[Analytical Perspectives]
[Federal Borrowing and Debt]
[16. Federal Borrowing and Debt]
[From the U.S. Government Printing Office, www.gpo.gov]
[[Page 227]]
======================================================================
FEDERAL BORROWING AND DEBT
========================================================================
[[Page 229]]
16. FEDERAL BORROWING AND DEBT
Debt is the largest legally binding obligation of the Federal
Government. At the end of 2007, the Government owed $5,035 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 $252
billion of interest on this debt.
Table 16-1. TRENDS IN FEDERAL DEBT HELD BY THE PUBLIC
(Dollar amounts in billions)
----------------------------------------------------------------------------------------------------------------
Debt held by the Debt held by the Interest on the debt
public: public as a percent held by the public
------------------------ of: as a percent of: \3\
Fiscal Year -------------------------------------------
Current FY 2000 Credit
Dollars dollars \1\ GDP market Total GDP
debt \2\ outlays
----------------------------------------------------------------------------------------------------------------
1946........................................ 241.9 1,821.3 108.6 N/A 7.4 1.8
1950........................................ 219.0 1,339.9 80.2 53.3 11.4 1.8
1955........................................ 226.6 1,217.3 57.4 43.2 7.6 1.3
1960........................................ 236.8 1,128.0 45.7 33.7 8.5 1.5
1965........................................ 260.8 1,161.4 38.0 26.9 8.1 1.4
1970........................................ 283.2 1,047.8 28.0 20.8 7.9 1.5
1975........................................ 394.7 1,074.6 25.3 18.4 7.5 1.6
1980........................................ 711.9 1,340.7 26.1 18.5 10.6 2.3
1985........................................ 1,507.3 2,164.6 36.4 22.3 16.2 3.7
1990........................................ 2,411.6 2,968.1 42.0 22.6 16.1 3.5
1991........................................ 2,689.0 3,190.0 45.3 24.1 16.2 3.6
1992........................................ 2,999.7 3,471.2 48.1 25.7 15.5 3.4
1993........................................ 3,248.4 3,675.4 49.4 26.6 14.9 3.2
1994........................................ 3,433.1 3,802.6 49.3 26.9 14.4 3.0
1995........................................ 3,604.4 3,910.1 49.2 26.7 15.8 3.3
1996........................................ 3,734.1 3,974.6 48.5 26.4 15.8 3.2
1997........................................ 3,772.3 3,946.3 46.1 25.4 15.7 3.1
1998........................................ 3,721.1 3,846.1 43.1 23.5 15.1 2.9
1999........................................ 3,632.4 3,705.9 39.8 21.5 13.8 2.6
2000........................................ 3,409.8 3,409.8 35.1 19.2 13.0 2.4
2001........................................ 3,319.6 3,243.1 33.0 17.6 11.6 2.1
2002........................................ 3,540.4 3,393.9 34.1 17.6 8.9 1.7
2003........................................ 3,913.4 3,677.1 36.2 17.9 7.5 1.5
2004........................................ 4,295.5 3,933.7 37.4 18.1 7.3 1.5
2005........................................ 4,592.2 4,074.8 37.5 17.7 7.7 1.6
2006........................................ 4,829.0 4,147.6 37.1 17.1 8.9 1.8
2007........................................ 5,035.1 4,211.7 36.8 N/A 9.2 1.8
2008 estimate............................... 5,428.6 4,454.7 37.9 N/A 8.9 1.8
2009 estimate............................... 5,856.2 4,710.6 39.0 N/A 9.0 1.9
2010 estimate............................... 6,031.1 4,756.3 38.2 N/A 9.7 1.9
2011 estimate............................... 6,139.7 4,747.1 37.0 N/A 10.0 1.9
2012 estimate............................... 6,109.5 4,631.2 35.1 N/A 10.1 1.9
2013 estimate............................... 6,097.4 4,531.6 33.4 N/A 9.7 1.8
----------------------------------------------------------------------------------------------------------------
N/A = Not available.
\1\ Debt in current dollars deflated by the GDP chain-type price index with Fiscal Year 2000 equal to 100.
\2\ Total credit market debt owed by domestic nonfinancial sectors, modified in some 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 is estimated as the interest on Treasury debt securities less the
``interest received by trust funds'' (subfunction 901 less subfunctions 902 and 903). 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 deficit was $162 billion in 2007, down from $248 billion in 2006.
This $162 billion deficit and other financing transactions totaling $44
billion required the Government to increase its borrowing from the
public by $206 billion last year. Debt held by the public fell from 37.1
percent of Gross Domestic Product (GDP) at the end of 2006 to 36.8
percent of GDP at the end of 2007. The deficit is estimated to increase
in 2008 and then to begin to fall again, reaching surplus in 2012. Debt
as a percentage of GDP is estimated to
[[Page 230]]
increase in 2008 and 2009 and then resume decline, reaching 33.4 percent
of GDP in 2013.
Trends in Debt Since World War II
Table 16-1 depicts trends in Federal debt held by the public from
World War II to the present and estimates from the present through 2013.
(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.) Federal
debt peaked at 108.6 percent of GDP in 1946, just after the end of the
war. From then until the 1970s, 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
80.2 percent of GDP to 25.3 percent, and from 53.3 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 spending surged and
as the economy was disrupted by oil shocks and rising 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 at the
beginning of the 1980s, due in large part to a deep recession, and the
ratio of Federal debt to GDP grew sharply. The ratio of Federal debt to
credit market debt also rose, though to a 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 declined markedly relative to both GDP
and total credit market debt. The decline accelerated as surpluses
emerged from 1997 to 2001. Debt fell steadily from 49.4 percent of GDP
in 1993 to 33.0 percent in 2001; and it fell more unevenly from 26.9
percent of total credit market debt in 1994 to 17.6 percent in 2001 and
2002. Interest on this debt, relative to total outlays and GDP, declined
as well. Interest as a share of outlays peaked at 16.5 percent in 1989
and then fell to 8.9 percent by 2002; interest as a percentage of GDP
fell in a similar proportion.
The downward trend in debt relative to GDP ceased in 2002 as economic
conditions changed and the Nation responded to the September 11
terrorist attacks. The decline in the stock market, the recession, and
the initially slow recovery all reduced tax receipts; tax relief had the
same effect; and spending increased due to the Global War on Terror.
Consequently, deficits ensued and debt began to rise, both in nominal
terms and as a percentage of GDP. However, a growing economy led to a
revival of receipts and deficits have fallen in each of the past three
years. Deficits are expected to increase in 2008, after which the budget
is expected to return to falling deficits and to reach surplus in 2012.
