5,915.7 6,078.9 6,203.7 6,336.2
Held by:
Government accounts.......................... 1,598.6 1,746.8 1,930.8 2,104.0 2,280.6 2,481.6 2,684.1
The public................................... 3,771.1 3,796.8 3,807.3 3,811.7 3,798.3 3,722.1 3,652.1
Federal Reserve Banks...................... 424.5 ....... ....... ....... ....... ....... .......
Other...................................... 3,346.6 ....... ....... ....... ....... ....... .......
Debt Subject to Statutory Limitation, End of
Year:
Debt issued by Treasury........................ 5,336.5 5,514.5 5,710.1 5,888.7 6,052.9 6,178.8 6,313.4
Less: Treasury debt not subject to limitation
\4\........................................... -15.5 -15.5 -15.5 -15.5 -15.5 -15.5 -15.5
Agency debt subject to limitation.............. 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Adjustment for discount and premium \5\........ 6.6 6.6 6.6 6.6 6.6 6.6 6.6
--------------------------------------------------------------
Total, debt subject to statutory limitation
\6\......................................... 5,327.6 5,505.6 5,701.2 5,879.8 6,044.0 6,169.9 6,304.5
----------------------------------------------------------------------------------------------------------------
* $50 million or less.
\1\ Treasury securities held by the public and zero-coupon bonds held by Government accounts are almost entirely
measured at sales price plus amortized discount or less amortized premium. Agency debt is almost entirely
measured at face value. Treasury securities in the Government account series are measured at face value less
unrealized discount (if any).
\2\ A decrease in the Treasury operating cash balance (which is an asset) would be a means of financing the
deficit and therefore has a positive sign. An increase in checks outstanding or deposit fund balances (which
are liabilities) would also be a means of financing the deficit and therefore would also have a positive sign.
\3\ Besides checks outstanding, includes accrued interest payable on Treasury debt, miscellaneous liability
accounts, allocations of special drawing rights, and, as an offset, cash and monetary assets other than the
Treasury operating cash balance, miscellaneous asset accounts, and profit on sale of gold.
\4\ Consists primarily of Federal Financing Bank debt.
\5\ Consists of unamortized discount (less premium) on public issues of Treasury notes and bonds (other than
zero-coupon bonds) and unrealized discount on Government account series securities.
\6\ The statutory debt limit is $5,950 billion.
may deliberately run surpluses and accumulate debt in trust funds and
other Government accounts in anticipation of future spending.
However, issuing debt to Government accounts does not have any of the
economic effects of borrowing from the public. It is an internal
transaction between two accounts, both within the Government itself. It
is not a current transaction of the Government with the public; it does
not compete with the private sector for available funds in the credit
market; it does not provide the account with resources other than a
claim on the U.S. Treasury; and it does not represent the estimated
amount of the account's future transactions with the public. For
example, if the account records the transactions of a social insurance
program, the debt that it holds does not represent the actuarial present
value of expected future benefits. The future transactions of Federal
social insurance and employee retirement programs, which own over four-
fifths of the debt held by Government accounts, are important in their
own right and need to be considered separately. This can be done through
information published in actuarial and financial reports for these
programs.\5\ Debt held by the public is therefore a better concept than
gross Federal debt for analyzing the effect of the budget on the
economy.
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\5\ A summary of actuarial estimates for many of these programs is
prepared annually by the Financial Management Service, Department of the
Treasury, in ``Statement of Liabilities and Other Financial Commitments
of the United States Government.'' The estimates in that report are not,
however, all comparable with one another in concept or actuarial
assumptions. Extensive actuarial analysis of the social security and
medicare programs are published in the annual reports of the boards of
trustees of these funds.
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Debt securities do not encompass all the liabilities of the Federal
Government. For example, accounts payable occur in the normal course of
buying goods and services; social security benefits are due as of the
end of the month but, according to statute, are payable as of the
beginning of the next month; loan guarantee liabilities are incurred
when the Government guarantees the payment of interest and principal on
private
[[Page 248]]
loans; and liabilities for future pension payments are incurred as part
of the current compensation for the services performed by Federal
civilian and military employees in producing Government outputs. Like
debt securities sold in the credit market, these liabilities have their
own distinctive effects on the economy. Federal liabilities are analyzed
within the broader conceptual framework of Federal resources and
responsibilities in chapter 2 of this volume, ``Stewardship: Toward a
Federal Balance Sheet.'' \6\ The different types of liabilities are
reported annually in the financial statements of the major Federal
agencies and in the Consolidated Financial Statements of the United
States Government. \7\
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\6\ The balance sheet in chapter 2 consolidates the Federal Reserve
System with the rest of the Government, unlike the budget. As a result,
the ``debt held by the public'' reported in that chapter, unlike the
amounts reports in this chapter and elsewhere, is net of the Federal
debt held by the Federal Reserve Banks.
\7\ The Consolidated Financial Statements are published annually by
the Financial Management Service, Department of the Treasury.
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Borrowing and Government Deficits
Table 13-2 summarizes Federal borrowing and debt from 1997 through
2003. In 1997 the borrowing from the public was $38.2 billion, and
Federal debt held by the public increased to $3,771.1 billion. The
issuance of debt to Government accounts was $149.6 billion, and gross
Federal debt increased to $5,369.7 billion. In 1999, despite the fact
that the budget runs a small surplus, borrowing from the public is
estimated to be $10.5 billion. This is because of other factors besides
the deficit that affect borrowing requirements. By 2001, however, debt
repayment will begin as the surplus grows.
Borrowing from the public depends both on the Federal Government's
expenditure programs and tax laws and on economic conditions. The
sensitivity of the budget to economic conditions is analyzed in chapter
1 of this volume.
Debt held by the public.--Table 13-2 shows the relationship between
borrowing from the public and the Federal surplus or deficit. The total
surplus or deficit of the Federal Government includes not only the on-
budget surplus or deficit but also the surplus or deficit of the off-
budget Federal entities, which have been excluded from the budget by
law. Under present law the off-budget Federal entities are the social
security trust funds (old-age and survivors insurance and disability
insurance) and the Postal Service fund.\8\ Since social security had a
large surplus in 1997 and is estimated to continue having large
surpluses over the next few years, the off-budget surplus reduces the
requirement for Treasury to borrow from the public by a substantial
amount.
