[Analytical Perspectives]
[Federal Borrowing and Debt]
[12. Federal Borrowing and Debt]
[From the U.S. Government Publishing Office, www.gpo.gov]


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                       FEDERAL BORROWING AND DEBT

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                     12.  FEDERAL BORROWING AND DEBT

   Debt is the largest legally binding obligation of the Federal 
Government. At the end of 1999, the Government owed $3,633 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 $5,606 billion. 
This year, the Government is estimated to pay around $228 billion of 
interest to the public on its debt.

                             Table 12-1.  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 percent of:          the public as a percent
                                                         ----------------------------           of: \3\
         Fiscal year             Current       FY 1996                     Credit    ---------------------------
                                 dollars     dollars \1\       GDP       market debt      Total
                                                                             \2\         outlays         GDP
----------------------------------------------------------------------------------------------------------------
1950........................       219.0       1,260.9         80.1          55.3          11.4           1.8
1955........................       226.6       1,143.9         57.3          43.3           7.6           1.3
1960........................       236.8       1,062.5         45.6          33.8           8.5           1.5
1965........................       260.8       1,093.4         37.9          26.9           8.1           1.4
1970........................       283.2         987.1         27.9          20.8           7.9           1.5
1975........................       394.7       1,012.6         25.3          18.4           7.5           1.6

1980........................       711.9       1,264.1         26.1          18.5          10.6           2.3
1981........................       789.4       1,278.8         25.8          18.6          12.0           2.7
1982........................       924.6       1,401.6         28.6          19.8          13.6           3.1
1983........................     1,137.3       1,650.2         33.0          21.9          13.8           3.3
1984........................     1,307.0       1,828.3         34.0          22.1          15.7           3.5

1985........................     1,507.4       2,041.9         36.4          22.3          16.2           3.7
1986........................     1,740.8       2,303.2         39.6          22.6          16.1           3.6
1987........................     1,889.9       2,435.8         40.6          22.3          16.0           3.5
1988........................     2,051.8       2,562.2         40.9          22.2          16.2           3.5
1989........................     2,191.0       2,634.0         40.5          22.0          16.5           3.5

1990........................     2,411.8       2,793.4         42.0          22.6          16.2           3.6
1991........................     2,689.3       3,003.8         45.4          24.1          16.2           3.7
1992........................     3,000.1       3,275.2         48.2          25.7          15.5           3.5
1993........................     3,248.8       3,458.7         49.5          26.6          14.9           3.2
1994........................     3,433.4       3,573.9         49.4          26.7          14.4           3.1

1995........................     3,604.8       3,674.2         49.2          26.7          15.8           3.3
1996........................     3,734.5       3,734.5         48.5          26.2          15.8           3.3
1997........................     3,772.8       3,709.8         46.1          25.2          15.7           3.1
1998........................     3,721.6       3,612.5         43.1          23.3          15.1           3.0
1999 estimate...............     3,632.9       3,481.5         39.9          21.7          13.8           2.6

2000 estimate...............     3,475.9       3,282.5         36.3     ............       12.7           2.5
2001 estimate...............     3,305.0       3,059.6         32.9     ............       11.9           2.2
2002 estimate...............     3,133.7       2,843.6         29.8     ............       11.0           2.0
2003 estimate...............     2,963.2       2,635.8         27.0     ............       10.1           1.8
2004 estimate...............     2,780.7       2,424.9         24.2     ............        9.2           1.6
2005 estimate...............     2,577.5       2,203.6         21.3     ............        8.2           1.4
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\1\ Debt in current dollars deflated by the GDP chain-type price index with fiscal year 1996 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 on public debt received by
  other Government accounts (revolving funds and special funds).

   After 28 consecutive years of deficits financed mainly by borrowing 
from the public, the Government had a $69 billion unified budget surplus 
in 1998 and repaid $51 billion of publicly held debt. In 1999, the 
Government did even better, achieving a $124 billion surplus and 
repaying $89 billion of publicly held debt. This was a large improvement 
in its fiscal position from the record $290 billion deficit in 1992. The 
steady decline in deficits since that year and the eventual surplus were 
due in large part to the strong economic expansion and the budget 
discipline of the Omnibus Budget Reconciliation Act of 1993 and the 
Balanced Budget Act of 1987. The surpluses projected in this budget 
would substantially reduce Federal debt held by the public over the next 
few years both, in dollar amount and relative to the size of the 
Nation's gross domestic product (GDP). It is projected that the publicly 
held debt will be fully repaid in 2013.

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                          Trends in Federal Debt

   Federal debt held by the public has increased five-fold since 1980, 
as shown in Table 12-1. In 1980, it was $711.9 billion; by the end of 
1999, it stood at $3,632.9 billion. The data in this table are 
supplemented for earlier years by Tables 7.1-7.3 in Historical 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 25.3 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, but 
they did not increase to any significant degree.
   The growth of Federal debt held by the public accelerated during the 
early 1980s due to very large budget deficits. Because the deficits 
continued to be large until a few years ago, 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 49.5 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 
26.6 percent. Interest outlays on debt held by the public, calculated as 
a percentage of either total Federal outlays or GDP, increased by about 
two-fifths.
   The growth of Federal debt held by the public was decelerating by the 
mid-1990s, however, and in 1998 the amount of debt outstanding fell for 
the first time since the last budget surplus in 1969. Since 1993 the 
debt has declined markedly relative to either GDP or total credit market 
debt. Table 12-1 shows that debt as a percentage of GDP is estimated to 
decline significantly more in the next few years, falling from 39.9 
percent in 1999 to 21.3 percent in 2005. The improvement in the last few 
years reflects the deficit reduction package enacted by the Omnibus 
Budget Reconciliation Act of 1993, subsequent steps to maintain fiscal 
discipline, and the long economic expansion that was facilitated by this 
fiscal policy. The further estimated improvement reflects the 
expectation that economic growth will continue without accelerating 
inflation for the foreseeable future. \1\ Interest outlays on the debt 
held by the public are estimated to decline substantially in 
relationship to either total outlays or GDP over the next six years. 
Under the projections shown in the next table, the publicly held debt 
will be fully repaid in 2013.
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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 to finance the Federal 
deficit. \2\ Second, it issues debt to Government accounts, primarily 
trust funds, that accumulate surpluses. By law, trust fund surpluses 
generally must 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.'' \3\
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  \2\ 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 inflation-indexed notes and 
bonds. The recorded value of these securities includes a periodic 
adjustment for inflation.
  \3\ The term ``agency debt'' is defined more narrowly in the budget 
than customarily in the securities market, where it includes not only 
the debt of the Federal agencies listed in Table 12-3 but also the debt 
of the Government-sponsored enterprises listed in Table 8-11 at the end 
of Chapter 8 and certain Government-guaranteed securities.
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   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 of 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. Federal borrowing thereby 
competes with the borrowing of other sectors for financial resources in 
the credit market, and tends to increase interest rates and reduce 
private capital accumulation. Borrowing from the public thus affects the 
size and composition of assets held by the private sector and the 
perceived wealth of the public. It also increases 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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  \4\ The Federal sector of the national income and product accounts 
provides a measure of the current surplus or deficit that can be used to 
analyze the effect of Federal fiscal policy on national saving within 
the framework of an integrated set of measures of aggregate U.S. 
economic activity. The Federal sector and its differences from the 
budget are discussed in chapter 16 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.