In nominal dollars, debt is estimated to continue to rise through 2011
and then begin to fall in 2012 when the Government achieves surplus.
Debt as a percent of GDP fell in 2006 and 2007 and, after temporary
increases in 2008 and 2009, is expected to fall by over three percentage
points from the current level by the end of 2013.
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. \1\ Second, it issues debt to Government accounts, primarily
trust funds, that accumulate surpluses. (As used in this Budget, debt
held by Government accounts refers to debt held by Federal Government
accounts; investments by State and local governments in Federal
securities are included as debt held by the public.) 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.'' \2\
---------------------------------------------------------------------------
\1\ Treasury debt held by the public is measured as the sales price
plus the amortized discount (or less the amortized premium). At the time
of sale, the book value equals the sales price. Subsequently, it equals
the sales price plus the amount of the discount that has been amortized
up to that time. In equivalent terms, the book value of the debt equals
the principal amount due at maturity (par or face value) less the
unamortized discount. (For a security sold at a premium, the definition
is symmetrical.) For inflation-indexed notes and bonds, the book value
includes a periodic adjustment for inflation. Agency debt is generally
recorded at par.
\2\ 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 16-3, but also the debt
of the Government-sponsored enterprises listed in Table 7-9 at the end
of Chapter 7 of this volume and certain Government-guaranteed
securities.
---------------------------------------------------------------------------
Borrowing from the public, whether by the Treasury or by some other
Federal agency, is normally a good approximation of the Federal demand
on credit markets. Regardless of whether the proceeds are used for
tangible or intangible investment or to finance current consumption, 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 credit market sectors for financial resources in the credit
market. Borrowing from the public thus affects the size and composition
of assets held by the private sector, and the amount of saving imported
from abroad. It also increases the amount of future resources required
to pay interest to the public on Federal debt. Borrowing from the public
is therefore an important concern of Federal fiscal policy. \3\
---------------------------------------------------------------------------
\3\ The Federal subsector of the national income and product accounts
provides a measure of ``net government saving'' (based on current
expenditures and current receipts) 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 subsector and its differences from the budget are discussed
in Chapter 14 of this volume, ``National Income and Product Accounts.''
---------------------------------------------------------------------------
[[Page 231]]
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 that is credited to these
funds accounts for the fact that some earmarked taxes and user fees will
be spent at a later time than when the funds receive the monies. The
debt securities are a liability of the general fund to the fund that
holds the securities and are a mechanism for crediting interest to that
fund on its recorded balances. These accounting balances generally
provide the fund with authority to draw upon the U.S. Treasury in later
years to make future payments on its behalf to the public. Public policy
may 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
credit market 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 is not financed by private saving and
does not compete with the private sector for available funds in the
credit market; it does not provide the account with resources other than
a legal claim on the U.S. Treasury, which itself obtains real resources
by taxation and borrowing; and its current interest does not have to be
financed by other resources.
Furthermore, the debt held by Government accounts does not represent
the estimated amount of the account's obligations or responsibilities to
make future payments to 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 estimated future
benefits (or future benefits less taxes) for the current participants in
the program; nor does it represent the actuarial present value of
estimated future benefits (or future benefits less taxes) for the
current participants plus the estimated future participants over some
stated time period. The future transactions of Federal social insurance
and employee retirement programs, which own 91 percent of the debt held
by Government accounts, are important in their own right and need to be
analyzed separately. This can be done through information published in
the actuarial and financial reports for these programs. \4\
---------------------------------------------------------------------------
\4\ 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 major
Federal employee retirement funds. The actuarial estimates for these and
other programs are summarized in the Financial Report of the United
States Government, prepared annually by the Treasury Department.
---------------------------------------------------------------------------
This Budget uses a variety of information sources to analyze the
condition of Social Security and Medicare, the Government's two largest
social insurance programs. Chapter 13 of the present volume,
``Stewardship,'' projects Social Security and Medicare outlays to the
year 2080 relative to GDP. It also discusses in some detail the
actuarial projections prepared for the Social Security and Medicare
trustees reports to evaluate the long-run actuarial deficiency or
shortfall in these programs. A chapter in the main volume of the Budget,
``The Nation's Fiscal Outlook,'' uses the same data in less detail to
explain the long-run fiscal problems of Social Security and Medicare
revealed by these projections. The actuarial shortfalls are very
different in concept and much larger in size than the amount of Treasury
debt that these programs hold.
For all these reasons, debt held by the public is a better gauge of
the effect of the budget on the credit markets than gross Federal debt.
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 liabilities are incurred when the
Government guarantees the payment of interest and principal on private
loans; and liabilities for future pension and retiree health 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 the ``Stewardship'' Chapter
of this volume. The different types of liabilities are reported annually
in the financial statements of Federal agencies and in the Financial
Report of the United States Government, prepared by the Treasury
Department.
Government Surpluses or Deficits and the Change in Debt
Table 16-2 summarizes Federal borrowing and debt from 2007 through
2013. In 2007 the Government borrowed $206 billion, increasing the debt
held by the public from $4,829 billion at the end of 2006 to $5,035
billion at the end of 2007. The debt held by Government accounts
increased $293 billion, and gross Federal debt increased by $499 billion
to $8,951 billion.
Debt Held by the Public.--The Federal Government primarily finances
deficits by borrowing from the public, and it primarily uses surpluses
to repay debt held by the public. Table 16-2 shows the relationship
between the Federal deficit or surplus and the change in debt held by
the public. The borrowing or debt repayment 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 12 of this volume, ``Economic Assumptions.''
The total or unified budget surplus consists of two parts: the on-
budget surplus or deficit; and the surplus of the off-budget Federal
entities, which have been excluded from the budget by law. Under present
law,
[[Page 232]]
Table 16-2. FEDERAL GOVERNMENT FINANCING AND DEBT
(In billions of dollars)
----------------------------------------------------------------------------------------------------------------
Estimate
Actual -----------------------------------------------------------------
2007 2008 2009 2010 2011 2012 2013
----------------------------------------------------------------------------------------------------------------
Financing:
Unified budget deficit (-)/ -162.0 -410.0 -407.4 -160.0 -94.8 48.1 29.3
surplus (+).....................
Financing other than borrowing
from the public:
Changes in: \1\
Treasury operating cash -23.1 30.2 ......... ......... ......... ......... .........
balance (-).................
Checks outstanding, etc. \2\. -1.6 ......... ......... ......... ......... ......... .........
Seigniorage on coins........... 0.8 0.9 0.8 0.9 0.9 0.9 0.9
Credit net financing
disbursements (-):
Direct loan financing -8.2 -10.1 -15.7 -14.9 -16.3 -16.8 -17.0
accounts....................