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\8\ For further explanation of the off-budget Federal entities, see
chapter 21, ``Off-Budget Federal Entities and Non-Budgetary
Activities.''
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The Government's need to borrow from the public, or its ability to
repay debt, depends on the size of the surplus or deficit and on several
other factors such as the net financing disbursements of credit programs
and changes in the level of cash balances held by the Treasury. As shown
in Table 13-2, these other factors--which are formally called ``means of
financing other than borrowing from the public''--can either increase or
decrease the Government's borrowing requirements. (An increase in the
borrowing requirement is indicated by a negative sign, like the deficit;
a decrease is indicated by a positive sign, like the surplus.) In 1997
the deficit was $21.9 billion and the other financing requirements were
$16.2 billion, so the Government had to borrow $38.2 billion from the
public. In 1999 the surplus is estimated to be $9.5 billion and the
other financing requirements are estimated to be $20.0 billion, which
will result in the Government borrowing $10.5 billion from the public.
In 2001 and later years, the estimated surplus is larger than the other
financing requirements, which will enable the Government to repay some
of the debt held by the public.
When the deficit or surplus is large, it is usually a good
approximation to say that ``the deficit is financed by borrowing from
the public'' or that ``the surplus is used to repay debt held by the
public.'' Over the last 10 years, the cumulative deficit was $1,840
billion and the increase in debt held by the public was $1,882 billion--
nearly equal amounts. When the deficit or surplus is small, however, as
in 1997 through 2001, the other factors that affect borrowing may
account for a large proportion of the change in Federal debt held by the
public.
Many of these other factors are small in most years compared to
borrowing from the public, even when the deficit or surplus is
relatively small. This is because they are limited by their own nature.
Decreases in cash balances, for example, are inherently limited by past
accumulations, which themselves required financing when they were built
up.
However, a new and larger factor that affects borrowing was created by
the Federal Credit Reform Act of 1990. Budget outlays for direct loans
and loan guarantees consist of the estimated subsidy cost of the loans
or guarantees at the time when the direct loans or guaranteed loans are
disbursed. The cash flows to and from the public resulting from these
loans and guarantees are not costs to the Government above and beyond
those costs already included in budget outlays. Therefore, they are non-
budgetary in nature and are recorded as transactions of the non-
budgetary financing account for each credit program.\9\ The net cash
flows of the financing accounts, including intragovernmental
transactions as well as transactions with the public, are called ``net
financing disbursements.'' They are defined in the same way as the
``outlays'' of a budgetary account and therefore affect the requirements
for borrowing from the public in the same way as the deficit or surplus.
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\9\ The Federal Credit Reform Act of 1990 (sec. 505(b)) requires that
the financing accounts be non-budgetary. As explained in chapter 21,
``Off-Budget Federal Entities and Non-Budgetary Activities,'' they are
non-budgetary in concept because they do not measure cost. For
additional discussion of credit reform, see chapter 24 of this volume,
``Budget System and Concepts and Glossary,'' and the other references
cited in chapter 21.
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The net financing disbursements are partly due to intragovernmental
transactions with budgetary accounts (the receipt of subsidy payment and
the receipt
[[Page 249]]
or payment of interest) and partly due to transactions with the public
(disbursement and repayment of loans, receipt of interest and fees,
payment of default claims, and so forth). An intragovernmental
transaction affects the surplus or deficit and the net financing
disbursements in equal amounts but with opposite signs, so there is no
combined effect on Federal borrowing from the public. On the other hand,
financing account disbursements to the public increase the requirement
for borrowing from the public in the same way as an increase in budget
outlays for cash payments to the public. Financing account receipts from
the public can be used to finance the payment of the Government's
obligations and therefore reduce the requirement for Federal borrowing
from the public in the same way as an increase in budget receipts.
The financing accounts initially either increased or decreased
borrowing requirements by a very small amount, but beginning in 1995 the
effect began to get large. They added $4.1 billion to borrowing
requirements in 1995, $11.7 billion in 1996, and $20.9 billion in 1997,
and they are estimated to add about $14-16 billion every year over the
budget horizon. The expansion was mainly because of the growth of the
direct student loan program. Since direct loans require cash
disbursements equal to the full amount of the loans when the loans are
made, Federal borrowing requirements are initially increased. Federal
borrowing requirements are reduced when the loans are repaid. The
temporary, very large net financing disbursements in 1997 were due to
the direct loans made to finance the sales of various portions of the
radio spectrum.
Debt held by Government accounts.--The amount of Federal debt issued
to Government accounts depends largely on the surpluses of the trust
funds, both on-budget and off-budget, which owned 94 percent of the
total Federal debt held by Government accounts at the end of 1997. In
1999, for example, the total trust fund surplus is estimated to be
$171.0 billion, and Government accounts are estimated to invest $184.1
billion in Federal securities. The difference is because some other
accounts hold Federal debt and because the trust funds may change the
amount of their cash assets not currently invested. The amounts of debt
held in major accounts and the annual investments are shown in Table 13-
4.
Agency Debt
Several Federal agencies, shown in Table 13-3, sell debt securities to
the public and to other Government accounts. During 1997, agencies
repaid $1.4 billion of debt held by the public. Agency debt is only one
percent of Federal debt held by the public.
The reason for issuing agency debt differs considerably from one
agency to another. The predominant agency borrower from the public is
the Tennessee Valley Authority, which had $24.2 billion of securities
outstanding at the end of 1997, or 93 percent of all agency debt held by
the public. TVA debt was primarily sold to finance capital expenditures
and to refund other is
Table 13-3. AGENCY DEBT
(In millions of dollars)
----------------------------------------------------------------------------------------------------------------
Borrowing or repayment (-) of
debt Debt end
--------------------------------- of 1999
1997 1998 1999 estimate
actual estimate estimate
----------------------------------------------------------------------------------------------------------------
Borrowing from the public:
Housing and Urban Development:
Federal Housing Administration.................................. -14 --* ......... 68
Interior.......................................................... ......... ......... ......... 13
Small Business Administration:
Participation certificates: Section 505 development company..... ......... ......... ......... 7
Architect of the Capitol.......................................... -2 -2 -2 175
Farm Credit System Financial Assistance Corporation............... ......... ......... ......... 1,261
Federal Communications Commission:
Universal Service Fund \1\...................................... -4 ......... ......... .........
Federal Deposit Insurance Corporation:
FSLIC Resolution Fund........................................... -32 -95 ......... .........