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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 the funds' collections at a later time than 
when they receive the money. Public policy 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 of the Government, made between two accounts that are 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 legal 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 
for either the current participants or a larger group. 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\ Extensive actuarial analyses of the social security and medicare 
programs are published in the annual reports of the boards of trustees 
of these funds. Annual actuarial reports are also prepared for Federal 
employee retirement funds. A summary of actuarial estimates for these 
and other 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.
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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 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.'' The different types of liabilities are 
reported annually in the financial statements of the major Federal 
agencies and in the Financial Report of the United States Government. 
\6\
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  \6\ The Financial Report (formerly Consolidated Financial Statements) 
is published annually by the Financial Management Service, Department of 
the Treasury.
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                    Borrowing and Government Deficits

   Table 12-2 summarizes Federal borrowing and debt from 1999 through 
2013. In 1999 the Government repaid $89 billion of debt held by the 
public, and the debt outstanding decreased to $3,633 billion. The 
Treasury issued $186 billion of debt to Government accounts, and gross 
Federal debt increased to $5,606 billion.

   Debt held by the public.--Table 12-2 shows the relationship between 
borrowing from the public and the Federal surplus or deficit. 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.
  Before 2001, the total or unified budget surplus consists of the on-
budget surplus and the surplus of the off-budget 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. The table entry for the off-budget surplus is called the ``Social 
Security solvency lock-box,'' because the Administration proposes that 
the future off-budget surpluses be reserved for debt reduction.\7\
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  \7\ These proposals are part of a broader budget framework proposal 
discussed in chapter 13, ``Preview Report.''

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                                                                     Table 12-2.  FEDERAL GOVERNMENT FINANCING AND DEBT \1\
                                                                                    (In billions of dollars)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                              Estimate
                                                             1999  -----------------------------------------------------------------------------------------------------------------------------
                                                            Actual    2000     2001     2002     2003     2004     2005     2006     2007     2008     2009     2010     2011     2012     2013
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Financing:
  Surplus or deficit (-).................................      124      167      184      186      185      195      215      256      292      314      329      363      403      443      479
    (Social Security solvency lock-box: Off-budget)......      124      148      160      172      184      195      214      224      239      250      260      272      280      295      309
    (Social Security interest savings transfer)..........  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......      100      118      138
    (Medicare solvency debt reduction reserve)...........  .......  .......       15       13  .......  .......  .......       30       52       64       69       91       22       30       32
    (On-budget)..........................................        1       19        9        1        *        *        2        1        1        *        *        *        *        *        *

  Means of financing other than borrowing from the public:
    Changes in: \2\
      Treasury operating cash balance....................      -18       16  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......
      Checks outstanding, deposit funds, etc. \3\........       -6        1        2  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......
    Seigniorage on coins.................................        1        1        2        2        2        2        2        2        2        2        2        2        2        2        2
    Less: Social Security equity purchases...............  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......      -52      -66      -83
    Less: Net financing disbursements:
       Direct loan financing accounts....................      -19      -29      -18      -18      -17      -16      -16      -16      -16      -15      -15      -15      -16      -16      -16
       Guaranteed loan financing accounts................        5        *        1        1        1        2        2        2        2        2        2        2        3        3        3
                                                          --------------------------------------------------------------------------------------------------------------------------------------
        Total, means of financing other than borrowing         -36       -9      -13      -15      -14      -12      -12      -12      -12      -12      -11      -11      -63      -78      -95
         from the public.................................
                                                          --------------------------------------------------------------------------------------------------------------------------------------
          Total, repayment of publicly held debt.........       89      157      171      171      170      183      203      243      280      302      318      352      340      365      384
  Change in debt held by the public \4\..................      -89     -157     -171     -171     -170     -183     -203     -243     -280     -302     -318     -352     -340     -365     -384

Debt Subject to Statutory Limitation, End of Year:
  Debt issued by Treasury................................    5,578    5,658    5,742    5,828    5,921    6,009    6,096    6,185    6,268    6,347    6,424    6,502    6,595    6,693    6,794
  Adjustment for Treasury debt not subject to limitation       -15      -15      -15      -15      -15      -15      -15      -15      -15      -15      -15      -15      -15      -15      -15
   and agency debt subject to limitation \5\.............
  Adjustment for discount and premium \6\................        6        6        6        6        6        6        6        6        6        6        6        6        6        6        6
                                                          --------------------------------------------------------------------------------------------------------------------------------------
     Total, debt subject to statutory limitation \7\.....    5,568    5,648    5,732    5,819    5,912    5,999    6,086    6,175    6,258    6,337    6,414    6,492    6,585    6,683    6,785

Debt Outstanding, End of Year:
  Gross Federal debt:
    Debt issued by Treasury..............................    5,578    5,658    5,742    5,828    5,921    6,009    6,096    6,185    6,268    6,347    6,424    6,502    6,595    6,693    6,794
    Debt issued by other agencies........................       29       28       27       27       25       24       23       22       20       20       20       20       20       20       20
                                                          --------------------------------------------------------------------------------------------------------------------------------------
      Total, gross Federal debt..........................    5,606    5,686    5,769    5,855    5,947    6,034    6,118    6,206    6,288    6,367    6,444    6,522    6,615    6,713    6,815

