Cbos Projections Of Debt Held By The Public Net Of Financial Assets
Billions of Dollars
a. Includes other cash and monetary assets , offset by liabilities such as interest accrued but not yet paid to the public.
Most of the growth in financial assets over the coming decade is projected for the outstanding balances on education loans. CBO estimates that, under current law, the Treasury would hold $1.8 trillion in student debt in 2030. The rest of the assets would consist of cash balances and other loans and guarantees held by the government. The outstanding value of those other credit activities is projected to decrease from $186 billion to $89 billion over the 20192030 period, as interest receipts and principal repayments exceed disbursements.
Interest And Debt Service Costs
Despite rising debt levels, interest costs have remained at approximately 2008 levels because of lower than long-term interest rates paid on government debt in recent years. The federal debt at the end of the 2018/19 fiscal year was $22.7 trillion. The portion that is held by the public was $16.8 trillion. Neither figure includes approximately $2.5 trillion owed to the government. Interest on the debt was $404 billion.
The cost of servicing the U.S. national debt can be measured in various ways. The CBO analyzes net interest as a percentage of GDP, with a higher percentage indicating a higher interest payment burden. During 2015, this was 1.3% GDP, close to the record low 1.2% of the 19661968 era. The average from 1966 to 2015 was 2.0% of GDP. However, the CBO estimated in 2016 that the interest amounts and % GDP will increase significantly over the following decade as both interest rates and debt levels rise: “Interest payments on that debt represent a large and rapidly growing expense of the federal government. CBO’s baseline shows net interest payments more than tripling under current law, climbing from $231 billion in 2014, or 1.3% of GDP, to $799 billion in 2024, or 3.0% of GDPthe highest ratio since 1996.”
According to a study by the Committee for a Responsible Federal Budget , the U.S. government will spend more on servicing their debts than they do for their national defense budget by 2024.
Tracking The Federal Deficit: April 2022
The Congressional Budget Office estimates that the federal government ran a surplus of $308 billion in April 2022, the seventh month of fiscal year 2022. This surplus was the difference between $864 billion in receipts and $556 billion in spending. Aprils surplus compares to a $226 billion deficit in April 2021, with the dramatic change primarily due to the winding down of most pandemic relief spending and income tax receipts arriving in April 2022 that were delayed during the last fiscal year. In both 2021 and 2022, May 1 fell on a weekend, shifting some outlays into April that would normally have occurred in May. If not for those shifts, the April 2022 surplus would have been $373 billion and the April 2021 deficit would have been $166 billion. The following discussion excludes the effects of those timing shifts.
Analysis of notable trends: The federal government typically runs a surplus in April, the month when most taxpayers pay individual income taxes. However, due to high levels of pandemic relief spending and the IRSs decision to delay Tax Day in 2020 and 2021, April 2022 marked the first April surplus since 2019.
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Tracking The Federal Deficit: May 2019
The Congressional Budget Office reported that the federal government generated a$207 billiondeficit inMay, the eighth monthof Fiscal Year 2019, for a total deficit of $738 billionso far this fiscal year.Maysdeficit is41 percent more than the deficit recorded a year earlier inMay 2018. If not for timing shifts of certain payments, the deficit would have been7 percent larger than the deficit inMay 2018. Total revenues so far inFiscal Year 2019increased by2 percent , while spending increased by9 percent , compared to the same period last year.
Analysis of Notable Trends this Fiscal Year to Date: Corporate income tax receipts were down by 9 percent compared to last year, reflecting the lower marginal corporate tax rate enacted in the Tax Cuts and Jobs Act of 2017. Further, customs duties increased by 78 percent versus last year, due to the imposition of new tariffs. On the spending side, Department of Defense spending increased by 10 percent compared to last year, particularly on military operations, maintenance, procurement, and R& D. Finally, net interest payments on the federal debt continued to rise, increasing by 16 percent versus last year due to higher interest rates and a larger federal debt burden.
The Early 20th Century: 1900
In first 50 years or so following the Civil War, the national debt generally fluctuated between $1.5 billion and $2.5 billion. But that changed quickly as Europe began to tear itself apart in 1914 in World War I.
Although America didn’t join the war until April 1917, our impending involvement began to drive borrowing in the years before that. Between 1915 and 1917, the country’s borrowing climbed to over $5.7 billion as the country prepared for and ultimately entered war. And over the course of 1918 and 1919, borrowing soared to $27 billion and would never again end the year below $16 billion.
This borrowing also created the debt ceiling. As President Woodrow Wilson’s administration needed to borrow more and more money to pay for World War I, Congress’ previous approach of approving each bond sale individually became unworkable. Instead, Congress issued an overall cap, telling the U.S. Treasury how much it could borrow overall and allowing the administration to manage the sale of individual rounds of debt. This law has remained in place ever since.
Borrowing ticked up again during President Franklin Roosevelt’s administration during Great Depression. Once the New York Democrat took over from President Herbert Hoover, he began his program of vast, active spending called the New Deal. Roosevelt pushed borrowing to over $40 billion fighting the Depression — nearly doubling the national debt when he took office.
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Tracking The Federal Deficit: December 2021
The Congressional Budget Office estimates that the federal government ran a deficit of $20 billion in December 2021, the third month of fiscal year 2022. This deficit was the difference between $486 billion in revenues and $507 billion of spending. Decembers deficit was 85% smaller than that of December 2020. Additionally, both this year and last year, the timing of the New Years Day federal holiday shifted payments that would normally have occurred at the beginning of January into December. In the absence of these timing shifts, the federal government would have run a monthly surplus in December 2021 for the first time since January 2020, prior to the onset of the COVID-19 pandemic.
