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

      ======================================================================

                           FEDERAL BORROWING AND DEBT

      ======================================================================

    [[Page 225]]

                         12.  FEDERAL BORROWING AND DEBT

      Debt is the largest legally binding obligation of the Federal
    Government. At the end of 2000, the Government owed $3,410 billion of
    principal to the people who had loaned it the money to pay for past
    deficits. During that year, the Government paid the public around $233
    billion of interest on this debt.

      After 28 consecutive years of deficits financed mainly by borrowing
    from the public, the Government had a $69 billion unified budget surplus
    in 1998. The surplus rose in the following two years, reaching $236
    billion in 2000. As a result, the Government reversed the many years of
    debt accumulation and repaid $363 billion of publicly held debt in the
    past three years. The budget estimates that debt will be reduced by $236
    billion this year and by a historic $2.0 trillion over the following
    decade. This will be a debt milestone for the nation. Under the
    assumptions in this budget, a larger debt reduction would be made
    difficult by the marketable securities that will not have matured by the
    end of 2011 and by the various issues of non-marketable debt that will
    not have matured or that serve functions that continue to be needed.

                        Trends in Debt Since World War II

      Table 12-1 depicts trends in Federal debt held by the public from
    World War II to the present and estimates from the present to 2011. (It
    is supplemented for earlier years by tables 7.1-7.3 in Historical
    Tables, which is published as a separate volume of the budget.) As this
    table shows, Federal debt peaked at 108.6 percent of Gross Domestic
    Product (GDP) in 1946, just after the end of the war. 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 large amounts to buy homes and consumer
    durables, and with businesses borrowing large amounts 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 Federal debt relative to GDP and credit
    market debt stopped declining after the middle of the decade. The growth
    of Federal debt accelerated in the 1980s, and the ratio of Federal debt
    to GDP grew sharply. The ratio of Federal debt to credit market debt
    also rose, though to a much lesser extent. Interest outlays on debt held
    by the public, calculated as a percentage of either total Federal
    outlays or GDP, increased as well.
      The growth of Federal debt held by the public was decelerating by the
    mid-1990s, however, and the debt has declined markedly relative to both
    GDP and total credit market debt. It fell from 49.5 percent of GDP in
    1993 to 34.7 percent in 2000; and it fell more gradually and unevenly
    from 26.6 percent of total credit market debt in 1993 to 18.9 percent in
    2000. Interest on this debt, whether in absolute terms or relative to
    total outlays and GDP, has been declining as well. Interest as a share
    of outlays peaked at 16.5 percent in 1989 and then fell to 13.0 percent
    by 2000.

                  Projected Trends in Debt Over the Next Decade

      This budget estimates a large surplus again this year, with a $236
    billion reduction in publicly held debt. (For the exact relationship
    between the unified budget surplus and the repayment of debt held by the
    public, see table 12-3 below and its explanation.) Over the following
    decade, as table 12-3 shows below, the surpluses (including the
    contingency reserve) are estimated to remain at roughly similar levels
    for several years and then to grow larger. As a result, the debt held by
    the public is estimated to decline from $3.2 trillion at the end of 2001
    to $1.2 trillion at the end of 2011, a historic $2.0 trillion reduction.
    By the end of 2011 debt held by the public is estimated to be 6.7
    percent of GDP, the lowest percentage since shortly after the United
    States entered the First World War in 1917. Interest on this debt is
    estimated to be only 3.3 percent of total outlays \1\ and to equal only
    0.5 percent of GDP. \2\ These percentages are about one-quarter of the
    percentages in 2000.
    ---------------------------------------------------------------------------
      \1\ This measure excludes the earnings on excess balances. If the
    latter were included, interest would be only 1.3 percent of total
    outlays.
      \2\ The macroeconomic assumptions behind these projections are
    reviewed in chapter 1 of this volume, ``Economic Assumptions.'' The
    uncertainty in budget projections is discussed in A Blueprint for New
    Beginnings: A Responsible Budget for America's Priorities (February
    2001), pp. 14-16.
    ---------------------------------------------------------------------------
      Large though this debt reduction is, its size is limited by the amount
    of available debt that can reasonably be redeemed. As table 12-2 shows,
    $1,158 billion of publicly held debt is estimated by the Office of
    Management and Budget to remain at the end of 2011. The budgetary
    assumptions behind these estimates do not prejudge future debt
    management decisions.

      At the end of February, $529 billion of Treasury bonds were
    outstanding that will not mature until after 2011. As of April, Treasury
    is continuing to sell new 30-year bonds. It is also selling new 10-year
    notes, and

    [[Page 226]]

                                                     Table 12-1.  TRENDS IN FEDERAL DEBT HELD BY THE PUBLIC
                                                                  (Dollar amounts in billions)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           Current dollars                          Debt held by the    Interest on the debt
                                                                ------------------------------------  Debt held    public as a percent   held by the public
                                                                                                        by the             of:          as a percent of: \3\
                            Fiscal year                          Debt held                            public: FY -------------------------------------------
                                                                   by the     Excess        Net          1996                  Credit
                                                                   public    balances  indebtedness  dollars \1\     GDP       market     Total       GDP
                                                                                                                              debt \2\   outlays
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    1946.......................................................      241.9  .........        241.9      1,728.3       108.6        N/A        7.4        1.8
    1950.......................................................      219.0  .........        219.0      1,270.7        80.1       53.3       11.4        1.8
    1955.......................................................      226.6  .........        226.6      1,154.9        57.3       43.2        7.6        1.3
    1960.......................................................      236.8  .........        236.8      1,070.7        45.6       33.8        8.5        1.5

    1965.......................................................      260.8  .........        260.8      1,102.4        37.9       26.9        8.1        1.4
    1970.......................................................      283.2  .........        283.2        994.2        28.0       20.8        7.9        1.5
    1975.......................................................      394.7  .........        394.7      1,020.6        25.3       18.4        7.5        1.6
    1980.......................................................      711.9  .........        711.9      1,271.6        26.1       18.5       10.6        2.3

    1985.......................................................    1,507.4  .........      1,507.4      2,051.0        36.4       22.3       16.2        3.7
    1986.......................................................    1,740.8  .........      1,740.8      2,313.1        39.5       22.6       16.1        3.6
    1987.......................................................    1,889.9  .........      1,889.9      2,444.1        40.7       22.3       16.0        3.5
    1988.......................................................    2,051.8  .........      2,051.8      2,569.3        40.9       22.2       16.2        3.4
    1989.......................................................    2,191.0  .........      2,191.0      2,641.9        40.5       22.0       16.5        3.5