  Held by:
    Debt securities held as assets by Government accounts    1,973    2,210    2,464    2,721    2,984    3,253    3,541    3,872    4,234    4,615    5,010    5,440    5,873    6,335    6,821
      Social Security....................................      855    1,004    1,164    1,338    1,522    1,717    1,930    2,154    2,392    2,641    2,899    3,170    3,498    3,843    4,206
      Federal employee retirement........................      643      681      717      754      789      824      858      891      922      952      980    1,006    1,034    1,063    1,093
      Other..............................................      475      525      582      630      672      712      752      828      920    1,023    1,131    1,263    1,341    1,429    1,523
    Debt securities held as assets by the public \8\.....    3,633    3,476    3,305    3,134    2,963    2,781    2,578    2,334    2,054    1,752    1,434    1,082      742      377   ** \9\
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* $500 million or less.
\1\ Almost all Treasury securities held by the public and zero-coupon bonds held by Government accounts are measured at sales price plus amortized discount or less amortized premium. Almost
  all Agency debt is measured at face value. Almost all 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 a deficit and therefore would have a positive sign. An increase in checks outstanding or
  deposit fund balances (which are liabilities) would also be a means of financing a deficit and therefore would also have a positive sign.
\3\ Besides checks outstanding and deposit funds, includes accrued interest payable on Treasury debt, miscellaneous liability accounts, allocations of special drawing rights, and, as offsets,
  cash and monetary assets other than the Treasury operating cash balance, miscellaneous asset accounts, and profit on sale of gold.
\4\ Includes a $355 million reclassification of debt in 2000. Indian tribal funds that are owned by the Indian tribes and held and managed in a fiduciary capacity by the Government on the
  tribes' behalf were reclassified from trust funds to deposit funds as of October 1, 1999, and their holdings of Treasury securities were accordingly reclassified from debt held by Government
  accounts to debt held by the public.
\5\ Consists primarily of Federal Financing Bank debt.
\6\ 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.
\7\ The statutory debt limit is $5,950 billion.
\8\ At the end of 1999, the Federal Reserve Banks held $489 billion of Federal securities and the rest of the public held $3,144 billion. Debt held by the Federal Reserve Banks is not
  estimated for future years.
\9\ Total debt will be fully redeemed in 2013. Policy decisions will be required on use of the surplus once debt has been redeemed.


[[Page 273]]

   Beginning in 2001, the surplus section of this table shows the effect 
of the Administration's proposal to reserve part of the on-budget 
surplus for Medicare solvency and for catastrophic prescription drug 
coverage. Called ``Medicare Solvency Debt Reduction Reserve,'' these 
amounts would not be available for spending under the budget resolution 
or on the PAYGO scorecard. They would be available only for debt 
reduction, pending their use for Medicare or the catastrophic 
prescription drug program. Beginning in 2011, the surplus section of 
this table also shows the Social Security interest savings transfer, 
which is the proposed payment from the general fund to the Social 
Security trust funds due to the on-budget interest savings from the 
cumulative Social Security surplus. Table 12-2 therefore shows the 
unified budget surplus divided among the Social Security solvency lock-
box (off-budget surplus), Social Security interest savings transfer, 
Medicare Solvency Debt Reduction Reserve, and the on-budget surplus.
  Social security, which comprises almost all of the off-budget totals, 
accounted for nearly all the unified budget surplus in 1999. It is 
estimated to have large and rising surpluses throughout the projection 
period, continuing to account for a major part of the estimated unified 
budget surplus. This will be used to repay the publicly held debt, which 
decreases from $3,633 billion at the end of 1999 to $1,082 billion at 
the end of 2010 and is fully repaid in 2013. \8\
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  \8\ For further explanation of the off-budget Federal entities, see 
chapter 19, ``Off-Budget Federal Entities and Non-Budgetary 
Activities.''
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   The Government's ability to repay debt held by the public, or its 
need to borrow, depends on the size of the total 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 12-2, these other factors--which are 
formally called ``means of financing other than borrowing from the 
public''--can either increase or decrease the Government's repayment of 
debt. (An increase in its ability to repay debt is represented by a 
positive sign, like the surplus; a decrease is represented by a negative 
sign, like a deficit.) In 1999 the surplus was $124 billion and the 
``other means of financing'' were -$36 billion, so the Government was 
able to repay $89 billion of publicly held debt. In 2000 the surplus is 
estimated to grow to $167 billion, and the ``other means of financing'' 
are estimated to decline in absolute value to -$9 billion. As a result, 
the estimated repayment of debt held by the public increases to $158 
billion. In 2001 and later years, the estimated surplus increases 
substantially, as a result of which the Government repays large and 
generally increasing amounts of debt each year.
   When the surplus or deficit is large, it is usually a good 
approximation to say that ``the surplus is used to repay debt held by 
the public'' or ``the deficit is financed by borrowing from the 
public.'' Over the last 10 years, the cumulative deficit was $1,339 
billion and the increase in debt held by the public was $1,442--very 
similar amounts. The other factors added a total of $103 billion of 
borrowing over that period, an average of $10 billion per year. The 
variation was wide, ranging from additional borrowing (or lower 
repayment) of $36 billion to reduced borrowing of $18 billion. The other 
factors that affect borrowing do not depend on the size of the surplus 
or deficit. Thus, when the surplus or deficit is moderate in size, 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 surplus or deficit is 
relatively small. This is because they are limited by their own nature. 
Decreases in cash balances, for example, while they may occasionally be 
large, are inherently limited by past accumulations, which themselves 
required financing when they were built up.
   However, three other factors in the ``other means of financing'' may 
be relatively large over longer periods. The first is premiums and 
discounts on debt buybacks. The Treasury Department plans to buy back 
some outstanding notes and bonds as part of its effort to manage the 
reduction of the publicly held debt. The premiums and discounts will be 
recorded outside the budget totals as a ``means of financing other than 
borrowing from the public.'' The Treasury has made no firm decision 
about the timing or the amount of buybacks at this time. Because it is 
impossible to develop a firm plan prior to completion of the initial 
operations, this budget includes no estimate of future buyback premiums. 
When the buybacks do occur, future budgets will record any premium 
payments or discount collections as a means of financing, and will 
present them in a separate entry in this table. This classification is 
discussed in a section of chapter 24, ``Budget System and Concepts and 
Glossary.''
   The second such factor is equity purchases by the Social Security 
trust fund, which the Administration proposes to begin in 2011. They are 
recorded as an ``other means of financing'' rather than an outlay.
   The third such factor 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 except for 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 ``out