Guaranteed loan financing -8.6 -2.7 -5.2 -1.1 1.2 -2.1 -1.7
accounts....................
Net purchases of non-Federal
securities by the
National Railroad Retirement -3.3 -1.8 -* 0.2 0.5 0.2 0.5
Investment Trust (-)........
----------------------------------------------------------------------------
Total, financing other than -44.2 16.6 -20.1 -15.0 -13.7 -17.9 -17.3
borrowing from the public.
----------------------------------------------------------------------------
Total, requirement to -206.2 -393.5 -427.5 -174.9 -108.6 30.2 12.1
borrow from the public..
Change in debt held by the public 206.2 393.5 427.5 174.9 108.6 -30.2 -12.1
Changes in Debt Subject to
Statutory Limitation:
Change in debt held by the public 206.2 393.5 427.5 174.9 108.6 -30.2 -12.1
Change in debt held by Government 293.2 310.2 331.4 366.0 393.5 441.8 420.3
accounts........................
Less: change in debt not subject 1.7 * 1.9 1.3 1.7 1.8 1.9
to limit and other adjustments..
----------------------------------------------------------------------------
Total, change in debt subject 501.1 703.7 760.8 542.3 503.7 413.4 410.2
to statutory limitation.......
Debt Subject to Statutory
Limitation, End of Year:
Debt issued by Treasury.......... 8,925.6 9,629.3 10,388.0 10,928.7 11,430.6 11,842.7 12,251.4
Less: Treasury debt not subject -14.5 -14.5 -12.4 -10.7 -8.9 -7.6 -6.2
to limitation (-) \3\...........
Agency debt subject to limitation 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Adjustment for discount and 10.2 10.2 10.2 10.2 10.2 10.2 10.2
premium \4\.....................
----------------------------------------------------------------------------
Total, debt subject to 8,921.3 9,625.1 10,385.9 10,928.2 11,431.9 11,845.4 12,255.5
statutory limitation \5\......
Debt Outstanding, End of Year:
Gross Federal debt: \6\
Debt issued by Treasury........ 8,925.6 9,629.3 10,388.0 10,928.7 11,430.6 11,842.7 12,251.4
Debt issued by other agencies.. 25.2 25.2 25.4 25.7 25.8 25.4 24.9
----------------------------------------------------------------------------
Total, gross Federal debt.... 8,950.7 9,654.4 10,413.4 10,954.4 11,456.5 11,868.1 12,276.4
Held by:
Debt held by Government 3,915.6 4,225.8 4,557.3 4,923.3 5,316.8 5,758.6 6,179.0
accounts......................
Debt held by the public \7\.... 5,035.1 5,428.6 5,856.2 6,031.1 6,139.7 6,109.5 6,097.4
----------------------------------------------------------------------------------------------------------------
* $50 million or less.
\1\ A decrease in the Treasury operating cash balance (which is an asset) is a means of financing a deficit and
therefore has a positive sign. An increase in checks outstanding (which is a liability) is also a means of
financing a deficit and therefore also has a positive sign.
\2\ Besides checks outstanding, includes accrued interest payable on Treasury debt, uninvested deposit fund
balances, allocations of special drawing rights, and other liability accounts; and, as an offset, cash and
monetary assets (other than the Treasury operating cash balance), other asset accounts, and profit on sale of
gold.
\3\ Consists primarily of Federal Financing Bank debt.
\4\ Consists mainly of unamortized discount (less premium) on public issues of Treasury notes and bonds (other
than zero-coupon bonds) and unrealized discount on Government account series securities.
\5\ The statutory debt limit is $9,815 billion, enacted on September 29, 2007.
\6\ Treasury securities held by the public and zero-coupon bonds held by Government accounts are almost all
measured at sales price plus amortized discount or less amortized premium. Agency debt securities are almost
all measured at face value. Treasury securities in the Government account series are otherwise measured at
face value less unrealized discount (if any).
\7\ At the end of 2007, the Federal Reserve Banks held $779.6 billion of Federal securities and the rest of the
public held $4,255.5 billion. Debt held by the Federal Reserve Banks is not estimated for future years.
the off-budget Federal entities are the Social Security trust funds
(Old-Age and Survivors Insurance and Disability Insurance) and the
Postal Service fund. \5\ The off-budget totals are virtually the same as
Social Security, which had a large surplus in 2007 and is estimated to
have large surpluses throughout the projection period. The on-budget and
off-budget surpluses or deficits are added together to determine the
Government's financing needs.
---------------------------------------------------------------------------
\5\ For further explanation of the off-budget Federal entities, see
Chapter 23 of this volume, ``Off-Budget Federal Entities and Non-
Budgetary Activities.''
---------------------------------------------------------------------------
The Government's need to borrow, or its ability to repay debt held by
the public, has always depended on several other factors besides the
unified budget sur
[[Page 233]]
plus or deficit, such as the change in the Treasury operating cash
balance. As shown in Table 16-2, these other factors, which in this
table are called ``financing other than borrowing from the public,'' can
either increase or decrease the Government's need to borrow. (An
increase in its need to borrow is represented by a negative sign, like
the deficit.) Some of the individual factors themselves may be either
positive or negative, and some of them vary considerably in size from
year to year. In 2007 the deficit was $162 billion and these other
factors increased the need to borrow by $44 billion. As a result, the
Government borrowed $206 billion from the public.
Over the long-run, it is a good approximation to say that ``the
deficit is financed by borrowing from the public'' or ``the surplus is
used to repay debt held by the public.'' Over the last 20 years, the
cumulative deficit was $2,957 billion and the increase in debt held by
the public was $3,145 billion. Thus, the other factors added a total of
$188 billion of borrowing, an average of $9 billion per year.
In individual years it is also often a good approximation to say that
the deficit and borrowing (or the surplus and debt repayment) are about
the same. The variation, however, can be wide, ranging over the last 20
years from additional borrowing (or lower repayment) of $63 billion in
2002 to reduced borrowing of $30 billion in 2004. The other factors are
estimated to reduce borrowing by $17 billion in 2008 and increase
borrowing in 2009 through 2013 by amounts ranging from $14 to $20
billion. Three specific factors presented in Table 16-2 have recently
been especially important.
Change in Treasury operating cash balance.--The cash balance increased
$16 billion in 2006 and $23 billion in 2007, as a result of transactions
that occurred late in the fiscal year. The operating cash balance is
estimated to decrease by $30 billion by the end of 2008 and then to
remain essentially the same. Changes in the operating cash balance,
while occasionally large, are inherently limited. Decreases in cash--a
means of financing the Government--are limited by the amount of past
accumulations, which themselves required financing when they were built
up. Increases are limited because it is more efficient to repay debt.