    1990.......................................................    2,411.8  .........      2,411.8      2,803.0        42.1       22.6       16.2        3.5
    1991.......................................................    2,689.3  .........      2,689.3      3,008.3        45.3       24.1       16.2        3.6
    1992.......................................................    3,000.1  .........      3,000.1      3,270.0        48.2       25.7       15.5        3.4
    1993.......................................................    3,248.8  .........      3,248.8      3,458.8        49.5       26.6       14.9        3.2
    1994.......................................................    3,433.4  .........      3,433.4      3,577.9        49.4       26.8       14.4        3.0

    1995.......................................................    3,604.8  .........      3,604.8      3,676.8        49.2       26.6       15.8        3.3
    1996.......................................................    3,734.5  .........      3,734.5      3,734.5        48.5       26.2       15.8        3.2
    1997.......................................................    3,772.8  .........      3,772.8      3,700.6        46.1       25.2       15.7        3.1
    1998.......................................................    3,721.6  .........      3,721.6      3,599.3        42.9       23.3       15.1        2.9
    1999.......................................................    3,632.9  .........      3,632.9      3,464.9        39.8       21.2       13.8        2.6

    2000.......................................................    3,410.1  .........      3,410.1      3,191.0        34.7       18.9       13.0        2.4
    2001 estimate..............................................    3,174.2  .........      3,174.2      2,908.2        30.8        N/A       11.6        2.1
    2002 estimate..............................................    2,946.8  .........      2,946.8      2,644.6        27.1        N/A       10.1        1.8
    2003 estimate..............................................    2,719.5  .........      2,719.5      2,390.5        23.8        N/A        9.2        1.6
    2004 estimate..............................................    2,473.2  .........      2,473.2      2,129.3        20.5        N/A        8.3        1.4

    2005 estimate..............................................    2,219.4  .........      2,219.4      1,871.4        17.5        N/A        7.2        1.2
    2006 estimate..............................................    1,928.2  .........      1,928.2      1,592.4        14.4        N/A        6.3        1.0
    2007 estimate..............................................    1,601.7  .........      1,601.7      1,295.6        11.4        N/A        5.3        0.9
    2008 estimate..............................................    1,403.9      161.5      1,242.3      1,112.5         9.5        N/A        4.5        0.7
    2009 estimate..............................................    1,278.7      442.8        835.9        992.4         8.2        N/A        4.0        0.6

    2010 estimate..............................................    1,207.9      824.0        383.9        918.0         7.3        N/A        3.5        0.6
    2011 estimate..............................................    1,157.7    1,287.2       -129.5        861.7         6.7        N/A        3.3        0.5
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    N/A = Not Available.

    \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 in a few early years 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 for 1946-2007 is estimated as the interest on Treasury debt securities less the ``interest received by trust
      funds'' (subfunction 901 less subfunctions 902 and 903). For 2008-2011, in order to maintain comparability with debt held by the public, it does not
      include interest earnings on excess balances, which are offsetting receipts within subfunction 901. The estimate of interest on debt held by the
      public does not include the comparatively small amount of interest paid on agency debt or the offsets for interest on Treasury debt received by other
      Government accounts (revolving funds and special funds).

    the maturity of 10-year notes sold after September will extend beyond
    2011. Regardless of the size of the surplus, these securities can be
    redeemed early only if Treasury can buy them back in the market. Some
    holders of these securities, especially those who place special value on
    the absence of any credit risk, will not be willing to sell them back to
    the Treasury except at premiums that are excessively high from the
    standpoint of the Federal Government. The Congressional Budget Office
    (CBO) agrees, noting in its January report that ``it is unlikely that
    all, or even a significant share, of the holders of those bonds will
    choose to sell them at prices that the government is willing to pay.''
    \3\
    ---------------------------------------------------------------------------
      \3\ CBO, The Budget and Economic Outlook: Fiscal Years 2002-2011
    (January 2001), page 15.
    ---------------------------------------------------------------------------
      A second group of Treasury securities that may not readily be
    redeemable consists of special purpose, non-marketable debt. Savings
    bonds, the largest component, are thought by many people to encourage
    private saving by small savers in a convenient and safe investment
    vehicle. Furthermore, even if the Government decided to terminate this
    program, many savings bonds, including those now being sold, do not
    mature until after 2011. State and local government series securities,
    the second largest type of non-marketable debt, are a way

    [[Page 227]]

                      Table 12-2.  NON-REDEEMABLE DEBT  \1\
                            (In billions of dollars)
    ------------------------------------------------------------------------
                                                                    Estimate
                                                                      2011
    ------------------------------------------------------------------------
    Marketable Treasury Debt: \2\
       Coupon issues
        (non-matured 10- and 30-year notes and bonds).............       677
       Inflation-indexed issues \3\
        (non-matured 10- and 30-year notes and bonds).............       113

    Non-Marketable Treasury Debt:
       Savings bonds..............................................       170
       State and local government series: securities used                 86
       temporarily to house proceeds of bond issues...............
       Foreign series: bonds that back debt in certain emerging           19
       markets, or ``Brady Bonds'' (mature during 2019-2023)......
       Domestic series: bonds that back REFCORP debt issued as            30
       part of the Savings and Loan association clean-up (mature
       during 2019-2030)..........................................
       Government account series: Thrift Savings Fund (defined-           76
       contribution pension plan for Federal civilian employees)..
       Unamortized discounts and premiums (primarily for zero-           -33
       coupon bonds in the foreign and domestic series)...........

    Agency Debt:
       Tennessee Valley Authority and other agencies..............        20

        Total.....................................................     1,158
    ------------------------------------------------------------------------
    \1\ Types of debt securities are shown at par values.The total of $1,158
      billion includes an adjustment for unamortized discounts and premiums,
      which is consistent with the measurement of debt held by the public.
    \2\ This table includes estimates for Treasury buybacks of outstanding
      securities only through FY 2001. These estimates assume that Treasury
      will buy back $35 billion (face value) of securities in FY 2001.
    \3\ Includes indexation adjustments based on the economic assumptions
      for this budget.

