Types Of Debt Bonds

[Marilina Crawn]

Thenational debt is composed of distinct types of debt, similar to an individual whose debt may consist of a mortgage, car loan, and credit cards. The different types of debt include non-marketable or marketable securities and whether it is debt held by the public or debt held by the government itself (known as intragovernmental).

The U.S. has carried debt since its inception. Debts incurred during the American Revolutionary War amounted to $75 million, primarily borrowed from domestic investors and the French Government for war materials.

The national debt is the amount of money the federal government has borrowed to cover the outstanding balance of expenses incurred over time. In a given fiscal year (FY), when spending (ex. money for roadways) exceeds revenue (ex. money from federal income tax), a budget deficit results. To pay for this deficit, the federal government borrows money by selling marketable securities such as Treasury bonds, bills, notes, floating rate notes, and Treasury inflation-protected securities (TIPS). The national debt is the accumulation of this borrowing along with associated interest owed to the investors who purchased these securities. As the federal government experiences reoccurring deficits, which is common, the national debt grows.

The federal government needs to borrow money to pay its bills when its ongoing spending activities and investments cannot be funded by federal revenues alone. Decreases in federal revenue are largely due to either a decrease in tax rates or individuals or corporations making less money. The national debt enables the federal government to pay for important programs and services even if it does not have funds immediately available, often due to a decrease in revenue. Decreases in federal revenue coupled with increased government spending further increases the deficit.

In accordance with the 2014 DATA Act, federal agencies are required to submit financial data on a quarterly and/or monthly basis to USAspending.gov. Anyone can visit USAspending for a breakdown of what the federal government spends each year and how it spends that money. Visitors can follow the money from the Congressional appropriations to the federal agencies and down to local communities and businesses.

The U.S. has carried debt since its inception. Debts incurred during the American Revolutionary War amounted to over $75 million by January 1, 1791. Over the next 45 years, the debt continued to grow until 1835 when it notably shrank due to the sale of federally-owned lands and cuts to the federal budget. Shortly thereafter, an economic depression caused the debt to again grow into the millions. The debt grew over 4,000% through the course of the American Civil War, increasing from $65 million in 1860 to $1 billion in 1863 and almost $3 billion shortly after the conclusion of the war in 1865. The debt grew steadily into the 20th century and was roughly $22 billion after the country financed its involvement in World War I.

Notable recent events triggering large spikes in the debt include the Afghanistan and Iraq Wars, the 2008 Great Recession, and the COVID-19 pandemic. From FY 2019 to FY 2021, spending increased by about 50%, largely due to the COVID-19 pandemic. Tax cuts, stimulus programs, increased government spending, and decreased tax revenue caused by widespread unemployment generally account for sharp rises in the national debt.

The national debt is composed of distinct types of debt, similar to an individual whose debt consists of a mortgage, car loan, and credit cards. The national debt can be broken down by whether it is non-marketable or marketable and whether it is debt held by the public or debt held by the government itself (known as intragovernmental). The national debt does not include debts carried by state and local governments, such as debt used to pay state-funded programs; nor does it include debts carried by individuals, such as personal credit card debt or mortgages.

When interest rates remain low over time, interest expense on the debt paid by the federal government will remain stable, even as the federal debt increases. As interest rates increase, the cost of maintaining the national debt also increases.

The debt ceiling, or debt limit, is a restriction imposed by Congress on the amount of outstanding national debt that the federal government can have. The debt ceiling is the amount that the Treasury can borrow to pay the bills that have become due and pay for future investments. Once the debt ceiling is reached, the federal government cannot increase the amount of outstanding debt, losing the ability to pay bills and fund programs and services. However, the Treasury can use extraordinary measures authorized by Congress to temporarily suspend certain intragovernmental debt allowing it to borrow to fund programs or services for a limited amount of time after it has reached the ceiling.