Net financing disbursements of the direct loan and guaranteed loan
financing accounts.--Under the Federal Credit Reform Act of 1990, budget
outlays for direct loans and loan guarantees consist of the estimated
subsidy cost of the loans or guarantees at the time when the direct
loans or guaranteed loans are disbursed. The cash flows to and from the
public resulting from these loans and guarantees--the disbursement and
repayment of loans, the default payments on loan guarantees, the
collections of interest and fees, and so forth--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. \6\
---------------------------------------------------------------------------
\6\ The Federal Credit Reform Act of 1990 (sec. 505(b)) requires that
the financing accounts be non-budgetary. As explained in Chapter 23 of
this volume, ``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 26
of this volume, ``The Budget System and Concepts,'' and the other
references cited in Chapter 23 of this volume.
---------------------------------------------------------------------------
The financing accounts also include several types of intragovernmental
transactions. In particular, they receive payment from the credit
program accounts for the costs of new direct loans and loan guarantees;
they also receive payment for any upward reestimate of the costs of
direct loans and loan guarantees outstanding. These collections are
offset against the gross disbursements of the financing accounts in
determining the accounts' total net cash flows. The gross disbursements
include outflows to the public--such as of loan funds or default
payments--as well as the payment of any downward reestimate of costs to
budgetary receipt accounts. The total net cash flows of the financing
accounts, consisting of transactions with both the public and the
budgetary accounts, are called ``net financing disbursements.'' They are
defined in the same way as the ``outlays'' of a budgetary account and
therefore affect the requirement for borrowing from the public in the
same way as the deficit.
The intragovernmental transactions of the financing accounts do not
affect Federal borrowing from the public. Although the deficit changes
because of the budget's outlay to, or receipt from, a financing account,
the net financing disbursement changes in an equal amount with the
opposite sign, so the effects cancel out. 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. Likewise, financing
account receipts from the public can be used to finance the payment of
the Government's obligations, and therefore they reduce the requirement
for Federal borrowing from the public in the same way as an increase in
budget receipts.
A major part of this financing is normally due to the direct student
loan program. Since direct loans require cash disbursements equal to the
full amount of the loans when the loans are made, Federal borrowing
requirements are initially increased. Later, when the loans are repaid,
Federal borrowing requirements will decrease.
In some years, large net upward or downward reestimates in the cost of
outstanding direct and guaranteed loans may cause large swings in the
net financing disbursements. In 2007, the upward reestimates in some
accounts largely cancelled out the downward reestimates in other
accounts, for a net downward reestimate of $3 billion. In 2008, upward
and downward reestimates are again expected to largely cancel out, with
a net upward reestimate of $3 billion. After 2008, the pattern is
expected to be more normal.
The financing accounts are estimated to increase the need for
borrowing by $13 billion in 2008 and from
[[Page 234]]
$15 billion to $21 billion in each of the following five years.
Net purchases of non-Federal securities by the National Railroad
Retirement Investment Trust.--This trust fund was established by the
Railroad Retirement and Survivors' Improvement Act of 2001. In 2003,
most of the assets in the Railroad Retirement Board trust funds were
transferred to the new trust fund, which invests its assets primarily in
private stocks and bonds. The Act ordered special treatment of the
purchase or sale of non-Federal assets by this trust fund, treating such
purchases as a means of financing rather than an outlay. Therefore, the
increased need to borrow from the public to finance the purchase of non-
Federal assets is part of the ``financing other than borrowing from the
public'' rather than included as an increase in the deficit. The
increased borrowing associated with the transfer expanded publicly held
debt by $20 billion in 2003. Net purchases in subsequent years have been
much smaller. Net purchases increased borrowing by $3 billion in 2007.
The net purchases are expected to increase borrowing by $2 billion in
2008 and then to have a lesser impact on borrowing in future years. \7\
---------------------------------------------------------------------------
\7\ The budget treatment of this fund is further discussed in Chapter
26 of this volume, ``The Budget System and Concepts.''
---------------------------------------------------------------------------
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 93 percent of the
total Federal debt held by Government accounts at the end of 2007. In
2007, the total trust fund surplus was $249 billion, and trust funds
invested $245 billion in Federal securities. Investment may differ
somewhat from the surplus due to changes in the amount of cash assets
not currently invested. The remainder of debt issued to Government
accounts is owned by a number of special funds and revolving funds. The
debt held in major accounts and the annual investments are shown in
Table 16-4.
Agency Debt
Some Federal agencies, shown in Table 16-3, sell or have sold debt
securities to the public and, at times, to other Government accounts. At
one time, several other agencies issued debt securities, but this
activity has declined significantly over time. Currently, new debt is
issued only by the Tennessee Valley Authority (TVA) and the Federal
Housing Administration (FHA); the remaining agencies are repaying
existing borrowing. During 2007, agencies repaid $0.6 billion of debt
held by the public, resulting in total agency debt of $25.2 billion as
of the end of the year. Agency debt is less than one percent of Federal
debt held by the public. Agencies are estimated to repay small amounts
of debt in 2008. As a result of anticipated new borrowing by TVA, agency
debt is expected to increase by $0.2 billion in 2009.
The predominant agency borrower is the Tennessee Valley Authority,
which had borrowed $25 billion from the public as of the end of 2007, or
98 percent of the total debt of all agencies. TVA sells debt primarily
to finance capital expenditures.
Table 16-3. AGENCY DEBT
(In millions of dollars)
----------------------------------------------------------------------------------------------------------------
Borrowing or repayment (-) of
debt Debt end
--------------------------------- of 2009
2007 2008 2009 estimate
actual estimate estimate
----------------------------------------------------------------------------------------------------------------
Borrowing from the public:
Housing and Urban Development:
Federal Housing Administration.................................. -27 * ......... 85
Small Business Administration:
Participation certificates: Section 505 development company..... -7 ......... ......... .........
Architect of the Capitol.......................................... -4 -4 -4 144
National Archives................................................. -10 -11 -11 193
Tennessee Valley Authority:
Bonds and notes................................................. -391 148 387 23,035
Lease/leaseback obligations..................................... -37 -43 -41 988
Prepayment obligations.......................................... -105 -106 -105 928
-------------------------------------------
Total, borrowing from the public.............................. -581 -16 226 25,373
Borrowing from other funds:
Tennessee Valley Authority........................................ -1 ......... ......... 6
-------------------------------------------
Total, borrowing from other funds............................. -1 ......... ......... 6
-------------------------------------------
Total, agency borrowing....................................... -582 -16 226 25,379
----------------------------------------------------------------------------------------------------------------
* $500,000 or less.