    for state and local governments to invest bond proceeds temporarily. The
    interest rate that states and localities pay on their bonds is reduced
    by Federal income tax exemption, and Federal legislation restricts them
    from earning arbitrage profits by investing bond proceeds in higher
    yielding investments. Other non-marketable Treasury securities with long
    maturities were issued to back-up certain debt that was issued to
    resolve financial problems among savings and loan associations, or to
    back-up debt in the emerging markets of a few foreign countries. Still
    other non-marketable securities were sold to the Thrift Savings Fund, a
    defined-contribution pension plan for Federal civilian employees, which
    offers investment in Treasury securities as one option.
      In addition to Treasury securities, Federal debt includes a small
    amount of securities issued by a few Federal agencies. These securities
    may not readily be redeemed and in some cases, as discussed in a later
    section, are inherent in the way the program operates.
      It is impossible to know with confidence how much non-redeemable debt
    will remain in 2008, when for the first time the surplus is estimated to
    be larger than the maturing debt, or how much will remain in 2011. That
    will depend on many debt management decisions that have not yet been
    made and will not be made until the appropriate future occasions. The
    budget therefore makes a number of simplified assumptions that are not
    intended to prejudge future debt management decisions. Marketable coupon
    securities are discontinued after 2005. All bonds that are callable
    prior to maturity are called on the first call date. Treasury buys back
    $35 billion of bonds in 2001; consistent with previous budget documents,
    estimates are not made of buybacks in later years. Savings bonds decline
    slightly, and the state and local government series declines
    significantly.
      The Congressional Budget Office has also estimated the debt not
    available for redemption. Their latest estimates, published in January
    2001, project that $818 billion of publicly held debt would be
    unavailable for redemption at the end of 2011. \4\ Compared to the
    assumptions in the budget, CBO assumes that marketable notes and bonds
    will be discontinued earlier and buybacks will continue beyond 2001.
    They project ``that the Treasury will continue its buyback program at
    approximately the current level through next year but that after 2002,
    the amount of debt it repurchases will dwindle.'' \5\
    ---------------------------------------------------------------------------
      \4\ Ibid., pages 14-15.
      \5\ Ibid., page 15.
    ---------------------------------------------------------------------------
      Based on the budget estimates, the surplus eventually exceeds the debt
    that can be redeemed in the same year--what happens to the difference?
    This budget does not make any assumption about how the difference is
    held and simply calls it ``excess balances,'' a term that does not have
    any connotations about how the amounts are held. \6\ It uses the term
    ``net indebtedness'' for the difference between debt held by the public
    and excess balances. Excess balances start in 2008 and grow to $1.3
    trillion in 2011, when net indebtedness becomes negative.
    ---------------------------------------------------------------------------
      \6\ The word ``excess'' means in excess of the amounts held for
    operational and programmatic purposes. Excess balances are assumed to
    earn interest. Because no institutional arrangements are assumed
    regarding how or whether the excess balances might be deposited or
    invested, the interest earnings on excess balances are included, as
    offsetting receipts, in the account ``interest on Treasury debt
    securities (gross).''
    ---------------------------------------------------------------------------
      The Government itself does not have any satisfactory way to hold these
    excess balances as assets. As the Administration stated in A Blueprint
    for New Beginnings: A Responsible Budget for America's Priorities
    (February 2001): ``The Administration believes that Government
    acquisition of the private economy is utterly unacceptable as a matter
    of principle. . . . [and] that Government investment of these
    uncommitted funds in private companies and securities would harm the
    economy's long run growth prospects.'' \7\ The Administration also
    believes that it would be impracticable to hold such large amounts in
    its accounts at the Federal Reserve Banks and other depositories. \8\
    Indeed, holding such amounts in the Federal Reserve would simply shift
    to it the need to invest in the private sector.
    ---------------------------------------------------------------------------
      \7\ A Blueprint for New Beginnings, page 13.
      \8\ Ibid., page 31.
    ---------------------------------------------------------------------------
      In fact, it should not be supposed that excess balances will ever
    actually be accumulated. The projections in this budget are for ten and
    one-half years, a long period with many inherent uncertainties. The
    budget has therefore set aside ``over $0.8 trillion in reserve funds
    that can be used for additional needs, contingency purposes, and further
    debt reduction if this became financially viable.'' \9\ The budget
    recognizes that a num

    [[Page 228]]

    ber of reasons could require the commitment of more resources, such as
    national defense and entitlement reforms, and that the debt buyback
    program may remain more cost-effective for some period of time. It also
    says that unneeded funds should be left with American workers through
    lower taxes in the future. \10\ To be realistic, any plan over ten years
    must allow for contingencies and other uncertainties in its construction
    and its interpretation. Excess balances are a recognition that the
    future is uncertain and many decisions will not be made until later
    years.
    ---------------------------------------------------------------------------
      \9\ Ibid., page 11 footnote. Also see table S-1 of the Budget for the
    place of the contingency reserve in a summary of the President's 10-year
    plan.
      \10\ See generally ibid., chapter III, especially pages 16-17.
    ---------------------------------------------------------------------------

    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. \11\ Second, it issues debt to Government accounts, primarily
    trust funds, that accumulate surpluses. By law, trust fund surpluses
    must generally be invested in Federal securities. The gross Federal debt
    is defined to consist of both the debt held by the public and the debt
    held by Government accounts. Nearly all the Federal debt has been issued
    by the Treasury and is sometimes called ``public debt,'' but a small
    portion has been issued by other Government agencies and is called
    ``agency debt.'' \12\
    ---------------------------------------------------------------------------
      \11\ 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.) When the measurement
    was changed, the data in Historical Tables were revised as far back as
    feasible, which was 1956. 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,
    pages 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.
      \12\ 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 12-4 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.
    ---------------------------------------------------------------------------
      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.
    \13\
    ---------------------------------------------------------------------------
      \13\ 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.
    ---------------------------------------------------------------------------
      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, interest receipts, and other collections compared
    to their spending. 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. The debt securities are a liability of
    the general fund to the fund that holds the securities and are a
    mechanism for that fund to accumulate interest on its balances. The fund
    can use these invested balances in later years to draw upon the U.S.
    Treasury to make future payments on its behalf to the public. 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 draw upon private saving and
    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; its interest does not have to be
    financed by taxes or other means; 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 in the program or the larger group of current
    participants plus the expected future participants over some stated time
    period. The future transactions of Federal social insurance and employee
    retirement programs, which own about three-fourths 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. \14\ Debt held by
    the public is therefore a better concept than gross Federal debt for
    analyzing the effect of the budget on the economy.
    ---------------------------------------------------------------------------
      \14\ 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 included annually in the Financial Report of the
    United States Government (formerly the Consolidated Financial
    Statements), prepared by the Financial Management Service of the
    Treasury Department.