National Archives................................................. -4 -5 -5 276
Tennessee Valley Authority........................................ -1,297 -848 -965 22,373
-------------------------------------------
Total, borrowing from the public................................ -1,352 -950 -972 24,174
===========================================
Borrowing from other funds:
Postal Service Fund \2\........................................... -508 -3,181 -83 634
Tennessee Valley Authority \2\.................................... ......... ......... ......... 3,200
-------------------------------------------
Total, borrowing from other funds............................... -508 -3,181 -83 3,834
===========================================
Total, agency borrowing......................................... -1,861 -4,130 -1,055 28,008
----------------------------------------------------------------------------------------------------------------
* $50 million or less.
\1\ The Universal Service fund borrowed $4 million in 1996 and repaid the full amount in 1997. This transaction
was not previously classified as agency borrowing.
\2\ The Postal Service and TVA debt held by other funds is the result of the FFB swapping Postal Service and TVA
securities with the Civil Service Retirement and Disability trust fund during 1996 in exchange for Treasury
securities having an equal present value. See the narrative for further explanation.
[[Page 250]]
sues of its existing debt. TVA debt held by other funds was primarily
issued for the same reason.
The Federal Housing Administration, on the other hand, has for many
years issued both checks and debentures as means of paying claims to the
public that arise from defaults on FHA-insured mortgages. Issuing
debentures to pay the Government's bills is equivalent to borrowing from
the public and then paying the bills by disbursing the cash borrowed, so
the transaction is recorded as being simultaneously an outlay and a
borrowing. The notes are therefore classified as agency debt. The
borrowing by FHA and other agencies that have engaged in similar
transactions is thus inherent in the way that their programs
operate.\10\
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\10\ The debt securities of the FSLIC Resolution fund and Department
of the Interior were also issued as a means of paying specified bills.
The budgetary treatment of these and similar securities is further
explained in Special Analysis E of the 1989 Budget, pp. E-25 to E-26;
and Special Analysis E of the 1988 Budget, pp. E-27 to E-28.
---------------------------------------------------------------------------
The Universal Service fund has borrowed temporarily to meet operating
needs. Under the Telecommunications Act of 1996, carriers that provide
interstate telecommunications services are required to contribute funds,
as prescribed by the Federal Communications Commission (FCC), to the
preservation and advancement of universal service. The contributions are
used to provide services eligible for universal service support as
prescribed by the FCC. During 1996, $4 million more was spent than
collected, so the Universal Service fund borrowed $4 million to pay the
difference. It repaid this amount in 1997 and does not estimate future
borrowing. These amounts were not previously recorded in the budget, but
the debt in 1996 and the borrowing in 1996 and 1997 have been
retroactively revised to include them.
Some types of lease-purchase contracts are equivalent to direct
Federal construction financed by Federal borrowing. Several years ago
the Federal Government guaranteed the debt used to finance the
construction of buildings for the National Archives and the Architect of
the Capitol and has exercised full control over the design,
construction, and operation of the buildings. The construction
expenditures and interest were therefore classified as Federal outlays,
and the borrowing was classified as Federal agency borrowing from the
public. The securities used to finance the construction of the building
for the Architect of the Capitol were zero-coupon certificates, for
which the sales price was about one-fourth of par value. As an exception
to the normal treatment of agency debt, but like Treasury zero-coupon
bonds, the value of these certificates is measured as the sales price
plus the amortized discount. The interest is accrued as an outlay.
The proper budgetary treatment of lease-purchases was further examined
in connection with the Budget Enforcement Act of 1990. Several changes
were made. Among other decisions, it was determined that outlays for a
lease-purchase in which the Government assumes substantial risk will be
recorded in an amount equal to the asset cost over the period during
which the contractor constructs, manufactures, or purchases the asset;
if the asset already exists, the outlays will be recorded when the
contract is signed. Agency borrowing will be recorded each year to the
extent of these outlays. The agency debt will subsequently be redeemed
over the lease payment period by a portion of the annual lease payments.
This rule was effective starting in 1991. However, no lease-purchase
agreements in which the Government assumes substantial risk have yet
been authorized or are estimated for 1998 or 1999. The budgetary
treatment was reviewed in connection with the Balanced Budget Act of
1997. Some clarifications were made but no substantive changes from
existing practice.
The amount of agency securities sold to the public has been reduced by
borrowing from the Federal Financing Bank (FFB). The FFB is an entity
within the Treasury Department, one of whose purposes is to substitute
Treasury borrowing for agency borrowing from the public. It has the
authority to purchase agency debt and finance these purchases by
borrowing from the Treasury. Agency borrowing from the FFB is not
included in gross Federal debt. It would be double counting to add
together (a) the agency borrowing from the FFB and (b) the Treasury
borrowing from the public that was needed to provide the FFB with the
funds to lend to the agencies.
The debt of the agencies that borrow from the FFB is not subject to
the statutory debt limitation. This enabled Treasury to raise additional
cash to avoid default during the dispute with Congress over the budget
and the debt limit two years ago. On February 14, 1996, FFB swapped most
of its holdings of TVA and Postal Service debt to the Civil Service
Retirement and Disability trust fund (CSRDF) in exchange for Treasury
securities. The Treasury securities, which were subject to the debt
limit, were canceled in an exchange that took place between the FFB and
the Treasury immediately afterwards. This reduced the amount of debt
subject to limit, which allowed Treasury to sell to the public more
securities that are subject to the debt limit.
The TVA and Postal Service securities acquired by CSRDF are included
in gross Federal debt shown in Table 13-2, are included in Table 13-3 as
amounts that agencies borrowed from other funds, and are included in
Table 13-4 as agency debt held by Government accounts. Including debt
held by Government accounts in gross Federal debt is not double
counting, because Treasury did not have to borrow from the public in
order for these accounts to buy the securities. Moreover, the TVA and
Postal Service securities acquired by CSRDF replaced Treasury
securities, which had been counted in gross Federal debt. It is assumed
for purposes of the budget estimates that CSRDF will hold the agency
debt until maturity (or call date), at which time the principal
repayments will be invested in Treasury securities.\11\
---------------------------------------------------------------------------
\11\ For further discussion of the debt limit dispute and the swap of
securities between the FFB and CSRDF, see Analytical Perspectives,
Budget of the United States Government, Fiscal Year 1998, pp. 222 and
225.