[[Page 274]]

lays'' of a budgetary account and therefore affect the ability to repay 
debt held by the public, or the requirements for borrowing from the 
public, in the same way as the surplus or deficit.
---------------------------------------------------------------------------
  \9\ The Federal Credit Reform Act of 1990 (sec. 505(b)) requires that 
the financing accounts be non-budgetary. As explained in chapter 19, 
``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 19.
---------------------------------------------------------------------------
   The net financing disbursements are partly due to intragovernmental 
transactions with budgetary accounts (the receipt of subsidy payment and 
the receipt 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 does not affect Federal borrowing from the public. (Although 
the surplus or deficit changes, the net financing disbursements change 
in an equal amount with the opposite sign, so the effects cancel out on 
a net basis.) 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.
   In the early years of credit reform, the financing accounts had 
little net effect on borrowing requirements, but their impact began to 
become large in the middle 1990s. By 1999 they required $13 billion of 
financing, and thus reduced the repayment of debt by this amount; they 
are estimated to reduce debt repayment by $28 billion in 2000 and by 
around $13-16 billion per year subsequently. The expansion from the 
early years 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. Later, when the loans are repaid, 
Federal borrowing requirements will decrease.

   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 1999. In 
2001, for example, the total trust fund surplus is estimated to be $241 
billion, and Government accounts are estimated to invest $253 billion in 
Federal securities. The difference is because some revolving funds and 
special funds also 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 12-4.

                               Agency Debt

   Several Federal agencies, shown in Table 12-3, sell debt securities 
to the public and to other Government accounts. During 1999, agencies 
borrowed $2.4 billion from the public. Agency debt is only one percent 
of Federal debt held by the public.

                                             Table 12-3. AGENCY DEBT
                                            (In millions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                       Borrowing or repayment (-) of
                                                                                    debt                Debt end
                                                                     ---------------------------------  of 2001
                                                                         1999       2000       2001     estimate
                                                                        actual    estimate   estimate
----------------------------------------------------------------------------------------------------------------
Borrowing from the public:
  Housing and Urban Development:
    Federal Housing Administration..................................        -59          4  .........        118
  Small Business Administration:
    Participation certificates: Section 505 development company.....  .........  .........  .........          7
  Architect of the Capitol..........................................         -2         -2         -2        171
  Farm Credit System Financial Assistance Corporation...............       -397        -89  .........        775
  Federal Deposit Insurance Corporation:
    FSLIC Resolution Fund...........................................  .........  .........  .........         63
  National Archives.................................................         -5         -6         -6        265
  Tennessee Valley Authority........................................      2,892       -304       -657     25,417
                                                                     -------------------------------------------
    Total, borrowing from the public................................      2,429       -397       -665     26,816
                                                                     ===========================================
Borrowing from other funds:
  Postal Service Fund \2\...........................................        -83        -83  .........        551
  Tennessee Valley Authority \2\....................................     -3,200  .........  .........  .........
                                                                     -------------------------------------------
    Total, borrowing from other funds...............................     -3,283        -83  .........        551
                                                                     ===========================================
    Total, agency borrowing.........................................       -854       -480       -665     27,367
----------------------------------------------------------------------------------------------------------------
\1\ In previous years this table reported $13.312 million of monetary credits outstanding for the Department of
  Interior, Bureau of Land Management. It has been determined that these securities were redeemed by the end of
  1991. The historical data have been revised as of 1991, but it has not been possible to revise the data for
  earlier years.

\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.

   The reasons for issuing agency debt differ considerably from one 
agency to another. The predominant agency borrower is the Tennessee 
Valley Authority, which had borrowed $26.4 billion from the public as of 
the end of 1999, or 93 percent of the total for all

[[Page 275]]

agencies. TVA sells debt primarily to finance capital expenditures and 
to refund other issues of its existing debt. Almost all of the agency 
borrowing in 1999 and the debt repayment in 2000-01 is due to TVA.
   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 debentures are therefore classified as agency debt. The 
borrowing by FHA and a few other agencies that have engaged in similar 
transactions is thus inherent in the way that their programs operate. 
\10\
---------------------------------------------------------------------------
  \10\ The debt securities of the FSLIC Resolution fund 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.
---------------------------------------------------------------------------
   Some types of lease-purchase contracts are equivalent to direct 
Federal construction financed by Federal borrowing. A number of 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 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 2000 or 2001. The new 
budgetary treatment was reviewed in connection with the Balanced Budget 
Act of 1997. Some clarifications were made, but there were 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 four years ago. In February 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 TVA and Postal Service securities acquired by CSRDF are 
included in gross Federal debt shown in Table 12-2, are included in 
Table 12-3 as amounts that agencies borrowed from other funds, and are 
included in Table 12-4 as agency debt held by Government accounts. 
Including agency 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.
---------------------------------------------------------------------------
   TVA prepaid its entire $3.2 billion of debt securities held by CSRDF 
in October 1998. The Omnibus Consolidated and Emergency Appropriations 
Act of 1999 permitted TVA to prepay this debt at par and provided an 
appropriation to FFB to cover the prepayment charge otherwise owed. (The 
appropriation to FFB was used to make CSRDF whole.) The Act also 
prohibited TVA from borrowing from the FFB in the future. TVA financed 
the prepayment by borrowing from the public. As a result, its debt held 
by the public increased $2.9 billion in 1999, while its total debt 
decreased by $0.3 billion.

                     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 has risen 
greatly over the past two decades. It was $216.1 billion in 1999, as 
shown in Table 12-4, and it is estimated to rise to $253.5 billion in 
2001. The holdings of Federal securities by Government accounts are 
estimated to grow to $2,464.7 billion by the end of 2001, or 43 percent 
of the gross Federal debt. This percentage is estimated to rise further 
in the following years as the budget surpluses reduce the debt

[[Page 276]]

held by the public and the trust funds continue to accumulate surpluses.