[[Page 235]]
The TVA has traditionally financed its capital construction by selling
bonds and notes to the public. Since 2000, it has also employed two
types of alternative financing methods, lease/leaseback obligations and
prepayment obligations. Under the lease/leaseback obligations method,
TVA signed contracts to lease some facilities and equipment to private
investors and simultaneously lease them back. It received a lump sum for
leasing out its assets, and then leased them back at fixed annual
payments for a set number of years. TVA retains substantially all of the
economic benefits and risks related to ownership of the assets. \8\
Under the prepayment obligations method, TVA's power distributors may
prepay a portion of the price of the power they plan to purchase in the
future. In return, they obtain a discount on a specific quantity of the
future power they buy from TVA. The quantity varies, depending on TVA's
estimated cost of borrowing.
---------------------------------------------------------------------------
\8\ This arrangement is at least as governmental as a ``lease-purchase
without substantial private risk.'' For further detail on the current
budgetary treatment of lease-purchase without substantial private risk,
see OMB Circular No. A-11, Appendix B.
---------------------------------------------------------------------------
The Office of Management and Budget determined that each of these
alternative financing methods is a means of financing the acquisition of
assets owned and used by the Government, or of refinancing debt
previously incurred to finance such assets. They are equivalent in
concept to other forms of borrowing from the public, although at
different terms and conditions. The budget therefore records the upfront
cash proceeds from these methods as borrowing from the public, not
offsetting collections. The obligations under these methods are reported
as liabilities on TVA's balance sheet under generally accepted
accounting principles. Table 16-3 presents these alternative financing
methods separately from TVA bonds and notes to distinguish between the
types of borrowing. At the end of 2007, obligations were $1.1 billion
for lease/leasebacks and $1.1 billion for prepayments. Obligations for
these two types of alternative financing are estimated to continue to
decline as TVA fulfills the terms of the contracts.
The Federal Housing Administration 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 selling securities to the public and
then paying the bills by disbursing the cash borrowed, so the
transaction is recorded as being simultaneously an outlay and borrowing.
The debentures are therefore classified as agency debt.
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 subsequently exercised full control
over the design, construction, and operation of the buildings. These
arrangements are equivalent to direct Federal construction financed by
Federal borrowing. The construction expenditures and interest were
therefore classified as Federal outlays, and the borrowing was
classified as Federal agency borrowing from the public.
The amount of agency securities sold to the public has been reduced
over time 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.
Debt Held by Government Accounts
Trust funds, and some special funds and public enterprise revolving
funds, accumulate cash in excess of current needs in order to meet
future obligations. These cash surpluses are generally invested in
Treasury debt.
Investment by trust funds and other Government accounts has risen
greatly for many years. It was $293 billion in 2007, and is estimated to
be $310 billion in 2008 and $331 billion in 2009, as shown in Table 16-
4. The holdings of Federal securities by Government accounts are
estimated to grow to $4,557 billion by the end of 2009, or 44 percent of
the gross Federal debt. The percentage is estimated to rise in the
following years, as the trust funds and several major revolving funds
and special funds continue to accumulate surpluses while borrowing from
the public begins to fall.
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 $584 billion during 2007-09, which is 62 percent of
the total estimated investment by Government accounts. The funds for
Federal employee retirement also invest a large share of the total. The
military retirement trust fund and the special fund for uniformed
services Medicare-eligible retiree health care account for 16 percent of
total investment by Government accounts during 2007-2009. The principal
trust fund for Federal civilian employees is the Civil Service
Retirement and Disability Fund (CSRDF). In 2007, funds were transferred
from the CSRDF, the Postal Service, and other sources to create a new
special fund for Postal Service retiree health benefits. Together the
CSRDF and the new Postal Service retiree health benefit fund account for
another 12 percent. The two Medicare trust funds--Hospital Insurance and
Supplementary Medical Insurance--account for 5 percent. Altogether, the
investment by Social Security, Medicare, and these four Federal employee
retirement funds is almost as much as the total investment by Government
accounts during this period. At the end of 2009, they are estimated to
own 92 percent of the total debt held by Government accounts. Many of
the other Government accounts also increase their holdings of Federal
securities during this period.
[[Page 236]]
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.
Table 16-4. DEBT HELD BY GOVERNMENT ACCOUNTS \1\
(In millions of dollars)
----------------------------------------------------------------------------------------------------------------
Investment or Disinvestment (-) Holdings
--------------------------------------- end of
Description 2007 2008 2009 2009
actual estimate estimate estimate
----------------------------------------------------------------------------------------------------------------
Investment in Treasury debt:
Energy:
Nuclear waste disposal fund \1\......................... 1,326 884 914 21,845
Uranium enrichment decontamination fund................. 395 57 225 4,905
Health and Human Services:
Federal hospital insurance trust fund................... 17,191 -5,336 10,908 324,949
Federal supplementary medical insurance trust fund...... 6,187 9,502 7,550 56,300
Vaccine injury compensation fund........................ 246 -135 -146 2,344
Homeland Security: Aquatic resources trust fund........... 198 -197 50 1,700
Housing and Urban Development:
Federal Housing Administration mutual mortgage fund..... 375 -306 -181 21,918
Guarantees of mortgage-backed securities................ 374 375 417 9,551
Interior:
Bureau of Land Management permanent operating funds..... -151 -141 -132 1,917
Environmental improvement and restoration fund.......... 39 66 40 1,195
Abandoned mine reclamation fund......................... 98 103 114 2,582
Labor:
Unemployment trust fund................................. 8,711 9,077 8,000 92,000
Pension Benefit Guaranty Corporation \1\................ -462 -135 82 14,473
State: Foreign service retirement and disability trust 502 518 536 15,432
fund.....................................................