---------------------------------------------------------------------------
[[Page 251]]
Debt Held by Government Accounts
Trust funds, and some public enterprise revolving funds and special
funds, accumulate cash in excess of current requirements in order to
meet future obligations. These cash surpluses are invested mostly in
Treasury debt and, to a very small extent, in agency debt.
Investment by trust funds and other Government accounts was around $10
billion per year in the early 1980s. Primarily due to the Social
Security Amendments of 1983, an expanding economy, and the creation of
the military retirement trust fund, annual investment has risen greatly
since then. It was $149.6 billion in 1997, as shown in Table 13-4, and
it is estimated to rise to $184.1 billion in 1999. The holdings of
Federal securities by Government accounts grow to $1,930.8 billion by
the end of 1999, or 34 percent of the gross Federal debt. This
percentage is estimated to rise further in the following years as the
budget surpluses reduce the debt held by the public.
The large investment by Government accounts is concentrated among a
few trust funds. The two social security trust funds--old-age and
survivors insurance and disability insurance--have a large combined
surplus and invest an increasing total amount each year: $285.5 billion
during 1997-99, which constitutes 59 percent of the total estimated
investment by Government accounts.
In addition to these two funds, the largest current investor is the
civil service retirement and disability trust fund. It accounts for 19
percent of the total investment by Government accounts during 1997-99,
and the military retirement trust fund accounts for 4 percent.
Altogether, the investment of social security and these two retirement
funds comprises 83 percent of the investment by all Government accounts
during this period. At the end of 1999, they are estimated to own 75
percent of the total debt held by Government accounts. The hospital
insurance trust fund, which invested heavily in the past, disinvested in
1997 and is estimated to disinvest lesser amounts in 1998 and 1999.
Technical note on measurement.--The Treasury securities held by
Government accounts consist almost entirely of the Government account
series. Most were issued at par value (face value), and the securities
issued at a discount or premium have traditionally been recorded at par
in the OMB and Treasury reports on Federal debt. However, there have
recently been two exceptions. First, in 1991 Treasury began to issue
zero-coupon bonds to the Pension Benefit Guaranty Corporation (PBGC).
Because the purchase price was a small fraction of par value and the
amounts were large, the PBGC holdings were recorded at purchase price
plus amortized discount. These securities were redeemed during 1994.
Second, in September 1993 Treasury also began to subtract the
unrealized discount on other Government account series securities in
calculating ``net federal securities held as investments of government
accounts.'' Unlike the discount recorded for PBGC or for debt held by
the public, this discount is the amount at the time of issue and is not
amortized over the term of the security. In Table 13-4 it is shown as a
separate item at the end of the table and not distributed by account.
Limitations on Federal Debt
Definition of debt subject to limit.--Statutory limitations have
normally been placed on Federal debt. Until World War I, the Congress
ordinarily authorized a specific amount of debt for each separate issue.
Beginning with the Second Liberty Bond Act of 1917, however, the nature
of the limitation was modified in several steps until it developed into
a ceiling on the total amount of most Federal debt outstanding. The
latter type of limitation has been in effect since 1941. The limit
currently applies to most debt issued by the Treasury since September
1917, whether held by the public or by Government accounts; and other
debt issued by Federal agencies that, according to explicit statute, is
guaranteed as to principal and interest by the United States Government.
The lower part of Table 13-2 compares total Treasury debt with the
amount of Federal debt that is subject to the limit. Most of the
Treasury debt not subject to limit was issued by the FFB (Federal
Financing Bank). It is authorized to have outstanding up to $15 billion
of publicly issued debt, and this amount was issued several years ago to
the Civil Service Retirement and Disability trust fund. The remaining
Treasury debt not subject to limit consists almost entirely of silver
certificates and other currencies no longer being issued.
The sole type of agency debt currently subject to the general limit is
the debentures issued by the Federal Housing Administration, which were
only $68 million at the end of 1997. Some of the other agency debt,
however, is subject to its own statutory limit. For example, the
Tennessee Valley Authority is limited to $30 billion of securities
outstanding (including its debt to the FFB, the Treasury, and other
Government accounts).
The comparison between Treasury debt and debt subject to limit also
includes an adjustment for measurement differences in the treatment of
discounts and premiums. As explained elsewhere in this chapter, debt
securities may be sold at a discount or premium, and the measurement of
debt may take this into account rather than recording the face value of
the securities. However, the treatment differs between gross Federal
debt (and its components) and the statutory definition of debt subject
to limit. An adjustment is needed to derive debt subject to limit (as
defined by law) from Treasury debt, and this adjustment is defined in
footnote 5 to Table 13-2. The amount is relatively small: $6.6 billion
at the end of 1997 compared to the total discount (less premium) of
$76.6 billion on all Treasury securities.