                                Table 12-4. DEBT HELD BY GOVERNMENT ACCOUNTS  \1\
                                            (In millions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                            Investment or disinvestment (-)            Holdings
                                                 ----------------------------------------------------   end of
                   Description                    1999     2000       2001       2001
                                                             actual              estimate   estimate   estimate
----------------------------------------------------------------------------------------------------------------
Investment in Treasury debt:
  Energy: Nuclear waste disposal fund \1\.......                  548               1,190      1,012      10,136
  Health and Human Services:
    Federal hospital insurance trust fund.......               35,517               9,677     37,827     201,271
    Federal supplementary medical insurance                   -12,973              17,956     -3,795      40,689
     trust fund.................................
    Vaccine injury compensation trust fund......                  145                  97         87       1,615
  Housing and Urban Development:
    Federal Housing Administration mutual                         598               3,700      4,600      23,242
     mortgage fund..............................
    Other HUD...................................                  369                 409        365       6,765
  Interior: Abandoned Mine Reclamation fund.....                   97                  50         76       1,891
  Labor:
    Unemployment trust fund.....................                6,716               8,042      7,716      93,116
    Pension Benefit Guaranty Corporation........                  599               1,121      1,504      11,921
  State: Foreign Service retirement and                           581                 556        568      11,255
   disability trust fund........................
  Transportation:
    Highway trust fund..........................               10,157               3,354        817      32,254
    Airport and airway trust fund...............                3,864                 919        863      14,196
    Oil spill liability trust fund..............                  -56                  94        -68       1,088
  Treasury: Exchange stabilization fund.........                 -748                 762        800      16,794
  Veterans Affairs:
    National service life insurance trust fund..                  -55                -161       -209      11,584
    Other trust funds...........................                   37                  20         32       1,848
    Federal funds...............................                   -7                  -9        -17         525
  Defense-Civil:
    Military retirement trust fund..............                7,431               5,059      6,439     152,772
    Harbor maintenance trust fund...............                  329           .........  .........       1,603
  Environmental Protection Agency:
    Hazardous substance trust fund..............                 -702                  32      1,565       6,190
    Leaking underground storage tank trust fund.                  225                 102        215       1,775
  International Assistance Programs:
    Overseas Private Investment Corporation.....                  241                 118         18       3,220
  Office of Personnel Management:
    Civil Service retirement and disability                    33,883              30,623     29,526     540,789
     trust fund.................................
    Employees life insurance fund...............                1,379                 979      1,321      23,055
    Employees health benefits fund..............                 -430                -226       -146       5,463
  Social Security Administration:
    Federal old-age and survivors insurance                   108,944             129,116    138,292   1,029,634
     trust fund \2\.............................
    Federal disability insurance trust fund \2\.               15,670              20,547     21,810     135,023
  Farm Credit System Insurance Corporation:
    Farm Credit Insurance Fund..................                   60                 143  .........       1,519
  Federal Deposit Insurance Corporation:
    Bank Insurance fund.........................                  914                 665  .........      29,024
    FSLIC Resolution fund.......................                  217                 531        -85       2,750
    Savings Association Insurance fund..........                  542                 391        374      10,909
  National Credit Union Administration: Share                     250                 490        450       5,068
   insurance fund...............................
  Postal Service fund \2\.......................                 -191           .........  .........         809
  Railroad Retirement Board trust funds \1\.....                  176               1,089        883      19,239
  Other Federal funds...........................                1,062                 175        456       7,572
  Other trust funds.............................                3,590                -210        203       8,631
  Unrealized discount \1\.......................                  376           .........  .........      -1,808
                                                 ---------------------------------------------------------------
      Total, investment in Treasury debt \1\....              219,353             237,401    253,499   2,463,426
                                                 ===============================================================
Investment in agency debt:
  Office of Personnel Management:
    Civil Service retirement and disability                    -3,283                 -83  .........         551
     trust fund.................................
                                                 ---------------------------------------------------------------
Total, investment in agency debt................               -3,283                 -83  .........         551
                                                 ===============================================================
Total, investment in Federal debt \1\...........              216,070             237,318    253,499   2,463,977
                                                 ===============================================================


[[Page 277]]


                   MEMORANDUM

Investment by Federal funds (on-budget).........                4,741               9,736      9,553     131,336
Investment by Federal funds (off-budget)........                 -191           .........  .........         809
Investment by trust funds (on-budget)...........               86,529              77,919     83,844   1,168,984
Investment by trust funds (off-budget)..........              124,615             149,663    160,102   1,164,657
Unrealized discount \1\.........................                  376           .........  .........      -1,808
----------------------------------------------------------------------------------------------------------------
\1\ Debt held by Government accounts is measured at face value except for the Treasury zero-coupon bonds held by
  the Nuclear Waste Disposal fund and the Railroad Retirement Board (Rail Industry Pension Fund), which are
  recorded at market or redemption price; and the unrealized discount on Government account series, which is not
  distributed by account. Changes are not estimated in the unamortized discount of the zero-coupon bonds or the
  unrealized discount. If recorded at face value, the debt held by the Nuclear Waste Disposal fund would be $7.3
  billion higher than recorded in this table at the end of 1999 and the debt held by the Railroad Retirement
  Board would be $7.1 billion higher.

\2\ Off-budget Federal entity.