      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 and payable
    as of the end of the month but, according to statute, are paid during
    the next month; loan guarantee liabil

    [[Page 229]]

                                                       Table 12-3.  FEDERAL GOVERNMENT FINANCING AND DEBT
                                                                    (In billions of dollars)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Estimate
                                                          Actual -------------------------------------------------------------------------------------------
                                                           2000    2001    2002    2003    2004    2005    2006    2007     2008     2009     2010     2011
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Financing:
      Unified budget surplus...........................      236     281     231     242     262     269     305     340      373      420      465      526
        On-budget surplus/reserve for contingencies \1\       87     125      59      49      52      32      52      69       85      117      142      184
        Off-budget surplus.............................      150     156     172     193     211     237     252     270      287      303      323      343
      Financing other than the change in debt held by
       the public:
        Premiums paid (-) on buybacks of Treasury             -6     -10  ......  ......  ......  ......  ......  ......  .......  .......  .......  .......
         securities \2\................................
        Changes in: \3\
          Treasury operating cash balance..............        4       3  ......  ......  ......  ......  ......  ......  .......  .......  .......  .......
          Checks outstanding, deposit funds, etc. \4\..        3      -*      -1  ......  ......  ......  ......  ......  .......  .......  .......  .......
        Seigniorage on coins...........................        2       2       2       2       2       2       2       2        2        2        2        2
        Less: Net financing disbursements:
          Direct loan financing accounts...............      -22     -39      -4     -17     -18     -17     -16     -16      -16      -16      -16      -15
          Guaranteed loan financing accounts...........        4      -1      -1       1      -*      -*       1       1        1        1        1        1
                                                        ----------------------------------------------------------------------------------------------------
            Total, financing other than the change in        -13     -45      -4     -15     -16     -15     -14     -13      -13      -13      -13      -13
             debt held by the public...................
                                                        ----------------------------------------------------------------------------------------------------
              Total, amount available to repay debt          223     236     227     227     246     254     291     326      359      406      452      513
               held by the public......................
        Change in debt held by the public: \5\ \6\
          Change in debt held by the public............     -223    -236    -227    -227    -246    -254    -291    -326     -198     -125      -71      -50
          Less change in excess balances...............  .......  ......  ......  ......  ......  ......  ......  ......     -162     -281     -381     -463
            Change in net indebtedness.................     -223    -236    -227    -227    -246    -254    -291    -326     -359     -406     -452     -513

    Debt Subject to Statutory Limitation, End of Year:
      Debt issued by Treasury..........................    5,601   5,598   5,637   5,698   5,759   5,832   5,890   5,932    6,118    6,395    6,749    7,140
      Adjustment for Treasury debt not subject to            -15     -15     -15     -15     -15     -15     -15     -15      -15      -15      -15      -15
       limitation and agency debt subject to limitation
       \7\.............................................
      Adjustment for discount and premium \8\..........        6       6       6       6       6       6       6       6        6        6        6        6
                                                        ----------------------------------------------------------------------------------------------------
        Total, debt subject to statutory limitation \9\    5,592   5,588   5,627   5,688   5,749   5,822   5,881   5,922    6,108    6,385    6,740    7,130

    Debt Outstanding, End of Year:
      Gross Federal debt: \10\
        Debt issued by Treasury........................    5,601   5,598   5,637   5,698   5,759   5,832   5,890   5,932    6,118    6,395    6,749    7,140
        Debt issued by other agencies..................       28      27      27      26      25      24      23      21       21       21       20       20
                                                        ----------------------------------------------------------------------------------------------------
          Total, gross Federal debt....................    5,629   5,625   5,664   5,724   5,784   5,856   5,913   5,953    6,138    6,415    6,770    7,160

    Held by:
      Debt securities held as assets by Government         2,219   2,451   2,717   3,004   3,310   3,636   3,985   4,352    4,735    5,137    5,562    6,002
       accounts........................................
      Debt securities held as assets by the public: \6\
        Debt held by the public........................    3,410   3,174   2,947   2,720   2,473   2,219   1,928   1,602    1,404    1,279    1,208    1,158
        Less excess balances...........................  .......  ......  ......  ......  ......  ......  ......  ......     -162     -443     -824   -1,287
          Net indebtedness \11\........................    3,410   3,174   2,947   2,720   2,473   2,219   1,928   1,602    1,242      836      384     -129
    --------------------------------------------------------------------------------------------------------------------------------------------------------
     *$500 million or less.
    \1\ The actual amount of annual debt retirement will vary depending upon the availability of eligible redeemable debt, and the use, if any, of the
      contingency reserve.
    \2\ This table includes estimates for Treasury buybacks of outstanding securities only through FY 2001.These estimates assume that Treasury will buy
      back $35 billion (face value) of securities in FY 2001.The premiums paid on buybacks are based on experience to date and the interest rates in the
      economic assumptions.
    \3\ A decrease in the Treasury operating cash balance (which is an asset) would be a means of financing a deficit and therefore has a positive sign.An
      increase in checks outstanding or deposit fund balances (which are liabilities) would also be a means of financing a deficit and therefore would also
      have a positive sign.
    \4\ Besides checks outstanding and deposit funds, includes accrued interest payable on Treasury debt, miscellaneous liability accounts, allocations of
      special drawing rights, and, as an offset, cash and monetary assets other than the Treasury operating cash balance, miscellaneous asset accounts, and
      profit on sale of gold.
    \5\ 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.Their holdings of Treasury securities were accordingly reclassified from debt
      held by Government accounts to debt held by the public, which affected the change in debt held by the public without affecting borrowing or the
      repayment of debt.
    \6\ The amount of the unified budget surplus that is available to repay debt held by the public is estimated to be more than the amount of debt that is
      available to be redeemed in 2008 and subsequent years.The difference is assumed to be held as ``excess balances.'' (``Excess'' means in excess of the
      amounts held for operational and programmatic purposes.) The debt held by the public is the amount of Federal debt securities held by the public. The
      net indebtedness is the debt held by the public less the excess balances.
    \7\ Consists primarily of Federal Financing Bank debt.
    \8\ 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.
    \9\ The statutory debt limit is $5,950 billion.
    \10\ Treasury securities held by the public and zero-coupon bonds held by Government accounts are almost entirely measured at sales price plus amortized
      discount or less amortized premium.Agency debt is almost entirely measured at face value.Treasury securities in the Government account series are
      measured at face value less unrealized discount (if any).
    \11\ At the end of 2000, the Federal Reserve Banks held $511 billion of Federal securities and the rest of the public held $2,899 billion.Debt held by
      the Federal Reserve Banks is not estimated for future years.

    ities 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 chap

    [[Page 230]]

    ter 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, prepared by the Treasury
    Department.