Methods of changing the debt limit.--The statutory debt limit has
frequently been changed. Since
[[Page 252]]
Table 13-4. DEBT HELD BY GOVERNMENT ACCOUNTS \1\
(In millions of dollars)
----------------------------------------------------------------------------------------------------------------
Investment or disinvestment (-) Holdings
--------------------------------- end of
Description 1997 1998 1999 1999
actual estimate estimate estimate
----------------------------------------------------------------------------------------------------------------
Investment in Treasury debt:
Energy: Nuclear waste disposal fund.............................. 938 805 938 7,992
Health and Human Services:
Federal old-age and survivors insurance trust fund \2\......... 68,041 85,623 93,392 746,460
Federal disability insurance trust fund \2\.................... 13,462 12,281 12,719 88,562
Federal hospital insurance trust fund.......................... -9,184 -5,631 -3,095 107,895
Federal supplementary medical insurance trust fund............. 7,289 5,040 540 40,044
Housing and Urban Development:
Federal Housing Administration mutual mortgage fund............ 5,737 2,100 2,564 18,131
Other HUD...................................................... 621 -65 348 5,841
Interior:
Outer Continental Shelf deposit funds.......................... 122 -1,616 -10 70
Abandoned Mine Reclamation fund................................ 128 149 127 1,831
Labor:
Unemployment trust fund........................................ 8,031 8,783 7,750 78,456
Pension Benefit Guaranty Corporation........................... 1,227 1,285 1,247 10,292
State: Foreign Service retirement and disability trust fund...... 582 613 639 10,230
Transportation:
Highway trust fund............................................. 1,157 1,172 14,808 38,321
Airport and airway trust fund.................................. -1,322 2,988 4,866 14,214
Oil spill liability trust fund................................. -18 -26 255 1,397
Treasury: Exchange stabilization fund............................ 3,607 -4,342 5,889 17,007
Veterans Affairs:
National service life insurance trust fund..................... 16 -88 -171 11,764
Other trust funds.............................................. 19 -7 1 1,732
Federal funds.................................................. -8 -15 -16 532
Defense-Civil: Military retirement trust fund.................... 9,134 5,911 6,301 138,234
Environmental Protection Agency:
Hazardous substance trust fund................................. -498 -478 1,299 6,698
Leaking underground storage tank trust fund.................... * 94 213 1,407
International Assistance Programs:
Overseas Private Investment Corporation........................ 249 118 183 2,837
Office of Personnel Management:
Civil Service retirement and disability trust fund \3\......... 28,961 32,649 29,253 476,306
Employees life insurance fund.................................. 1,077 1,100 1,145 20,283
Employees health benefits fund................................. -1,396 -102 -55 6,630
Federal Deposit Insurance Corporation:
Bank Insurance fund............................................ 4,143 2,017 945 29,291
FSLIC Resolution fund.......................................... 1,112 227 208 2,241
Savings Association Insurance fund............................. 4,589 256 321 9,842
National Credit Union Administration: Share insurance fund....... 188 166 201 4,039
Postal Service fund \2\.......................................... * -360 ......... 500
Railroad Retirement Board trust funds............................ 2,117 186 176 19,601
Tennessee Valley Authority....................................... -951 ......... ......... ..........
Other Federal funds.............................................. 1,470 77 516 7,151
Other trust funds................................................ 817 485 642 8,164
Unrealized discount \1\.......................................... -1,357 ......... ......... -7,000
--------------------------------------------
Total, investment in Treasury debt............................... 150,101 151,395 184,139 1,926,995
============================================
Investment in agency debt:
Office of Personnel Management:
Civil Service retirement and disability trust fund \3\......... -508 -3,181 -83 3,834
--------------------------------------------
Total, investment in agency debt............................... -508 -3,181 -83 3,834
============================================
Total, investment in Federal debt \1\.......................... 149,593 148,214 184,056 1,930,829
============================================
MEMORANDUM
Investment by Federal funds (on-budget)............................ 23,051 2,778 13,471 117,027
Investment by Federal funds (off-budget)........................... * -360 ......... 500
Investment by trust funds (on-budget).............................. 46,274 49,507 64,484 985,210
Investment by trust funds (off-budget)............................. 81,503 97,905 106,111 835,022
Investment by deposit funds \4\.................................... 122 -1,616 -10 70
Unrealized discount \1\............................................ -1,357 ......... ......... -7,000
----------------------------------------------------------------------------------------------------------------
* $50 million or less.
\1\ Debt held by Government accounts is measured at face value except for the unrealized discount on Government
account series securities, which is not distributed by account. Changes in the unrealized discount are not
estimated.
\2\ Off-budget Federal entity.
\3\ The investment in agency debt is the result of the FFB swapping Postal Service and TVA securities with the
Civil Service Retirement and Disability trust fund during 1996 in exchange for Treasury securities having an
equal present value. See the narrative in the section on agency debt for further explanation.
\4\ Only those deposit funds classified as Government accounts.
[[Page 253]]
1960, Congress has passed 68 separate acts to raise the limit, extend
the duration of a temporary increase, or revise the definition.
The statutory limit can be changed by normal legislative procedures.
It can also be changed as a consequence of the annual congressional
budget resolution, which is not itself a law. The budget resolution
includes a provision specifying the appropriate level of the debt
subject to limit at the end of each fiscal year. The rules of the House
of Representatives provide that, when the budget resolution is adopted
by both Houses of the Congress, the vote in the House of Representatives
is deemed to have been a vote in favor of a joint resolution setting the
statutory limit at the level specified in the budget resolution. The
joint resolution is transmitted to the Senate for further action. It may
be amended in the Senate to change the debt limit provision or in any
other way. If it passes both Houses of the Congress, it is sent to the
President for his signature. This method directly relates the decision
on the debt limit to the decisions on the Federal deficit and other
factors that determine the change in the debt subject to limit. Both
methods have been used numerous times.
Recent changes in the debt limit.--Major increases in the debt limit
were enacted as part of the deficit reduction packages in the Omnibus
Budget Reconciliation Acts of 1990 and 1993. Both changes in law were
preceded by one or more temporary increases in the limit before
agreement was reached on the debt and the deficit reduction measures
together. Both increases in the debt limit were large enough to last
over two years without a further change in law, the longest times
without an increase since the period from 1946 to 1954.
The debt again approached the limit in 1995, and the limit again
became part of the larger issue of deficit reduction. During an extended
period of dispute between the President and the Congress, the Treasury
Department took a number of administrative actions to keep within the
limit and the Congress passed two acts providing temporary exemptions
from the limit. In March 1996, although agreement had not been reached
on deficit reduction, Congress passed the Contract with America
Advancement Act of 1996, one provision of which increased the debt limit
from $4,900 billion to $5,500 billion. The President signed the bill
into law on March 29.
During 1997, unlike 1996, the President and the Congress reached
agreement on a plan to balance the budget. This included a sufficient
increase in the debt limit to accommodate Government finances for longer
than possible under the limit enacted in the previous year, even though
the amount of debt at that time was considerably under the limit. As a
result, the Balanced Budget Act of 1997, which the President signed into
law on August 5, 1997, increased the debt limit to $5,950 billion.
Federal funds financing and the change in debt subject to limit.--The
change in debt held by the public, as shown in Table 13-2, is determined
primarily by the total Government deficit or surplus. The debt subject
to limit, however, includes not only debt held by the public but also
debt held by Government accounts. The change in debt subject to limit is
therefore determined both by the factors that determine the total
Government deficit or surplus and by the factors that determine the
change in debt held by Government accounts.
The budget is composed of two groups of funds, Federal funds and trust
funds. The Federal funds, in the main, are derived from tax receipts and
borrowing and are used for the general purposes of the Government. The
trust funds, on the other hand, are financed by taxes or other
collections earmarked by law for specified purposes, such as paying
social security benefits or grants to State governments for highway
construction.\12\
---------------------------------------------------------------------------
\12\ For further discussion of the trust funds and Federal funds
groups, see chapter 17, ``Trust Funds and Federal Funds.''