Since the United States has never defaulted on its obligations, the scope of the negative repercussions related to a default are unknown but would likely have catastrophic repercussions in the United States and in markets across the globe.

Note: Following federal law, we (the Bureau of the Fiscal Service) account for and report on the public debt. We do not have decision-making authority for public policy about the budget or the debt.

The deficit is the fiscal year difference between what the United States Government (Government) takes in from taxes and other revenues, called receipts, and the amount of money the Government spends, called outlays. The items included in the deficit are considered either on-budget or off-budget.

The on-budget deficits require the U.S. Treasury to borrow money to raise cash needed to keep the Government operating. We borrow the money by selling securities like Treasury bills, notes, bonds, and savings bonds to the public.

The Public Debt Subject to Limit is the Public Debt Outstanding adjusted for Unamortized Discount on Treasury Bills and Zero Coupon Treasury Bonds, Miscellaneous debt (very old debt), Debt held by the Federal Financing Bank and Guaranteed Debt.

Our system relies on reporting entities (for example, Federal Reserve Banks) to report a variety of Treasury security information at the end of the day. On the following business day, our accounting system processes this information and generates the Public Debt Outstanding for the previous day which is posted to our website by 3 PM.

The Monthly Statement of the Public Debt (MSPD) is available online in summary and full versions, and lists the types of Treasury Securities we have issued to finance the Debt, the related maturity dates, and the "Amount Outstanding" for each category as well as subtotals and an overall total.

The Debt Held by the Public is all federal debt held by individuals, corporations, state or local governments, Federal Reserve Banks, foreign governments, and other entities outside the United States Government less Federal Financing Bank securities. Types of securities held by the public include, but are not limited to, Treasury Bills, Notes, Bonds, TIPS, United States Savings Bonds, and State and Local Government Series securities.

Intragovernmental Holdings are Government Account Series securities held by Government trust funds, revolving funds, and special funds; and Federal Financing Bank securities. A small amount of Treasury marketable securities are held by government accounts.

The Federal Financing Bank (FFB) is a government corporation, created by Congress in 1973 under the general supervision of the Secretary of the Treasury. The FFB was established to centralize and reduce the cost of federal borrowing as well as federally-assisted borrowing from the public. Obligations are issued to the public by the Federal Financing Bank (FFB) to finance its operations. Obligations are limited to $15 billion unless otherwise authorized by the Appropriations Acts.

The following frequently asked questions provide further information on the actions Treasury is taking to create additional headroom under the debt limit so that the U.S. government can continue funding obligations made by Congresses past and present.

The CSRDF is invested in special-issue Treasury securities, which count against the debt limit. In 1986, Congress provided Treasury statutory authority to take certain actions in the event that the outstanding debt reaches the debt limit. Specifically, the statute authorizes the Secretary of the Treasury to determine that a "debt issuance suspension period" exists and, once he has done so, Treasury can (1) redeem certain existing investments in the CSRDF, and (2) suspend new investments by the CSRDF.

The statute governing the CSRDF gives Treasury authority to redeem existing Treasury securities held by the CSRDF in an amount up to the amount of civil service benefit payments authorized to be made from the CSRDF during the debt issuance suspension period.

Under the statute that governs the CSRDF, the term "debt issuance suspension period" means the period of time that the Treasury Secretary determines that Treasury securities cannot be issued without exceeding the debt limit. The determination of the length of the period is based on the facts as they exist at the time.

The statute authorizes Treasury to suspend the investment of new amounts by the CSRDF during a debt issuance suspension period. New receipts include contributions from Federal employees and agency employers, as well as the interest payments on securities held by the CSRDF and the proceeds of maturing securities.

By law, the CSRDF will be made whole once the debt limit is increased. Benefits for retired and disabled Federal employees will not be affected by this action and will continue to be paid. Once the United States has exhausted the extraordinary measures it has available to preserve lawful borrowing authority without exceeding the debt limit, however, the U.S. Government will be limited in its ability to make payments across the government.

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