Transportation:
Highway trust fund...................................... 1,207 -5,135 -5,998 1,072
Airport and airway trust fund........................... 38 19 -1,523 6,427
Aviation insurance revolving fund....................... 190 180 28 1,096
Treasury:
Exchange stabilization fund............................. 725 862 884 18,182
Comptroller of the Currency Assessment fund............. 107 147 181 1,140
Veterans Affairs:
National service life insurance trust fund.............. -437 -472 -534 8,746
Veterans special life insurance fund.................... 25 11 5 2,001
Corps of Engineers: Harbor maintenance trust fund......... 552 390 ........... 4,105
Other Defense-Civil:
Medicare-eligible retiree health care fund.............. 19,451 41,659 25,543 159,393
Military retirement trust fund.......................... 8,422 25,152 32,637 248,021
Education benefits fund................................. 165 231 168 1,804
Environmental Protection Agency:
Hazardous substance trust fund.......................... 103 87 100 2,931
Leaking underground storage tank trust fund............. 271 189 250 3,376
International Assistance Programs:
Overseas Private Investment Corporation................. 203 125 130 4,731
Office of Personnel Management:
Civil service retirement and disability trust fund...... 11,729 31,824 33,398 766,887
Employees life insurance fund........................... 1,683 1,084 1,290 35,339
Employees health benefits fund.......................... 1,067 490 402 16,784
Postal Service retiree health benefits fund............. 25,491 6,787 6,946 39,224
Social Security Administration:
Federal old-age and survivors insurance trust fund \2\.. 175,133 187,680 201,688 2,357,630
Federal disability insurance trust fund \2\............. 11,652 4,097 3,388 221,315
District of Columbia: Federal pension fund................ 37 -5 12 3,653
Farm Credit System Insurance Corporation:
Farm Credit System Insurance fund....................... 275 292 345 3,000
Federal Communications Commission:
Universal service fund.................................. 269 22 ........... 5,053
[[Page 237]]
Federal Deposit Insurance Corporation:
Federal deposit insurance fund.......................... 1,300 1,729 2,904 52,148
FSLIC resolution fund................................... 153 292 167 3,641
National Credit Union Administration:
Share insurance fund.................................... 388 293 384 7,814
Postal Service fund \2\................................... -3,254 -979 ........... ...........
Railroad Retirement Board trust funds..................... 106 107 -100 2,003
United States Enrichment Corporation fund................. 75 40 60 1,602
Other Federal funds....................................... 953 -1,058 295 5,361
Other trust funds......................................... 327 -269 17 3,824
Unrealized discount \1\................................... -196 ........... ........... -2,159
---------------------------------------------------
Total, investment in Treasury debt \1\................ 293,238 310,202 331,444 4,557,255
===================================================
Investment in agency debt:
Railroad Retirement Board:
National Railroad Retirement Investment Trust........... -1 ........... ........... 6
---------------------------------------------------
Total, investment in agency debt \1\.................. -1 ........... ........... 6
===================================================
Total, investment in Federal debt \1\............... 293,237 310,202 331,444 4,557,261
===================================================
MEMORANDUM
Investment by Federal funds (on-budget)..................... 51,506 52,119 39,177 383,284
Investment by Federal funds (off-budget).................... -3,254 -979 ........... ...........
Investment by trust funds (on-budget)....................... 58,397 67,285 87,191 1,597,191
Investment by trust funds (off-budget)...................... 186,784 191,778 205,076 2,578,945
Unrealized discount \1\..................................... -196 ........... ........... -2,159
----------------------------------------------------------------------------------------------------------------
* $500 thousand or less.
\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 Pension Benefit Guaranty Corporation (PBGC), 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, at the end of
2007 the debt figures would be $19.4 billion higher for the Nuclear Waste Disposal fund and $21.3 billion
higher for PBGC than recorded in this table.
\2\ Off-budget Federal entity.
First, Treasury issues 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 16-4 at
par value less unamortized discount. The only two Government accounts
that held zero-coupon bonds during the period of this table are the
Nuclear Waste Disposal fund in the Department of Energy and the Pension
Benefit Guaranty Corporation (PBGC). The total unamortized discount on
zero-coupon bonds was $40.6 billion at the end of 2007.
Second, Treasury subtracts 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 and debt held by the public, the unrealized
discount is the discount at the time of issue and is not amortized over
the term of the security. In Table 16-4 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 2007.
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 third part of Table 16-2 compares total Treasury debt with the
amount of Federal debt that is subject to the limit. Nearly all Treasury
debt is subject to the debt limit. Most of the Treasury debt not subject
to the general statutory limit was issued by the Federal Financing Bank
(FFB). The FFB, which is within the
[[Page 238]]
Treasury Department, is authorized to have outstanding up to $15 billion
of publicly issued debt. It issued $14 billion of securities to the
Civil Service Retirement and Disability Fund on November 15, 2004, in
exchange for an equal amount of regular Treasury securities. The FFB
securities have the same interest rates and maturities as the regular
Treasury securities for which they were exchanged. The securities mature
on dates from June 30, 2009, through June 30, 2019. The other Treasury
debt not subject to the general limit consists almost entirely of silver
certificates and other currencies no longer being issued. It was $502
million at the end of 2007 and gradually declines over time.
The sole agency debt currently subject to the general limit, $69
million at the end of 2007, is certain debentures issued by the Federal
Housing Administration. \9\ 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 bonds and notes outstanding.
---------------------------------------------------------------------------
\9\ At the end of 2007, $16 million of FHA debentures was not subject
to limit.
---------------------------------------------------------------------------
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 earlier 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. The amount is relatively small:
$10.2 billion at the end of 2007 compared to the total unamortized
discount (less premium) of $82.1 billion on all Treasury securities.
Changes in the debt limit.--The statutory debt limit has been changed
many times. Since 1960, Congress has passed 73 separate acts to raise
the limit, extend the duration of a temporary increase, or revise the
definition. \10\
---------------------------------------------------------------------------
\10\ The Acts and the statutory limits since 1940 are listed in
Historical Tables, Budget of the United States Government, Fiscal Year
2009, Table 7.3.
---------------------------------------------------------------------------
During the 1990s, the debt limit was increased three times by amounts
large enough to last for two years or more. All three of these increases
were enacted as part of a deficit reduction package or a plan to balance
the budget and were intended to last a relatively long time: the Omnibus
Budget Reconciliation Act of 1990; the Omnibus Budget Reconciliation Act
of 1993; and the Balanced Budget Act of 1997. The 1997 increase lasted
until 2002.
Since 2002, the debt has reached the limit five times. In each
instance, the limit has been increased by an amount sufficient to last
less than two years. The debt limit was increased to $6,400 billion on
June 28, 2002, to $7,384 billion on May 27, 2003, to $8,184 billion on
November 19, 2004, to $8,965 billion on March 20, 2006, and to $9,815
billion on September 29, 2007. Each time, in the weeks prior to the
increase, the Treasury Department has taken a variety of administrative
actions to meet the Government's obligation to pay its bills and invest
its trust funds while keeping debt under the existing limit.