---------------------------------------------------------------------------
A Federal funds deficit must generally be financed by borrowing,
either by selling securities to the public or by issuing securities to
Government accounts that are not within the Federal funds group. Federal
funds borrowing consists almost entirely of the Treasury issuing
securities that are subject to the statutory debt limit. Trust fund
surpluses are almost entirely invested in these securities, and trust
funds hold most of the debt held by Government accounts. The change in
debt subject to limit is therefore determined primarily by the Federal
funds deficit, which is equal to the arithmetic sum of the total
Government deficit and the trust fund surplus.
Table 13-5 derives the change in debt subject to limit. In 1999 the
Federal funds deficit is estimated to be $161.5 billion, and other
factors increase the requirement to borrow subject to limit by $34.1
billion. The largest other factor is the direct loan financing accounts.
As explained in an earlier section, their net financing disbursements
are excluded from the budget by law because they do not represent a cost
to the Government, but they have to be financed and they are currently
sizable. The next largest factor is investment in Treasury securities by
revolving funds and special funds in the Federal funds group. As a
result of all these factors, the debt subject to limit is estimated to
increase by $195.6 billion, which is $185.1 billion more than the
increase in debt held by the public.
The budget deficit or surplus equals the sum of the Federal funds
deficit or surplus and the trust fund deficit or surplus. The trust fund
surplus is currently large, as it has been for a number of years, and is
estimated to grow through 2003. The Federal funds, in contrast, as shown
in Table 13-5, continue to have a deficit of more than $100 billion
every year over this period. Mainly because of the Federal funds
deficit, the increase in debt subject to limit is more than the increase
in debt held by the public during 1997-2000, as can be seen by comparing
the annual increase in debt sub
[[Page 254]]
Table 13-5. FEDERAL FUNDS FINANCING AND CHANGE IN DEBT SUBJECT TO STATUTORY LIMIT
(In billions of dollars)
----------------------------------------------------------------------------------------------------------------
Estimate
Description 1997 -----------------------------------------------------------
actual 1998 1999 2000 2001 2002 2003
----------------------------------------------------------------------------------------------------------------
Federal funds surplus or deficit (-)...... -147.9 -158.7 -161.5 -164.6 -148.4 -111.3 -119.7
(On-budget)............................. -148.0 -156.9 -160.6 -162.2 -147.9 -112.1 -121.4
(Off-budget)............................ * -1.7 -0.8 -2.4 -0.5 0.8 1.7
=====================================================================
Means of financing other than borrowing:
Change in: \1\
Treasury operating cash balance....... 0.6 3.6 ........ ........ ........ ........ ........
Checks outstanding, etc.\2\........... 2.2 -0.9 -4.1 ........ ........ ........ ........
Deposit fund balances\3\.............. -0.4 -1.6 -* ........ ........ ........ ........
Seigniorage on coins.................... 0.5 0.4 0.7 0.7 0.7 0.7 0.7
Less: Net financing disbursements:
Direct loan financing accounts........ -21.0 -15.0 -15.4 -13.2 -15.4 -14.1 -13.4
Guaranteed loan financing accounts.... 0.1 -0.9 -0.7 -0.5 -0.1 -0.1 -0.1
=====================================================================
Total, means of financing other than
borrowing............................ -18.0 -14.4 -19.6 -13.0 -14.8 -13.5 -12.8
Decrease or increase (-) in Federal debt
held by Federal funds and deposit funds
\4\...................................... -23.2 -0.8 -13.5 ........ ........ ........ ........
Increase or decrease (-) in Federal debt
not subject to limit..................... -1.9 -4.1 -1.1 -0.9 -1.1 -1.1 -2.1
---------------------------------------------------------------------
Total, requirement for Federal funds
borrowing subject to debt limit........ -190.9 -178.0 -195.6 -178.5 -164.3 -125.9 -134.6
Adjustment for change in discount or
premium \5\.............................. -0.5 ........ ........ ........ ........ ........ ........
Increase in debt subject to limit......... 190.4 178.0 195.6 178.5 164.3 125.9 134.6
ADDENDUM
Debt subject to statutory limit \6\....... 5,327.6 5,505.6 5,701.2 5,879.8 6,044.0 6,169.9 6,304.5
----------------------------------------------------------------------------------------------------------------
* $50 million or less.
\1\ A decrease in the Treasury operating cash balance (which is an asset) would be a means of financing the
deficit and therefore has a positive sign. An increase in checks outstanding or deposit fund balances (which
are liabilities) would also be a means of financing the deficit and would therefore also have a positive sign.
\2\ Besides checks outstanding, includes accrued interest payable on Treasury debt, miscellaneous liability
accounts, allocations of special drawing rights, and, as an offset, cash and monetary assets other than the
Treasury operating cash balance, miscellaneous asset accounts, and profit on sale of gold.
\3\ Does not include investment in Federal debt securities by deposit funds classified as part of the public.
\4\ Only those deposit funds classified as Government accounts.
\5\ Consists of unamortized discount (less premium) on public issues of Treasury notes and bonds (other than
zero-coupon bonds) and unrealized discount on Government account series securities.
\6\ The statutory debt limit is $5,950 billion.
ject to limit in Table 13-5 with the annual increase in debt held by the
public in Table 13-2; and the debt subject to limit continues to
increase during 2001-2003, even though the budget is in surplus and some
debt held by the public is being repaid. In 2003, for example, when the
budget has an $82.8 billion surplus and the debt held by the public
decreases by $70.0 billion, the debt subject to limit increases by
$134.6 billion.
Debt Held by Foreign Residents
During most of American history the Federal debt was held almost
entirely by individuals and institutions within the United States. In
the late 1960s, as shown in Table 13-6, foreign holdings were just over
$10.0 billion, less than 5 percent of the total Federal debt held by the
public.
Foreign holdings began to grow significantly starting in 1970. This
increase has been primarily due to foreign decisions, both official and
private, rather than the direct marketing of these securities to foreign
residents. At the end of fiscal year 1997 foreign holdings of Treasury
debt were $1,282 billion, which was 34 percent of the total debt held by
the public. Foreign central banks owned 48 percent of the Federal debt
held by foreign residents; private investors owned nearly all the rest.