                     Government Surpluses and Debt Repayment

      Table 12-3 summarizes Federal borrowing and debt from 2000 through
    2011. In 2000 the Government repaid $223 billion of debt held by the
    public, and the debt outstanding decreased to $3,410 billion. The debt
    held by Government accounts increased $246 billion, and gross Federal
    debt increased by $23 billion to a level of $5,629 billion.
      Debt held by the public.--Table 12-3 shows the relationship between
    the Federal surplus and the repayment of debt held by the public. The
    repayment of publicly held debt depends on the Federal Government's
    expenditure programs and tax laws, on the economic conditions that
    influence tax receipts and outlays, and on debt management policy. The
    sensitivity of the budget to economic conditions is analyzed in chapter
    1 of this volume.
      The total or unified budget surplus consists of the on-budget surplus
    and the surplus of the off-budget Federal entities, which have been
    excluded from the budget by law. Under present law, the off-budget
    Federal entities are the social security trust funds (old-age and
    survivors insurance and disability insurance) and the Postal Service
    fund. \15\ The off-budget totals consist almost entirely of social
    security, which had a large surplus in 2000 and is estimated to have
    large and growing surpluses throughout the projection period. The on-
    budget surplus is labeled ``on-budget surplus/reserve for
    contingencies'' in table 12-3, because the budget has set aside $0.8
    trillion that can be used for additional needs and contingency purposes.
    To the extent it is used for such purposes, outlays would be higher or
    receipts lower than estimated for this table, and the realized on-budget
    surplus would be correspondingly lower.
    ---------------------------------------------------------------------------
      \15\ For further explanation of the off-budget Federal entities, see
    chapter 19, ``Off-Budget Federal Entities and Non-Budgetary
    Activities.''
    ---------------------------------------------------------------------------
      The Government's ability to repay debt held by the public depends not
    only on the size of the total surplus but also on two other
    considerations--financing other than the change in debt held by the
    public, and the availability of redeemable debt.
      Financing other than the change in debt held by the public.--The
    Government's ability to repay debt held by the public, or its need to
    borrow, has always depended on several other factors besides the unified
    budget surplus or deficit, such as the change in Treasury cash balances
    or, in recent years, the net financing disbursements of credit programs.
    As shown in table 12-3, these other factors--which in this table are
    called ``financing other than the change in debt held by 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 2000 the total surplus was $236 billion and the ``financing
    other than the change in debt held by the public'' was -$13 billion. As
    a result, the Government was able to repay $223 billion of publicly held
    debt. The sum of the surplus and the other financing is roughly stable
    over the next few years and then rises sharply, as a result of which the
    Government repays large and generally increasing amounts of debt each
    year until limited by the availability of redeemable debt.
      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 $882
    billion and the increase in debt held by the public was $998 billion.
    The other factors added a total of $116 billion of borrowing over that
    period, an average of $12 billion per year. The variation was wide,
    ranging from additional borrowing (or lower repayment) of $36 billion to
    reduced borrowing of $19 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, two other factors in the financing may be relatively large
    for extended periods. The first is premiums on debt buybacks--the excess
    of the price paid over the book value. As discussed earlier, the
    Treasury Department is buying back some outstanding bonds as part of its
    work to manage the reduction of the publicly held debt. The premiums at
    present are the result of interest rates having fallen since the bonds
    were sold and are recorded outside the budget totals as a separate entry
    in the ``financing other than the change in debt held by the public.''
    It is important to note, however, that the volume of buybacks to date
    has been small relative to the outstanding stock of debt. The premiums
    were $5.5 billion in 2000 on bonds with a book value of $21.2 billion
    and are estimated to be $10 billion in 2001, when buybacks are assumed
    to be made over the entire year. (Discounts would be recorded in the
    same way, if interest rates were to rise above the rates at the time of
    sale.) This classification is explained in a section of chapter 24,
    ``Budget System and Concepts and Glossary.''
      The second such factor was created by the Federal Credit Reform Act of
    1990. Budget outlays for direct loans and loan guarantees consist of the
    estimated sub

    [[Page 231]]

    sidy 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. \16\ The net cash flows of the financing accounts, including
    intragovernmental transactions as well as transactions with the public,
    are called ``net financing disbursements.'' They are defined in the same
    way as the ``outlays'' of a budgetary account and therefore affect the
    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.
    ---------------------------------------------------------------------------
      \16\ 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). The intragovernmental
    transactions do not affect Federal borrowing from the public. (Although
    the surplus or deficit changes, the net financing disbursement changes
    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 that are disbursed to the
    public in cash. 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 2000 they required $17 billion of
    financing, and thus reduced the repayment of debt by this amount; they
    are estimated to reduce debt repayment by $40 billion in 2001, by $5
    billion in 2002, and by $15-18 billion each year subsequently. The
    expansion from the early years was mainly because of the growth of the
    direct student loan program; the wide swings between 2000 and 2002 are
    due partly to the direct student loan program but even more to
    reestimates and recoveries on the loans that financed the sale of the
    spectrum. 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.
      Availability of redeemable debt.--A surplus can be used to reduce
    publicly held debt only to the extent that debt securities can be
    retired whether because they mature, the owners exercise a right to
    redeem them on demand (as in the case of savings bonds), the Treasury
    calls them (as it may do at stated dates for a few issues of bonds), or
    the Treasury buys them back. As discussed in an earlier section of this
    chapter, the budget estimates that by 2008 so much debt will have been
    repaid that the amount available for redemption in that year will be
    much less than the unified budget surplus. As the estimates in table 12-
    3 show, the surplus in 2008 is $373 billion and other financing
    requirements due to the factors discussed above are $13 billion, so $359
    billion is available to repay debt held by the public. However, only
    $198 billion of debt can be redeemed. Therefore, the remaining $162
    billion of the surplus is accumulated as ``excess balances.'' (The term
    ``excess'' means that the balances are in excess of the amounts held for
    operational and programmatic purposes.) In the following three years the
    amount of debt available to be redeemed diminishes, so despite growing
    surpluses the reduction in debt held by the public becomes progressively
    smaller.
      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 2000. In
    2002, for example, the total trust fund surplus is estimated to be $257
    billion, and Government accounts are estimated to invest $266 billion in
    Federal securities. The difference is mainly because some revolving
    funds and special funds also hold Federal debt. In addition, 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 12-5.

                                   Agency Debt

      Several Federal agencies, shown in table 12-4, sell debt securities to
    the public and at times in the past have sold securities to other
    Government accounts. During 2000, agencies repaid $0.2 billion to the
    public. Agency debt is only one percent of Federal debt held by the
    public. Agency borrowing and repayment of debt is estimated to remain
    small in 2001 and 2002.

      The reasons for issuing agency debt differ considerably from one
    agency to another. The predominate agency borrower is the Tennessee
    Valley Authority, which had borrowed $26.0 billion from the public as of
    the end of 2000, or 95 percent of the total for all agencies. TVA sells
    debt primarily to finance capital expenditures and to refund other
    issues of its existing debt.
      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

    [[Page 232]]

                                                 Table 12-4. AGENCY DEBT
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                           Borrowing or repayment (-) of
                                                                                        debt                Debt end
                                                                         ---------------------------------  of 2001
                                                                             2000       2001       2002     estimate
                                                                            Actual    Estimate   Estimate
    ----------------------------------------------------------------------------------------------------------------
    Borrowing from the public:
      Housing and Urban Development:
        Federal Housing Administration..................................        112        -84  .........        143

      Small Business Administration:
        Participation certificates: Section 505 development company.....  .........  .........  .........          7

      Architect of the Capitol..........................................         -2         -2         -3        168
       Farm Credit System Financial Assistance Corporation..............        -89  .........  .........        775
      Federal Communications Commission.................................        125  .........       -125  .........