Prior to the most recent increase, the Secretary of Treasury wrote
Congress in July 2007 that the debt subject to limit would reach the
ceiling in early October 2007. Congress passed legislation to increase
the limit on September 27 and the President signed the legislation on
September 29, before the limit was reached. On September 21, as the
anticipated reaching of the limit neared, Treasury announced that it
would discontinue the acceptance of subscriptions to the State and local
government series of securities, beginning on September 27. On September
28, following Congressional passage of the debt limit increase, Treasury
reinstated acceptance of these subscriptions. Because the increase was
enacted before the limit was reached, it was not necessary for Treasury
to take any other administrative actions.
In most cases, including 2002, 2003, 2004, and 2006, the Government
has reached the statutory debt limit before an increase has been
enacted. When this has occurred, the Treasury Department has taken
additional administrative actions to continue Government operations
while remaining below the statutory limit. One such measure is the
partial or full disinvestment of the Government Securities Investment
Fund (G-fund). This fund is one component of the Thrift Savings Plan
(TSP), a defined contribution pension plan for Federal employees. The
Secretary has statutory authority to suspend investment of the G-fund in
Treasury securities as needed to prevent the debt from exceeding the
debt limit. Treasury determines each day the amount of investments that
would allow the fund to be invested as fully as possible without
exceeding the debt limit. The Treasury Secretary is also authorized to
declare a debt issuance suspension period, which allows him or her to
redeem a limited amount of securities held by the Civil Service
Retirement and Disability Fund (CSRDF) and stop investing its receipts.
The law requires that when any such actions are taken with the TSP G-
Fund or the CSRDF, the Secretary is required to make the fund whole
after the debt limit has been raised by restoring the forgone interest
and investing the fund fully. Another measure for staying below the debt
limit is disinvestment of the Exchange Stabilization Fund.
In addition to these steps, Treasury has previously replaced regular
Treasury securities with borrowing by the Federal Financing Bank, which,
as explained above, is not subject to the debt limit. This measure was
most recently taken in November 2004, and the outstanding FFB securities
will begin to mature in June 2009.
Methods of changing the debt limit.--The statutory limit is usually
changed by normal legislative procedures. Under the rules adopted by the
House of Representatives, it can also be changed as a consequence of the
annual Congressional budget resolution, which is not itself a law. The
budget resolution includes a
[[Page 239]]
provision specifying the appropriate level of the debt subject to limit
at the end of each fiscal year. The rule provides that, when the budget
resolution is adopted by both Houses of the Congress, the vote in the
House of Representatives is deemed to have been a vote in favor of a
Joint Resolution setting the statutory limit at the level specified in
the budget resolution. The Joint Resolution is transmitted to the Senate
for further action, where it may be amended to change the debt limit
provision or in any other way. If it passes both Houses of the Congress,
it is sent to the President for his signature. The House of
Representatives first adopted this rule for 1980, although it was not
included in the rules for several years before 2003. The rule was used
for the 2007 debt limit increase.
Federal funds financing and the change in debt subject to limit.--The
change in debt held by the public, as shown in Table 16-2, is determined
primarily by the total Government deficit or surplus. The debt subject
to limit, however, includes not only debt held by the public but also
debt held by Government accounts. The change in debt subject to limit is
therefore determined both by the factors that determine the total
Government deficit or surplus and by the factors that determine the
change in debt held by Government accounts. The effect of debt held by
Government accounts on the total debt subject to limit is brought out
sharply in the second part of Table 16-2. The change in debt held by
Government accounts is a large proportion of the change in total debt
subject to limit each year and accounts for over two-thirds of the
estimated total increase from 2008 through 2013.
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 receipts
earmarked by law for specified purposes, such as paying Social Security
benefits or making grants to State governments for highway construction.
\11\
---------------------------------------------------------------------------
\11\ For further discussion of the trust funds and Federal funds
groups, see Chapter 22 of this volume, ``Trust Funds and Federal
Funds.''
---------------------------------------------------------------------------
A Federal funds deficit must generally be financed by borrowing, which
can be done 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 Treasury
securities that are subject to the statutory debt limit. Very little
debt subject to statutory limit has been issued for reasons except to
finance the Federal funds deficit. 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 deficit or surplus
and the trust fund surplus. Trust fund surpluses are almost entirely
invested in securities subject to the debt limit, and trust funds hold
most of the debt held by Government accounts. The trust fund surplus
reduces the total budget deficit or increases the total budget surplus,
decreasing the need to borrow from the public or increasing the ability
to repay borrowing from the public. When the trust fund surplus is
invested in Federal securities, the debt held by Government accounts
increases, offsetting the decrease in debt held by the public by an
equal amount. Thus, there is no net effect on gross Federal debt.
Table 16-5 derives the change in debt subject to limit. In 2007 the
Federal funds deficit was $411 billion, and other factors increased
financing requirements by $41 billion. The rise in the Treasury
operating cash balance increased financing requirements by $23 billion
and the net financing disbursements of credit financing accounts
increased financing requirements by $17 billion. As an offset, special
funds and revolving funds, which are part of the Federal funds group,
invested $48 billion in Treasury securities. The largest single
investment was $19 billion for the uniformed services Medicare-eligible
retiree health care fund. In addition, an adjustment is made for the
relatively minor difference between the trust fund surplus and the trust
funds' investment in Federal securities (including the changes in the
National Railroad Retirement Investment Trust's investments in non-
Federal securities). As a net result of all these factors, $499 billion
in financing was required, increasing gross Federal debt by that amount.
Since Federal debt not subject to limit decreased by $0.6 billion and
the adjustment for discount and premium changed by $1.1 billion, the
debt subject to limit increased by $501 billion, while debt held by the
public increased by $206 billion.
The debt subject to limit is estimated to increase to $9,625 billion
by the end of 2008. The estimated increases in the debt subject to limit
are caused by the continued Federal funds deficit, supplemented by the
other factors shown in Table 16-5. While debt held by the public
increases by $1,062 billion from the end of 2007 through 2013, debt
subject to limit increases by $3,334 billion.
[[Page 240]]
Table 16-5. FEDERAL FUNDS FINANCING AND CHANGE IN DEBT SUBJECT TO STATUTORY LIMIT
(In billions of dollars)
----------------------------------------------------------------------------------------------------------------
Estimate
Description Actual -----------------------------------------------------------------
2007 2008 2009 2010 2011 2012 2013
----------------------------------------------------------------------------------------------------------------
Change in Gross Federal Debt:
Federal funds deficit (-)........ -410.7 -693.4 -701.6 -484.3 -443.9 -347.0 -345.9
Means of financing other than -40.8 18.4 -20.1 -15.2 -14.2 -18.1 -17.8
borrowing--Federal funds \1\....
Decrease or increase (-) in -48.3 -51.1 -39.2 -41.7 -44.4 -46.8 -45.0
Federal debt held by Federal
funds...........................