All the Federal debt held by foreign residents is denominated in
dollars.
Although the amount of debt held by foreigners grew greatly over this
period, the proportion they own did not change much from 1972 until
1995. In 1995 and 1996, however, foreign holdings increased by nearly
$200 billion each year, which was more than the total Federal borrowing
from the public. In 1997 foreign holdings increased by $252 billion,
which was much more than the total borrowing from the public of $38
billion.\13\ As a result, the Federal debt held by individuals and
institutions within the United States decreased in absolute amount over
the last three years, especially in 1997, when it decreased by $214
billion; and the percentage of Federal debt held by foreign residents
grew from 19 percent at the end of 1994 to 34 percent at the end of
1997.
---------------------------------------------------------------------------
\13\ The amounts reported by the Bureau of Economic Analysis,
Department of Commerce, were different, but similarly large, due to a
different method of valuing the securities.
---------------------------------------------------------------------------
Foreign holdings of Federal debt are almost one-fourth of the foreign-
owned assets in the U.S. The foreign purchases of Federal debt
securities do not measure the full impact of the capital inflow from
abroad on the market for Federal debt securities. The capital inflow
supplies additional funds to the credit market generally, which affect
the market for Federal debt. For example, the capital inflow includes
deposits in U.S. financial intermediaries that themselves buy Federal
debt.
[[Page 255]]
Table 13-6. FOREIGN HOLDINGS OF FEDERAL DEBT
(Dollar amounts in billions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Debt held by the public Borrowing from the public Interest on debt held by the
----------------------------------------------------------------------- public
Fiscal year -----------------------------------
Total Foreign \1\ Percentage Total \2\ Foreign \1\ Percentage Percentage
foreign foreign Total \3\ Foreign \4\ foreign
--------------------------------------------------------------------------------------------------------------------------------------------------------
1965......................................... 260.8 12.3 4.7 3.9 0.3 6.4 9.6 0.5 4.9
1966......................................... 263.7 11.6 4.4 2.9 -0.7 n.a. 10.1 0.5 5.1
1967......................................... 266.6 11.4 4.3 2.9 -0.2 n.a. 11.1 0.6 5.1
1968......................................... 289.5 10.7 3.7 22.9 -0.7 n.a. 11.9 0.7 5.6
1969......................................... 278.1 10.3 3.7 -1.3 -0.4 n.a. 13.5 0.7 5.3
1970......................................... 283.2 14.0 5.0 3.5 3.8 107.2 15.4 0.8 5.5
1971......................................... 303.0 31.8 10.5 19.8 17.8 89.8 16.2 1.3 7.9
1972......................................... 322.4 49.2 15.2 19.3 17.3 89.5 16.8 2.4 14.2
1973......................................... 340.9 59.4 17.4 18.5 10.3 55.3 18.7 3.2 17.2
1974......................................... 343.7 56.8 16.5 2.8 -2.6 n.a. 22.7 4.1 17.9
1975......................................... 394.7 66.0 16.7 51.0 9.2 18.0 25.0 4.5 18.2
1976......................................... 477.4 69.8 14.6 82.2 3.8 4.6 29.3 4.4 15.1
TQ........................................... 495.5 74.6 15.1 18.1 4.9 26.9 7.8 1.2 14.9
1977......................................... 549.1 95.5 17.4 53.6 20.9 39.0 33.8 5.1 15.0
1978......................................... 607.1 121.0 19.9 58.0 25.4 43.5 40.2 7.9 19.5
1979 \5\..................................... 640.3 120.3 18.8 33.2 -0.7 n.a. 49.9 10.7 21.5
1980......................................... 709.8 121.7 17.1 69.5 1.4 2.0 62.8 11.0 17.5
1981......................................... 785.3 130.7 16.6 75.5 9.0 12.0 81.7 16.4 20.1
1982......................................... 919.8 140.6 15.3 134.4 9.9 7.4 101.2 18.7 18.5
1983......................................... 1,131.6 160.1 14.1 211.8 19.5 9.2 111.6 19.2 17.2
1984......................................... 1,300.5 175.5 13.5 168.9 15.4 9.1 133.5 20.3 15.2
1985 \5\..................................... 1,499.9 222.9 14.9 199.4 47.4 n.a. 152.9 23.0 15.1
1986......................................... 1,736.7 265.5 15.3 236.8 42.7 18.0 159.3 24.2 15.2
1987......................................... 1,888.7 279.5 14.8 152.0 14.0 9.2 160.4 25.7 16.0
1988......................................... 2,050.8 345.9 16.9 162.1 66.4 40.9 172.3 29.9 17.4
1989......................................... 2,189.9 394.9 18.0 139.1 49.0 35.2 189.0 37.1 19.6
1990 \5\..................................... 2,410.7 440.3 18.3 220.8 45.4 n.a. 202.4 40.3 19.9
1991......................................... 2,688.1 477.3 17.8 277.4 37.0 13.3 214.8 42.0 19.5
1992......................................... 2,998.8 535.2 17.8 310.7 57.9 18.6 214.5 40.5 18.9
1993......................................... 3,247.5 591.3 18.2 247.4 56.1 22.7 210.2 41.1 19.6
1994......................................... 3,432.1 655.8 19.1 184.6 64.5 34.8 210.6 44.5 21.1
1995......................................... 3,603.4 848.4 23.5 171.3 192.6 112.4 239.2 58.3 24.4
1996......................................... 3,733.0 1,030.1 27.6 129.6 181.7 140.2 246.6 67.7 27.4
1997......................................... 3,771.0 1,282.5 34.0 38.2 252.4 561.0 250.8 87.3 34.8
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\1\ Estimated by Treasury Department. These estimates exclude agency debt, the holdings of which are believed to be small. The data on foreign holdings
are not recorded by methods that are strictly comparable with the data on debt held by the public. Projections are not available.
\2\ Borrowing from the public is defined as equal to the change in debt held by the public from the beginning of the year to the end, except to the
extent that the amount of debt is changed by reclassification.
\3\ Estimated as interest on the public debt less ``interest received by trust funds'' (subfunction 901 less subfunctions 902 and 903). Does not include
the comparatively small amount of interest on agency debt or the offsets for other interest on public debt received by Government accounts (revolving
funds and special funds).