      Federal Deposit Insurance Corporation:
        FSLIC Resolution Fund...........................................  .........  .........  .........         63

      National Archives.................................................         -6         -6         -7        258
      Tennessee Valley Authority........................................       -390       -452       -208     25,327
                                                                         -------------------------------------------
    Total, borrowing from the public....................................       -249       -545       -343     26,741
                                                                         ===========================================

    Borrowing from other funds:
      Postal Service Fund \1\...........................................       -583        -51  .........  .........
                                                                         -------------------------------------------
        Total, borrowing from other funds...............................       -583        -51  .........  .........
                                                                         ===========================================
        Total, agency borrowing.........................................       -832       -596       -343     26,741
    ----------------------------------------------------------------------------------------------------------------
    \1\ The Postal Service debt held by other funds is the result of the FFB swapping Postal Service 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.

    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. \17\
    ---------------------------------------------------------------------------
      \17\ 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 subsequently 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.\18\ However, no lease-purchase
    agreements in which the Government assumes substantial risk have yet
    been authorized or are estimated for 2001 or 2002. 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.
    ---------------------------------------------------------------------------
      \18\ The rule was not only about lease-purchases in which the
    Government assumes substantial risk. For all lease-purchases and other
    capital leases, the rule required that budget authority be recorded up
    front for the present value of these payments.
    ---------------------------------------------------------------------------
      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 five 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 most of the Postal Service securities acquired
    by CSRDF were redeemed before this year, but the remaining Postal
    Service securities

    [[Page 233]]

    are included in gross Federal debt shown in table 12-3, are included in
    table 12-4 as amounts that agencies borrowed from other funds, and are
    included in table 12-5 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
    the remaining Postal Service securities held by CSRDF will be redeemed
    in 2001, at which time CSRDF will invest the principal repayment in
    Treasury securities. \19\
    ---------------------------------------------------------------------------
      \19\ 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, pages 222 and
    225.
    ---------------------------------------------------------------------------

                        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 $246 billion in 2000, as shown
    in table 12-5, and it is estimated to be $266 billion in 2002. The
    holdings of Federal securities by Government accounts are estimated to
    grow to $2.7 trillion billion by the end of 2002, or 48 percent of the
    gross Federal debt. This percentage is estimated to rise further in the
    following years as the budget surpluses reduce the debt held by the
    public and the trust funds continue to accumulate surpluses. By 2011,
    debt held by Government accounts is estimated to be 84 percent of the
    gross Federal debt.
      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 $486
    billion during 2000-02, which is 65 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 2000-02. The military
    retirement trust fund accounts for 2 percent. Altogether, social
    security and these two retirement funds account for 80 percent of the
    investment by all Government accounts during this period. At the end of
    2002, they are estimated to own 76 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.--A small part of gross
    Federal debt was reclassified in 1999 from debt held by Government
    accounts to debt held by the public as the result of reclassifying some
    investments from trust funds (within the budget) to 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. \20\
    ---------------------------------------------------------------------------
      \20\ Deposit funds are further discussed in a section of chapter 24,
    ``Budget System and Concepts and Glossary.''
    ---------------------------------------------------------------------------
      The reclassified funds were Indian tribal funds that are owned by
    Indian tribes and held and managed by the Government in a fiduciary
    capacity on the tribes' behalf. They were reclassified 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 5 to table 12-3, means that the
    decrease in publicly held debt in 2001 was $355 million less than the
    amount available to repay debt. The reason for the change in
    classification is explained in chapter 15, ``Trust Funds and Federal
    Funds,'' in Analytical Perspectives, Budget of the United States
    Government, Fiscal Year 2001 (pages 347-51).

    [[Page 234]]

                                    Table 12-5. DEBT HELD BY GOVERNMENT ACCOUNTS \1\
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                         Investment or disinvestment (-)   Holdings
                                                                        ---------------------------------   end of
                                Description                                 2000       2001       2002       2002
                                                                           Actual    Estimate   Estimate   estimate
    ----------------------------------------------------------------------------------------------------------------
    Investment in Treasury debt:
      Energy:
        Nuclear waste disposal fund \1\................................      1,301      1,034      1,140      11,409
        Uranium enrichment decontamination fund........................        509        418        491       3,072
      Health and Human Services:
        Federal hospital insurance trust fund..........................     15,092     28,319     33,692     230,870
        Federal supplementary medical insurance trust fund.............     18,547     -5,601       -202      39,272
        Vaccine injury compensation trust fund.........................        146        103        113       1,793
      Housing and Urban Development:
        Federal Housing Administration mutual mortgage fund............      2,318        500      4,000      21,760
        Other HUD......................................................        205        420        439       7,055
      Interior: Abandoned Mine Reclamation fund........................         82        -22        139       1,964
      Labor:
        Unemployment trust fund........................................      9,042      6,462      6,668      99,529
        Pension Benefit Guaranty Corporation...........................      1,204      1,109      1,603      13,212
      State: Foreign Service retirement and disability trust fund......        527        533        543      11,734
      Transportation:
        Highway trust fund.............................................      2,940      1,601        103      32,727
        Airport and airway trust fund..................................        683      2,536      1,066      16,699
        Oil spill liability trust fund.................................        136        -92       -142         965
        Aquatic resources trust fund...................................         43         -8         96       1,280
      Treasury: Exchange stabilization fund............................     -4,204       -998  .........      10,031
      Veterans Affairs:
        National service life insurance trust fund.....................       -149       -243       -327      11,234
        Other trust funds..............................................         44         24         30       1,894
        Federal funds..................................................         -8        -15        -18         510
      Defense-Civil:
        Military retirement trust fund.................................      8,074      2,640      6,190     158,178
        Harbor maintenance trust fund..................................         67  .........        162       1,833
      Environmental Protection Agency:
        Hazardous substance trust fund.................................       -467       -475       -430       3,221
        Leaking underground storage tank trust fund....................        211        176        213       2,058
      International Assistance Programs:
        Overseas Private Investment Corporation........................         43         46        132       3,305
      Office of Personnel Management:
        Civil Service retirement and disability trust fund \3\.........     31,347     31,198     31,184     574,368
        Employees life insurance fund..................................      1,617      1,326      1,297      24,995
        Employees health benefits fund.................................        154        759      1,171       7,919
      Social Security Administration:
        Federal old-age and survivors insurance trust fund \2\.........    131,293    137,096    151,417   1,182,032
        Federal disability insurance trust fund \2\....................     21,041     21,680     23,134     158,521
      Farm Credit System Insurance Corporation:
        Farm Credit Insurance Fund.....................................        145         96         94       1,711
      Federal Deposit Insurance Corporation:
        Bank Insurance fund............................................        967       -302        290      29,314
        FSLIC Resolution fund..........................................        204        242        220       2,970
        Savings Association Insurance fund.............................        603        162         78      10,987
      National Credit Union Administration: Share insurance fund.......        218        283        271       4,900
      Postal Service fund \2\..........................................        277  .........  .........       1,086
      Railroad Retirement Board trust funds \1\........................      1,235      1,217      1,158      20,877
      Other Federal funds..............................................      1,515         20        383       7,205
      Other trust funds................................................       -262       -307       -302       6,618
      Unrealized discount \1\..........................................       -422  .........  .........      -2,230
                                                                        --------------------------------------------
          Total, investment in Treasury debt \1\.......................    246,319    231,937    266,096   2,716,878
                                                                        ============================================
    Investment in agency debt:
      Office of Personnel Management:
        Civil Service retirement and disability trust fund \3\.........       -583        -51  .........  ..........
                                                                        --------------------------------------------
    Total, investment in agency debt...................................       -583        -51  .........  ..........
                                                                        ============================================
    Total, investment in Federal debt \1\..............................    245,736    231,886    266,096   2,716,878
                                                                        ============================================