   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 amount each year: a total of $434.4 
billion during 1999-2001, which constitutes 61 percent of the total 
estimated investment by Government accounts.
   In addition to these two funds, the largest investment is by the 
Federal employee retirement and disability trust funds. The principal 
trust fund for Federal civilian employees is the civil service 
retirement and disability trust fund, which accounts for 13 percent of 
the total investment by Government accounts during 1999-2001. The 
military retirement trust fund accounts for 3 percent. Altogether, 
social security and these two retirement funds account for 77 percent of 
the investment by all Government accounts during this period. At the end 
of 2001, they are estimated to own 75 percent of the total debt held by 
Government accounts. The largest other holdings are by the hospital 
insurance trust fund and the unemployment trust fund.
   Technical note on debt reclassifications.--Two holdings of debt have 
been reclassified from debt held by Government accounts to debt held by 
the public. Both involve deposit funds. Deposit funds are non-budgetary 
accounts that record amounts held by the Government temporarily until 
ownership is determined (such as earnest money paid by bidders for 
mineral leases) or held by the Government as an agent for others (such 
as State income taxes withheld from Federal employees' salaries and not 
yet paid to the States). Because the amounts are not owned by the 
Government, the transactions of deposit funds are not included in the 
unified budget receipts, outlays, and surplus or deficit, and the 
Treasury securities held by deposit funds have normally been included in 
debt held by the public rather than debt held by Government accounts. 
\12\
---------------------------------------------------------------------------
  \12\ Deposit funds are further discussed in a section of chapter 24, 
``Budget System and Concepts and Glossary.''
---------------------------------------------------------------------------
   The first reclassification was from applying this dividing line more 
consistently. Since 1977, two or three deposit funds have been 
classified as Government accounts, the largest being for Outer 
Continental Shelf receipts whose ownership was in dispute. The Treasury 
securities held by these deposit funds have been reclassified as debt 
held by the public, rather than debt held by Government accounts, and 
the historical data have been revised retroactively to 1977. The amount 
reclassified as of September 30, 1999, was $1,742 million.
   Second, Indian tribal funds that are owned by Indian tribes and held 
and managed by the Government in a fiduciary capacity on the tribes' 
behalf were reclassified from trust funds (within the budget) to deposit 
funds as of October 1, 1999, and their holdings of Treasury securities 
were accordingly reclassified from debt held by Government accounts to 
debt held by the public. The amount of the securities reclassified was 
$355 million, which, as noted in footnote 4 to table 12-2, means that 
the decrease in publicly held debt in 2000 will be $355 million less 
than the repayment of debt. The change in classification is explained in 
chapter 15, ``Trust Funds and Federal Funds.''
   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 are two 
kinds of exceptions. First, in 1991, Treasury began to issue zero-coupon 
bonds to a very few Government accounts. Because the purchase price is a 
small fraction of par value and the amounts are large, the holdings are 
recorded in table 12-4 at purchase price plus amortized discount. The 
only two Government accounts currently affected are the Nuclear Waste 
Disposal fund in the Department of Energy, and the Rail Industry Pension 
fund under the Railroad Retirement Board. The total unamortized discount 
of these zero-coupon bonds was $8.5 billion at the end of 1999.
   Second, in September 1993 Treasury 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 zero-coupon bonds or for any debt held 
by the public, this discount is the amount

[[Page 278]]

at the time of issue and is not amortized over the term of the security. 
In Table 12-4 it is shown as a separate item at the end of the table and 
not distributed by account. The amount was $1.8 billion at the end of 
1999.

                       Limitations on Federal Debt

   Definition of debt subject to limit.--Statutory limitations have 
usually 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. This 
last 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 middle part of Table 12-2 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). The FFB 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 $114 million at the end of 1999. 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.
   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 measurement 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 6 to Table 12-2. The amount is relatively small: $5.5 billion 
at the end of 1999 compared to the total discount (less premium) of 
$78.7 billion on all Treasury securities.

   Methods of changing the debt limit.--The statutory debt limit has 
frequently been changed. Since 1960, Congress has passed 68 separate 
acts to raise the limit, extend the duration of a temporary increase, or 
revise the definition. \13\
---------------------------------------------------------------------------
  \13\ The Acts and the statutory limits since 1940 are enumerated in 
Historical Tables, Budget of the United States Government, table 7.3.
---------------------------------------------------------------------------
   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

[[Page 279]]

$5,950 billion. According to the estimates in Table 12-2, the debt limit 
will not be reached until 2004.

   Federal funds financing and the change in debt subject to limit.--The 
change in debt held by the public, as shown in Table 12-2, 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.

                                    Table 12-5. FEDERAL FUNDS FINANCING AND CHANGE IN DEBT SUBJECT TO STATUTORY LIMIT
                                                                (In billions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                    Estimate
                       Description                        1999 -----------------------------------------------------------------
                                                                     actual                2000       2001       2002       2003       2004       2005
--------------------------------------------------------------------------------------------------------------------------------------------------------
Federal funds surplus or deficit (-)....................               -88.3               -57.6      -57.3      -71.8      -77.6      -74.3      -72.5

Means of financing other than borrowing:
  Change in: \1\
    Treasury operating cash balance.....................               -17.6                16.5   .........  .........  .........  .........  .........
    Checks outstanding, etc. \2\........................                -4.3                -2.3       -1.0   .........  .........  .........  .........
    Deposit fund balances \3\...........................                 0.1            .........  .........  .........  .........  .........  .........
  Seigniorage on coins..................................                 1.0                 1.4        1.6        1.6        1.6        1.6        1.6
  Less: Net financing disbursements:
    Direct loan financing accounts......................               -18.6               -28.9      -17.7      -17.6      -17.2      -15.7      -15.6
    Guaranteed loan financing accounts..................                 5.2                 0.4        1.3        1.4        1.5        1.6        1.7
      Total, means of financing other than borrowing....               -34.1               -12.6      -15.8      -14.6      -14.2      -12.5      -12.3
                                                         ===============================================================================================
Decrease or increase (-) in Federal debt held by Federal                -4.9                -9.8       -9.6   .........  .........  .........  .........
 funds..................................................
Increase or decrease (-) in Federal debt not subject to                 -0.8                -0.5       -0.7       -0.8       -1.1       -0.9       -1.8
 limit..................................................
                                                         ===============================================================================================
    Total, requirement for Federal funds borrowing                     128.1                80.4       83.3       87.2       92.9       87.7       86.6
     subject to debt limit..............................
                                                         ===============================================================================================
Adjustment for change in discount or premium \4\........                 0.1            .........  .........  .........  .........  .........  .........
Adjustment for reclassification of debt.................  ............................       0.4   .........  .........  .........  .........  .........
Increase in debt subject to limit.......................               128.2                80.7       83.3       87.2       92.9       87.7       86.6

                        ADDENDUM

Debt subject to statutory limit \5\.....................             5,567.7             5,648.4    5,731.7    5,818.6    5,911.5    5,999.2    6,085.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ A decrease in the Treasury operating cash balance (which is an asset) would be a means of financing the deficit and therefore would have 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 offsets, 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.
\4\ 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.
\5\ The statutory debt limit is $5,950 billion.