\4\ Estimated by Bureau of Economic Analysis, Department of Commerce. These estimates include small amounts of interest from other sources, including
the debt of Government-sponsored enterprises, which are not part of the Federal Government.
\5\ Benchmark revisions reduced the estimated foreign holdings of Federal debt as of December 1978 and increased the estimated foreign holdings as of
December 1984 and December 1989. As a result, the data on foreign holdings in different time periods are not strictly comparable, and the
``borrowing'' from foreign residents in 1979, 1985, and 1989 reflects the benchmark revision as well as the net purchases of Federal debt securities.
n.a. = Not applicable due to negative numbers or benchmark revision.
Federally Assisted Borrowing
The effect of the Government on borrowing in the credit market arises
not only from its own borrowing to finance Federal operations but also
from its assistance to certain borrowing by the public. Federally
assisted borrowing is of two principal types: Government-guaranteed
borrowing, which is another term for guaranteed lending, and borrowing
by Government-sponsored enterprises (GSEs). The Federal Government also
exempts the interest on most State and local government debt from income
tax; and it insures the deposits of banks and thrift institutions, which
themselves make loans.
Federal credit assistance is discussed in Chapter 8, ``Underwriting
Federal Credit and Insurance.'' Detailed data are presented in tables at
the end of that chapter. Table 13-7 brings together the totals of
Federal and federally assisted borrowing and lending and shows the
trends since 1965 in terms of both dollar amounts and, more
significantly, as percentages of total credit market borrowing or
lending by domestic nonfinancial sectors. The Federal and federally
assisted lending is recorded at the principal amount. It does not
measure the degree of subsidy provided by the credit assistance, nor
does it indicate the extent to which the credit assistance changed the
allocation of financial and real resources. The estimates for GSE
borrowing in 1998 and 1999 were developed by the GSEs based on certain
assumptions but are subject to periodic review and revision and do not
represent official GSE forecasts of future activity.
[[Page 256]]
The Federal borrowing participation rate trended strongly upward from
the 1960s to the early 1990s, though with cyclical variation. Much of
the increase in the 1980s was due to higher GSE borrowing as well as
Federal deficits. Since 1992, the Federal borrowing participation rate
has declined, reaching 33 percent in 1997, despite large guaranteed
borrowing in some years. The Federal lending participation rate has been
smaller and more stable over time than the borrowing participation rate,
primarily because in most years Federal direct loans have been much
smaller than Federal borrowing.
Table 13-7. FEDERAL AND FEDERALLY ASSISTED PARTICIPATION IN THE CREDIT MARKET
(Dollar amounts in billions)
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Actual Estimates
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1965 1970 1975 1980 1985 1990 1992 1993 1994 1995 1996 1997 1998 1999
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Total net borrowing in credit market \1\.......................... 66.7 88.0 169.2 336.8 823.3 716.0 525.1 576.4 600.1 709.0 701.0 631.7 ....... .......
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Federal borrowing from the public................................. 3.9 3.5 51.0 69.5 199.4 220.8 310.7 247.4 184.7 171.3 129.6 38.2 25.7 10.5
Guaranteed borrowing.............................................. 5.0 7.8 8.6 31.6 21.6 40.7 19.7 -2.0 38.7 26.2 89.9 57.8 88.1 85.4
Government-sponsored enterprise borrowing \2\..................... 1.2 4.9 5.3 21.4 57.9 115.4 150.8 169.3 121.1 125.7 141.5 112.8 198.1 172.2
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Total, Federal and federally assisted borrowing................. 10.1 16.2 65.0 122.5 278.9 376.9 481.2 414.7 344.5 323.2 361.1 208.7 311.9 268.1
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Federal borrowing participation rate (percent).................... 15.1 18.4 38.2 36.4 33.9 52.6 91.6 71.9 57.4 45.6 51.5 33.0 ....... .......
=============================================================================================================================
Total net lending in credit market \1\............................ 66.7 88.0 169.2 336.8 823.3 716.0 525.1 576.4 600.1 709.0 701.0 631.7 ....... .......
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Direct loans...................................................... 2.0 3.0 12.7 24.2 28.0 2.8 7.0 -1.7 -0.8 1.6 4.0 12.8 5.5 6.9
Guaranteed loans.................................................. 5.0 7.8 8.6 31.6 21.6 40.7 19.7 -2.0 38.7 26.2 89.9 57.8 88.1 85.4
Government-sponsored enterprise loans \2\......................... 1.4 5.2 5.5 24.1 60.7 90.0 145.2 162.3 125.3 68.2 161.2 107.9 200.9 155.5
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Total, Federal and federally assisted lending................... 8.3 15.9 26.9 79.9 110.3 133.5 171.9 158.6 163.2 90.4 255.1 178.4 294.5 247.7
=============================================================================================================================
Federal lending participation rate (percent)...................... 12.4 18.1 15.9 23.7 13.4 18.9 32.7 27.5 27.2 12.8 36.4 28.2 ....... .......
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\1\ Total net borrowing (or lending) in credit market by domestic nonfinancial sectors, excluding equities. Credit market borrowing (lending) is the acquisition (loan) of funds other than
equities through formal credit channels. Financial sectors are omitted from the series used in this table to avoid double counting, since financial intermediaries borrow in the credit market
primarily in order to finance lending in the credit market. Equities, trade credit, security credit, and other sources of funds are also excluded from this series. Source: Federal Reserve
Board flow of funds accounts. Projections are not available.
\2\ Most Government-sponsored enterprises (GSEs) are financial intermediaries. GSE borrowing (lending) is nevertheless compared with total credit market borrowing (lending) by nonfinancial
sectors, because GSE borrowing (lending) is a proxy for the borrowing (lending) by nonfinancial sectors that the GSEs assist through intermediation. The GSEs assist the ultimate nonfinancial
borrower by purchasing its loans from the initial, direct lender or by other methods, which they finance by issuing securities themselves in the credit market. Borrowing and lending include
mortgage-backed securities, because the GSEs assist nonfinancial borrowers through this type of intermediation as well as by types of intermediation that involve financial instruments
recognized on the GSEs' balance sheets. The data for this table are adjusted, with some degree of approximation, to remove double counting in calculating a consolidated total for Federal and
federally assisted borrowing (lending): GSE borrowing and lending are calculated net of transactions between components of GSEs and transactions in guaranteed loans; GSE borrowing is also
calculated net of borrowing from other GSEs and purchases of Federal debt securities.