    [[Page 235]]

                                 MEMORANDUM

    Investment by Federal funds (on-budget)............................      5,102      2,994      9,262     129,405
    Investment by Federal funds (off-budget)...........................        277  .........  .........       1,086
    Investment by trust funds (on-budget)..............................     88,444     70,116     82,283   1,248,064
    Investment by trust funds (off-budget).............................    152,334    158,776    174,551   1,340,553
    Unrealized discount \1\............................................       -422  .........  .........      -2,230
    ----------------------------------------------------------------------------------------------------------------
    \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 unrealized discount. If recorded at face value, the
      debt held by the Nuclear Waste Disposal fund would be $8.3 billion higher than recorded in this table at the
      end of 2000 and the debt held by the Railroad Retirement Board would be $6.3 billion higher.
    \2\ Off-budget Federal entity.
    \3\ The FFB swapped Treasury securities with the Civil Service retirement and disability trust fund (CSRDF) in
      1996 in exchange for agency securities having an equal present value. The result is shown in this table as
      agency debt held by CSRDF.

      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 were traditionally 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 12-5 at purchase price plus amortized discount. The
    only two Government accounts that currently hold zero-coupon bonds 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 -$14.6 billion at
    the end of 2000.
      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 at the time of issue and is
    not amortized over the term of the security. In table 12-5 it is shown
    as a separate item at the end of the table and not distributed by
    account. The amount was -$2.2 billion at the end of 2000.

                           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 12-3 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 $227 million at the end of 2000. 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 8 to table 12-3. The amount is relatively small: $5.6 billion
    at the end of 2000 compared to the total discount (less premium) of
    $72.8 billion on all Treasury securities.
      Changes in 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

    [[Page 236]]

    the definition. \21\ 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.
    ---------------------------------------------------------------------------
      \21\ The Acts and the statutory limits since 1940 are enumerated in
    Historical Tables, Budget of the United States Government, table 7.3.
    ---------------------------------------------------------------------------
      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 an act that increased the debt
    limit from $4,900 billion to $5,500 billion.

      During 1997, unlike 1996, the President and the Congress reached
    agreement on a plan to balance the budget. This included a sufficient
    increase in the debt limit to accommodate Government finances for longer
    than possible under the limit enacted in the previous year, even though
    the amount of debt at that time was considerably under the limit. As a
    result, the Balanced Budget Act of 1997, which the President signed into
    law on August 5, 1997, increased the debt limit to $5,950 billion.
    According to the estimates in tables 12-3 and 12-6, the debt limit will
    not be reached until 2008.
      Federal funds financing and the change in debt subject to limit.--The
    change in debt held by the public, as shown in table 12-3, is determined
    primarily by the total Government deficit or surplus. The debt

                                                           Table 12-6.  FEDERAL FUNDS FINANCING AND CHANGE IN DEBT SUBJECT TO STATUTORY LIMIT
                                                                                        (In billions of dollars)
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                Estimate
                              Description                            2000 --------------------------------------------------------------------------------------------------
                                                                                Actual               2001     2002     2003     2004     2005     2006     2007     2008     2009     2010     2011
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Federal funds surplus or deficit (-)...........................                   2                 49      -25      -45      -44      -57      -44      -27      -10       17       40       86
    Means of financing other then borrowing:
      Premiums paid (-) on buybacks of Treasury securities \1\.....                  -6                -10  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......
      Change in: \2\
        Treasury operating cash balances...........................                   4                  3  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......
        Checks outstanding, deposit funds, etc. \3\................                  -3                  2       -1  .......  .......  .......  .......  .......  .......  .......  .......  .......
      Seignorage on coins..........................................                   2                  2        2        2        2        2        2        2        2        2        2        2
      Less: Net financing disbursements
        Direct loan financing accounts.............................                 -22                -39       -4      -17      -18      -17      -16      -16      -16      -16      -16      -15
        Guaranteed loan financing accounts.........................                   4                 -1       -1        1       -*       -*        1        1        1        1        1        1
                                                                    --------------------------------------------------------------------------------------------------------------------------------
          Total, means of financing other than borrowing...........                 -20                -42       -4      -15      -16      -15      -14      -13      -13      -13      -13      -13
                                                                    ================================================================================================================================
    Decrease or increase (-) in Federal debt held by Federal funds.                  -5                 -3       -9  .......  .......  .......  .......  .......  .......  .......  .......  .......
    Increase or decrease (-) in Federal debt not subject to limit..                  -1                 -1       -*       -1       -1       -1       -1       -1       -*       -*       -*       -*
                                                                    ================================================================================================================================
        Total, requirement for Federal funds borrowing subject to                   -24                  4      -39      -61      -61      -73      -58      -42      -24        4       27       73
         debt limit................................................
                                                                    ================================================================================================================================
    Increase in excess balances \4\................................  ............................  .......  .......  .......  .......  .......  .......  .......      162      281      381      463
    Adjustment for change in discount and premium \5\..............                  -*            .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......
    Increase in debt subject to limit..............................                  24                 -4       39       61       61       73       58       42      185      277      355      390