   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 making grants to State governments 
for highway construction. \14\
---------------------------------------------------------------------------
  \14\ For further discussion of the trust funds and Federal funds 
groups, see chapter 15, ``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. Very little 
debt subject to statutory limit is issued for other reasons. The change 
in debt subject to limit is therefore determined primarily by the 
Federal funds deficit, which is equal to the difference between the 
total Government surplus and the trust fund surplus.
   Table 12-5 derives the change in debt subject to limit. In 2001 the 
Federal funds deficit is estimated to be $57.3 billion, and other 
factors increase the requirement to borrow subject to limit by $26.0 
billion. The largest other factor ($17.7 billion) 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 ($9.6 billion) 
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 $83.3 billion, in 
contrast to a $170.9 billion decrease in debt held by the public.
   The budget surplus or deficit equals the sum of the Federal funds 
surplus or deficit and the trust fund surplus or deficit. The trust 
funds currently have a large surplus, as they have had for a number of 
years, and it is estimated to grow throughout the projection period.

[[Page 280]]

The Federal funds, in contrast, as shown in Table 12-5, continue to have 
a deficit every year over this period. Mainly because of the Federal 
funds deficit, the debt subject to limit continues to increase every 
year while the debt held by the public decreases. This can be seen by 
comparing the annual increase in debt subject to limit in Table 12-5 
with the annual decrease in debt held by the public in Table 12-2. In 
2005, for example, when the Government has a $215.4 billion total 
surplus and the debt held by the public decreases by $203.2 billion, the 
debt subject to limit increases by $86.6 billion. From the end of 1999 
to 2005, debt held by the public decreases by $1,055 billion while debt 
subject to limit increases by $518 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 12-6, foreign holdings were just over 
$10.0 billion, less than 5 percent of the total Federal debt held by the 
public.

                                                      Table 12-6. FOREIGN HOLDINGS OF FEDERAL DEBT
                                                              (Dollar amounts in billions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Debt held by the public         Borrowing from the       Interest on debt held by the
                                                          ----------------------------------          public                        public
                       Fiscal year                                                          ------------------------------------------------------------
                                                            Total   Foreign \1\  Percentage                                                   Percentage
                                                                                   foreign   Total \2\   Foreign \1\  Total \3\  Foreign \4\    foreign
--------------------------------------------------------------------------------------------------------------------------------------------------------
1965.....................................................    260.8       12.3          4.7         3.9         0.3         9.6         0.5          4.9
1966.....................................................    263.7       11.6          4.4         2.9        -0.7        10.1         0.5          5.1
1967.....................................................    266.6       11.4          4.3         2.9        -0.2        11.1         0.6          5.1
1968.....................................................    289.5       10.7          3.7        22.9        -0.7        11.9         0.7          5.6
1969.....................................................    278.1       10.3          3.7        -1.3        -0.4        13.5         0.7          5.3

1970.....................................................    283.2       14.0          5.0         3.5         3.8        15.4         0.8          5.5
1971.....................................................    303.0       31.8         10.5        19.8        17.8        16.2         1.3          7.9
1972.....................................................    322.4       49.2         15.2        19.3        17.3        16.8         2.4         14.2
1973.....................................................    340.9       59.4         17.4        18.5        10.3        18.7         3.2         17.2
1974.....................................................    343.7       56.8         16.5         2.8        -2.6        22.7         4.1         17.9

1975.....................................................    394.7       66.0         16.7        51.0         9.2        25.0         4.5         18.2
1976.....................................................    477.4       69.8         14.6        82.2         3.8        29.3         4.4         15.1
TQ.......................................................    495.5       74.6         15.1        18.1         4.9         7.8         1.2         14.9
1977.....................................................    549.1       95.5         17.4        53.6        20.9        33.8         5.1         15.0
1978.....................................................    607.1      121.0         19.9        58.0        25.4        40.2         7.9         19.5
1979 \5\.................................................    640.3      120.3         18.8        33.2        -0.7        49.9        10.7         21.5

1980.....................................................    711.9      121.7         17.1        71.6         1.4        62.8        11.0         17.5
1981.....................................................    789.4      130.7         16.6        77.5         9.0        81.7        16.4         20.1
1982.....................................................    914.6      140.6         15.2       135.2         9.9       101.2        18.7         18.5
1983.....................................................  1,137.3      160.1         14.1       212.7        19.5       111.6        19.2         17.2
1984.....................................................  1,307.0      175.5         13.4       169.7        15.4       133.5        20.3         15.2

1985 \5\.................................................  1,507.4      222.9         14.8       200.3        47.4       152.9        23.0         15.1
1986.....................................................  1,740.8      265.5         15.3       233.4        42.7       159.3        24.2         15.2
1987.....................................................  1,889.9      279.5         14.8       149.2        14.0       160.4        25.7         16.0
1988.....................................................  2,051.8      345.9         16.9       161.9        66.4       172.3        29.9         17.4
1989.....................................................  2,191.0      394.9         18.0       139.1        49.0       189.0        37.1         19.6

1990 \5\.................................................  2,411.8      440.3         18.3       220.9        45.4       202.4        40.2         19.9
1991.....................................................  2,689.3      477.3         17.7       277.5        37.0       214.8        41.3         19.2
1992.....................................................  3,000.1      535.2         17.8       310.8        57.9       214.5        39.3         18.3
1993.....................................................  3,248.8      591.3         18.2       247.4        56.1       210.2        39.0         18.6
1994.....................................................  3,433.4      655.8         19.1       184.7        64.5       210.6        41.9         19.9

1995 \5\.................................................  3,604.8      800.4         22.2       171.3       144.6       239.2        54.5         22.8
1996.....................................................  3,734.5      978.1         26.2       129.7       177.7       246.6        63.7         25.8
1997.....................................................  3,772.8    1,218.2         32.3        38.3       240.0       250.8        84.2         33.6
1998.....................................................  3,721.6    1,216.9         32.7       -51.2        -1.2       250.0        91.3         36.5
1999.....................................................  3,632.9    1,281.3         35.3       -88.7        57.1       234.9        92.7         39.5

--------------------------------------------------------------------------------------------------------------------------------------------------------
\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 interest on public debt received by other 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; increased the estimated foreign holdings as of
  December 1984 and December 1989; and reduced the estimated holdings as of December 1994. 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, 1989, and 1995 reflects the benchmark revision as
  well as the net purchases of Federal debt securities.