Adjustments for trust fund 0.2 22.4 1.9 0.2 0.5 0.2 0.5
surplus not invested in Federal
securities \2\..................
Less: change in unrealized -0.2 ......... ......... ......... ......... ......... .........
discount on Federal debt held by
Federal funds...................
============================================================================
Total financing requirements... -499.4 -703.7 -759.0 -541.0 -502.1 -411.7 -408.3
Change in Debt Subject to Limit:
Change in gross Federal debt..... 499.4 703.7 759.0 541.0 502.1 411.7 408.3
Less: increase or decrease (-) in -0.6 -* -1.9 -1.3 -1.7 -1.8 -1.9
Federal debt not subject to
limit...........................
Less: change in adjustment for -1.1 ......... ......... ......... ......... ......... .........
discount and premium \3\........
============================================================================
Total, change in debt subject 501.1 703.7 760.8 542.3 503.7 413.4 410.2
to limit......................
============================================================================
ADDENDUM
Debt subject to statutory limit \4\ 8,921.3 9,625.1 10,385.9 10,928.2 11,431.9 11,845.4 12,255.5
----------------------------------------------------------------------------------------------------------------
* $50 million or less.
\1\ Includes Federal fund transactions that correspond to those presented in Table 16-2, but that are for
Federal funds alone with respect to the public and trust funds.
\2\ Includes trust fund holdings in other cash assets and changes in the investments of the National Railroad
Retirement Investment Trust in non-Federal securities.
\3\ Consists of unamortized discount (less premium) on public issues of Treasury notes and bonds (other than
zero-coupon bonds).
\4\ The statutory debt limit is $9,815 billion.
Debt Held by Foreign Residents
During most of American history, the Federal debt was held almost
entirely by individuals and institutions within the United States. In
the late 1960s, foreign holdings were just over $10 billion, less than 5
percent of the total Federal debt held by the public. Foreign holdings
began to grow significantly starting in 1970. This increase has been
almost entirely due to decisions by foreign central banks, corporations,
and individuals, rather than the direct marketing of these securities to
foreign residents.
Foreign holdings of Federal debt are presented in Table 16-6. At the
end of 2007, foreign holdings of Treasury debt were $2,240 billion,
which was 44 percent of the total debt held by the public. \12\ Foreign
central banks owned 69 percent of the Federal debt held by foreign
residents; private investors owned nearly all the rest. The percentage
held by foreign central banks is up from 66 percent at the end of 2006.
All the Federal debt held by foreign residents is denominated in
dollars.
---------------------------------------------------------------------------
\12\ The debt calculated by the Bureau of Economic Analysis,
Department of Commerce, is different, though similar in size, because of
a different method of valuing the securities.
---------------------------------------------------------------------------
Table 16-6. FOREIGN HOLDINGS OF FEDERAL DEBT
(Dollar amounts in billions)
----------------------------------------------------------------------------------------------------------------
Debt held by the public Borrowing from the
------------------------------------ public
Fiscal Year Percentage -----------------------
Total Foreign \1\ foreign Total \2\ Foreign \1\
----------------------------------------------------------------------------------------------------------------
1965................................................ 260.8 12.3 4.7 3.9 0.3
1970................................................ 283.2 14.0 5.0 5.1 3.8
1975................................................ 394.7 66.0 16.7 51.0 9.2
1980................................................ 711.9 121.7 17.1 71.6 1.4
1985 \3\............................................ 1,507.3 222.9 14.8 200.3 N/A
1990 \3\............................................ 2,411.6 440.3 18.3 220.8 N/A
1991................................................ 2,689.0 477.3 17.7 277.4 37.0
1992................................................ 2,999.7 535.2 17.8 310.7 57.9
[[Page 241]]
1993................................................ 3,248.4 591.3 18.2 248.7 56.1
1994................................................ 3,433.1 655.8 19.1 184.7 64.5
1995 \3\............................................ 3,604.4 800.4 22.2 171.3 N/A
1996................................................ 3,734.1 993.4 26.6 129.7 193.0
1997................................................ 3,772.3 1,230.5 32.6 38.3 237.1
1998................................................ 3,721.1 1,224.2 32.9 -51.2 -6.3
1999 \3\............................................ 3,632.4 1,281.4 35.3 -88.7 N/A
2000 \3\............................................ 3,409.8 1,057.9 31.0 -222.6 N/A
2001................................................ 3,319.6 1,005.5 30.3 -90.2 -52.3
2002 \3\............................................ 3,540.4 1,200.8 33.9 220.8 N/A
2003................................................ 3,913.4 1,454.2 37.2 373.0 253.4
2004................................................ 4,295.5 1,798.7 41.9 382.1 344.5
2005................................................ 4,592.2 1,930.6 42.0 296.7 131.9
2006................................................ 4,829.0 2,027.3 42.0 236.8 96.7
2007................................................ 5,035.1 2,240.3 44.5 206.2 213.0
----------------------------------------------------------------------------------------------------------------
N/A = Not available.
\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. The estimates include the effects
of benchmark revisions in 1984, 1989, 1994, March 2000, and June 2002, 2003, 2004, 2005, and 2006.
\2\ Change in debt held by 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\ Because the change in debt that is recorded as held by foreign residents in these fiscal years reflects
benchmark or conceptual revisions as well as net changes in holdings of Federal securities, the change in debt
is not shown in these years.
Although the amount of Federal debt held by foreign residents has
grown greatly over this period, the proportion that foreign residents
own, after increasing abruptly in the very early 1970s, remained about
15-20 percent until the mid-1990s. During 1995-97, however, growth in
foreign holdings accelerated, with foreign holdings increasing
considerably more than total Federal borrowing from the public. As a
result, the Federal debt held by individuals and institutions within the
United States decreased in absolute amount during those years, despite
further Federal borrowing. The percentage of Federal debt held by
foreign residents grew from 19 percent at the end of 1994 to 33 percent
at the end of 1997. In the next few years the change in foreign debt
holdings was much smaller. Federal debt held by foreign residents grew
from 34 percent at the end of 2002 to 42 percent at the end of 2004, and
then remained at that level in 2005 and 2006. In 2007, Federal debt held
by foreign residents increased by $213 billion, more than the entire
change in the debt held by the public. Over the last five years, the
increase in foreign holdings was about 70 percent of total Federal
borrowing.
Foreign holdings of Federal debt are around 15-20 percent of the
foreign-owned assets in the United States, depending on the method of
measuring total assets. 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; it permits mortgage interest to
be deducted in calculating taxable income; 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 7 of this volume, ``Credit and Insurance.'' Detailed data are
presented in tables at the end of that chapter.