                                ADDENDUM

    Debt subject to statutory limit \6\............................               5,592              5,588    5,627    5,688    5,749    5,822    5,881    5,922    6,108    6,385    6,740    7,130
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    * $500 million or less
    \1\ This table includes estimates for Treasury buybacks of outstanding securities only through FY 2001. These estimates assume the Treasury will buy back $35 billion (face value) of securities
      in FY 2001. The premium paid on buybacks are based on experience to date and the interest rates in the economic assumptions.
    \2\ A decrease in the Treasury operating cash balances (which is an asset) would be a means of financing the deficit and therefore has a positive sign An Increase in checks outstanding or
      deposit fund balances (which are liabilities) would also be a means of financing the deficit and would therefore also have a positive sign.
    \3\ Besides checks outstanding and deposit funds, includes accrued interest payable on Treasury debt, miscellaneous liability accounts, allocations of special drawing rights, and as an offset,
      cash and monetary assets other than the Treasury operating cash balance, miscellaneous asset accounts, and profit on the sale of gold.
    \4\ The amount of the unified budget surplus that is available to repay debt held by the public is estimated to be more than the amount of debt that is available to be redeemed in 2008 and
      subsequent years The difference is assumed to be held as ``excess balances''. (``Excess'' means in excess of the amounts held for operational and programmatic purposes).
    \5\ Consists of increase in the amount of unamortized discount (less premium) on public issues of Treasury notes and bonds (other than zero-coupon bonds) and unrealized discount on Government
      account series securities.
    \6\ The statutory debt limit is $5,950 billion.

    [[Page 237]]

    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. During 2008-11, the
    change in debt held by the public and the change in debt subject to
    limit are both affected by the limited amount of debt that is available
    to be redeemed.
      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. \22\
    ---------------------------------------------------------------------------
      \22\ 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. Under
    ordinary circumstances, 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. The only major exception, as explained below, is when excess
    balances are accumulated because of the limited amount of debt available
    to be redeemed.
      Table 12-6 derives the change in debt subject to limit. In 2002 the
    Federal funds deficit is estimated to be $25 billion, and other factors
    increase the requirement to borrow subject to limit by $14 billion. The
    largest of these other factors ($9 billion) is investment in Treasury
    securities by revolving funds and special funds in the Federal funds
    group. The next largest factor ($4 billion) is the net financing
    disbursements of the direct loan financing accounts. As explained in an
    earlier section, they are excluded from the budget by law because they
    do not represent a cost to the Government, but they have to be financed
    and in most years they are sizable. As a net result of all these
    factors, debt subject to limit is estimated to increase by $39 billion,
    in contrast to a $227 billion decrease in debt held by the public.
      The change in debt subject to limit during 2008-11 is determined not
    only by the factors above but also by the availability of publicly held
    debt that can be redeemed. Because the unified budget surplus is more
    than the estimate of the debt that can be redeemed, as explained
    previously, additional amounts of publicly held debt remain outstanding
    beyond the amounts needed for the Government's financing. The difference
    is accumulated as excess balances. \23\ The additional amount of
    publicly held debt is subject to the limit. Therefore, because publicly
    held debt is higher than it would have been if the unified budget
    surplus could have been fully used to reduce debt, the debt subject to
    limit is also higher. This effect is shown in table 12-6 by the line
    item ``increase in excess balances,'' which raises the amount of debt
    subject to statutory limit.
    ---------------------------------------------------------------------------
      \23\ As defined previously, the term ``excess'' means that the
    balances are in excess of the amounts held for operational and
    programmatic purposes.
    ---------------------------------------------------------------------------
      The debt subject to limit increased by a small amount in 2000. It is
    estimated to decrease by a very small amount in 2001 and then increase
    by small amounts each year during 2002-07. During 2000, the Federal
    funds had a surplus, but the surplus was small and was outweighed by the
    other factors that determine debt subject to limit; during 2002-07, the
    Federal funds have a deficit. The largest other factor during most of
    these years is the net financing disbursements of the direct loan
    financing accounts. As a result, while debt held by the public decreases
    by $2,031 billion during 2000-07, debt subject to limit increases by
    $355 billion.
      During 2008-11 the Federal funds have surpluses in three of the four
    years. However, due to the accumulation of excess balances ($1,287
    billion during the four years), debt subject to limit increases by a
    large amount, $1,208 billion. Debt held by the public decreases by the
    amount of the redeemable debt, which is $444 billion over these years.

                         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 12-7, foreign holdings were just over
    $10.0 billion, less than 5 percent of the total Federal debt held by the
    public.

    [[Page 238]]

                                                          Table 12-7.  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       -11.4        -0.4        13.5         0.7          5.3

    1970.....................................................    283.2       14.0          5.0         5.1         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         18.1
    1976.....................................................    477.4       69.8         14.6        82.7         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        12.0         19.1
    1981.....................................................    789.4      130.7         16.6        77.5         9.0        81.7        16.4         20.1
    1982.....................................................    924.6      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       248.7        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 \5\.................................................  3,632.9    1,281.4         35.3       -88.7        64.5       234.9        92.7         39.5
    2000.....................................................  3,410.1    1,225.2         35.9      -222.8       -56.2       233.1       105.5         45.3
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    \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 recorded by methods that are not fully comparable with the data on debt held by the public. Projections of foreign holdings 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 Treasury debt securities less ``interest received by trust funds'' (subfuction 901 less subfunction 902 and 903). Does not
      include the comparatively small amount of interest on agency debt or the offsets for interest on Treasury debt received by other Government accounts
      (revolving funds and special funds).
    \4\ Estimates by the 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.
    \4\ Benchmark revisions reduced the estimated foreign holdings of the Federal debt as of December 1978; increase 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 purchase of Federal debt securities. A conceptual revision likewise increased the estimated foreign holdings as of 1999, and the
      ``borrowing'' from foreign residents in 1999 reflects this 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 decisions by foreign
    governments, corporations, and individuals, rather than the direct
    marketing of these securities to foreign residents. At the end of fiscal
    year 2000 foreign holdings of Treasury debt were $1,225 billion, which
    was 36 percent of the total debt held by the public. \24\ Foreign
    central banks owned 48 percent of the Federal debt held by foreign
    residents; private investors owned nearly all the rest. All the Federal
    debt held by foreign residents is denominated in dollars.
    ---------------------------------------------------------------------------
      \24\ 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 the
    mid-1990s. During 1995-97, however, foreign holdings increased on
    average by around $200 billion each year, considerably more than total
    Federal borrowing from the pub

    [[Page 239]]

    lic. \25\ 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, one of the rare years with a decrease
    since 1970. In 1999, the debt held by foreigners increased considerably
    again, but in 2000 it fell. Total debt held by the public decreased in
    all three years, and in 1998 and 2000 it deceased at a faster rate than
    the decline in foreign holdings. As a result, the percentage held by
    foreigners continued to rise.
    ---------------------------------------------------------------------------
      \25\ Table 12-7 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 a little less than 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. Tables 8-11 and 8-12 in chapter 8
    summarize GSE borrowing and lending.