   Foreign holdings began to grow significantly starting in 1970. This 
increase has been almost entirely due to foreign decisions, both 
official and private, rather

[[Page 281]]

than the direct marketing of these securities to foreign residents. At 
the end of fiscal year 1999 foreign holdings of Treasury debt were 
$1,281.3 billion, which was 35 percent of the total debt held by the 
public. \15\ Foreign central banks owned 43 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.
---------------------------------------------------------------------------
  \15\ The amounts of debt reported by the Bureau of Economic Analysis, 
Department of Commerce, are different, but similar in size, due to a 
different method of valuing the securities.
---------------------------------------------------------------------------
   Although the amount of Federal debt held by foreign residents grew 
greatly over this period, the proportion they own, after growing 
abruptly in the very early 1970s, did not change much again until about 
1995. During 1995-97, however, foreign holdings increased on average by 
about $200 billion each year, considerably more than total Federal 
borrowing from the public. \16\ As a result, the Federal debt held by 
individuals and institutions within the United States decreased in 
absolute amount during those years, and the percentage of Federal debt 
held by foreign residents grew from 19 percent at the end of 1994 to 32 
percent at the end of 1997. The rapid growth of foreign debt holdings 
ceased in 1998 and turned into a slight decline, almost the only year 
with a decrease since 1970. In 1999, the debt held by foreigners 
increased again. Because total debt held by the public decreased in 1998 
and 1999, the percentage held by foreigners continued to rise in both 
years.
---------------------------------------------------------------------------
  \16\ Table 12-6 shows foreign holdings increasing by only $144.6 
billion in 1995. However, as explained in footnote 5 to that table, a 
benchmark revision reduced the estimated holdings as of December 1994 
(by $47.9 billion). Because debt estimates were not revised 
retroactively, the increase in 1995 was more than the table shows. 
Before the benchmark revision, the increase was estimated to be $192.6 
billion.
---------------------------------------------------------------------------
   Foreign holdings of Federal debt are about one-fifth of the foreign-
owned assets in the United States. 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, and thus 
affects the market for Federal debt. For example, the capital inflow 
includes deposits in U.S. financial intermediaries that themselves buy 
Federal debt.

  Federal, Federally Guaranteed, and Other 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. The Government 
guarantees borrowing by private and other non-Federal lenders, which is 
another term for guaranteed lending. In addition to its guarantees, it 
has established private corporations called ``Government-sponsored 
enterprises,'' or GSEs, to provide financial intermediation for 
specified public purposes; it 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 programs and other forms of assistance are discussed 
in chapter 8, ``Credit and Insurance.'' Detailed data are presented in 
tables at the end of that chapter. Table 12-7 brings together the totals 
of Federal and federally guaranteed 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 
guaranteed 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. Tables 8-11 and 8-12 in 
chapter 8 summarize GSE borrowing and lending.
   Table 12-7 shows that the participation rate for Federal and 
federally guaranteed borrowing trended strongly upward from the 1960s to 
the early 1990s, though with cyclical variation. The trend was dominated 
by Federal borrowing to finance the growing deficit. Federally 
guaranteed borrowing, though much larger in absolute terms in 1990 than 
1965, was smaller as a percentage of total new borrowing in the credit 
market. The participation rate has declined sharply since the early 
1990s due to the budget surplus and was a negative amount in 1999. These 
results do not reflect the credit assistance that the Federal Government 
provides by other means.

[[Page 282]]



                                    Table 12-7.  FEDERAL AND FEDERALLY GUARANTEED PARTICIPATION IN THE CREDIT MARKET
                                                              (Dollar amounts in billions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                   Actual                                                   Estimate
                                    --------------------------------------------------------------------------------------------------------------------
                                       1965     1970     1975     1980     1985     1990     1995     1996     1997     1998     1999     1999     2000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total net borrowing in credit           66.8     88.2    169.6    336.9    829.3    704.1    720.4    727.1    713.5    975.3  1,091.4  .......  .......
 market \1\........................
                                    --------------------------------------------------------------------------------------------------------------------
Federal borrowing from the public..      3.9      3.5     51.0     71.6    200.3    220.9    171.3    129.7     38.3    -51.2    -88.7   -157.1   -170.9
Guaranteed borrowing...............      5.0      7.8      8.6     31.6     21.6     40.7     26.2     89.9     57.8     58.5     60.8     93.6     94.9
                                    --------------------------------------------------------------------------------------------------------------------
  Total, Federal and federally           8.9     11.3     59.6    103.2    221.9    261.6    197.5    219.6     96.1      7.3    -27.9    -63.5    -76.0
   guaranteed borrowing............
Borrowing participation rate            13.3     12.8     35.1     30.6     26.8     37.2     27.4     30.2     13.5      0.7     -2.6  .......  .......
 (percent).........................
                                    ====================================================================================================================
Total net lending in credit market      66.8     88.2    169.6    336.9    829.3    704.1    720.4    727.1    713.5    975.3  1,091.4  .......  .......
 \1\...............................
                                    --------------------------------------------------------------------------------------------------------------------
Direct loans.......................      2.0      3.0     12.7     24.2     28.0      2.8      1.6      4.0     12.8      6.8     13.4     14.1      9.9
Guaranteed loans...................      5.0      7.8      8.6     31.6     21.6     40.7     26.2     89.9     57.8     58.5     60.8     93.6     94.9
                                    --------------------------------------------------------------------------------------------------------------------
  Total, Federal and federally           7.0     10.8     21.3     55.8     49.6     43.5     27.8     93.9     70.6     65.3     74.2    107.7    104.8
   guaranteed lending..............
Lending participation rate              10.5     12.2     12.6     16.6      6.0      6.2      3.9     12.9      9.9      6.7      6.8  .......  .......
 (percent).........................
--------------------------------------------------------------------------------------------------------------------------------------------------------
\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, because financial intermediaries borrow in the credit market primarily 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.