Analysis of notable trends: Through the first quarter of FY2022, the federal government has run a deficit of $377 billion, $196 billion less than at this point in FY2021. After factoring in the aforementioned timing shifts, the FY2022 deficit to date is $353 billion, or 33% smaller than FY2021the rest of this discussion accounts for these payment shifts. However, this deficit is $17 billion larger than the deficit accrued during the first quarter of FY2020, before the start of the pandemic.
Tracking The Federal Deficit: March 2022
The Congressional Budget Office estimates that the federal government ran a deficit of $191 billion in March 2022, the sixth month of fiscal year 2022. This shortfall was the difference between $315 billion in receipts and $506 billion in spending. The March 2022 deficit was $469 billion smaller than the March 2021 deficit, largely a result of the winding down of most pandemic relief spending that was in place during March 2021.
Analysis of notable trends: Halfway through fiscal year 2022, the cumulative deficit has fallen relative to last year and is now comparable to pre-COVID deficits. Through the first six months of FY2022, the federal government ran a deficit of $667 billion, 61% less than at the same point in FY2021 and in the ballpark of the FY2019 and FY2020 deficits, which stood at $691 billion and $743 billion, respectively.
Revenues remained strong, rising $418 billion from the same period in FY2021 to a total of $2.1 trillion during this fiscal year to date. Increases in individual income and payroll tax receipts rose by $357 billion and drove much of the overall surge in receipts. Higher total wages and salaries, especially among upper-income workers who are subject to higher tax rates, contributed to the increase in those tax revenues, as did the receipt of some payroll taxes that pandemic relief legislation authorized companies to defer from 2020 into 2021. Corporate income tax revenues rose by $22 billion year-over-year.
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A Measure Of Debt Among Oecd Countries
The Organisation for Economic Co-operation and Development uses general government net financial liabilities as its measure of national indebtedness. In the OECDs usage, general government encompasses central and local governments, thus broadening the idea of federal debt net of financial assets to apply to government at all levels. For the United States, the measure accounts for local, state, and federal debt.
The OECD defines net financial liabilities as the gross financial liabilities of the general government sector less the financial assets of the general government sector. Such assets may be cash, bank deposits, loans to the private sector, participation in private sector companies, holdings in public corporations or foreign exchange reserves, depending on the institutional structure of the country concerned and data availability.1 Although various countries interpret the definition differentlyand thus comparisons are not completely straightforwardin the view of the Congressional Budget Office, the construct is still useful.
1. See Organisation for Economic Co-operation and Development, Notes to Statistical Annex Tables 29-37: Fiscal Balances and Public Indebtedness: Annex Table 37General Government Net Financial Liabilities , .
Why Are Ukraines Bond Yields So High
Ukraine has high default risk due to its ongoing conflict with Russia. To understand why, consider a scenario where Russia was to assume control of the country. If this happened, its possible that Ukraines existing debt obligations will never be repaid.
That scenario has prompted a sell-off of Ukrainian government bonds, pushing their value down to nearly 30 cents on the dollar. This means that a bond with face value of $100 could be purchased for $30.
Because yields move in the opposite direction of price, the average yield on these bonds has climbed to a very high 60.4%. As a point of comparison, the yield on a U.S. 10-year government bond is currently 2.9%.
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A Brief History Of Us Debt
Investopedia / Sabrina Jiang
Nearly all national governments borrow money. The U.S. has carried national debt throughout its history, dating back to the borrowing that financed the Revolutionary War. Since then the debt has grown alongside the economy, as a result of increased government responsibilities, and in response to economic developments.
Tracking The Federal Deficit: September 2021
The federal deficit for September 2021 was $59 billion, approximately $65 billion less than the deficit for September 2020. This deficit was the difference between revenues of $460 billion and spending of $519 billion. Although individual and corporate tax payments in September typically produce a large surplus, COVID-19 relief spending eclipsed them and led to a September deficit for the second year in a row.
Revenues increased by $87 billion in relation to the same month last year. The increase was mostly caused by a 23% rise in income and payroll taxes and a 71% increase in corporate income tax receipts.
Spending rose $22 billion year-over-year. Notably, spending by the Department of Education was 107% higher than in September 2020. An upward revision of $95 billion to the departments estimated net subsidy costs of loans and loan guarantees was driven partially by pandemic-related causesincluding the extension of pauses on the payment of loan principal and interest and the collection of loans in defaultand partially by re-estimates of how much the federal government would be repaid on its outstanding portfolio. Spending on refundable tax credits increased $21 billion year-over-year primarily due to the monthly advanced Child Tax Credit payments authorized by the American Rescue Plan earlier this year.
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Tracking The Federal Deficit: November 2020
The Congressional Budget Office estimates that the federal government ran a deficit of $146 billion in November, the second month of fiscal year 2021. This deficit was the difference between $365 billion of spending and $219 billion of revenue. Spending in November, however, was artificially lowered by the fact that November 1 fell on a weekend, causing $63 billion worth of payments that would normally be made in November to be made in October instead. If those payments had been made in November as usual, this months spending and deficit would each have been $63 billion greater, or $428 billion and $209 billion . In the first two months of this fiscal year, the federal government has run a deficit of $430 billion, $87 billion more than at this point last fiscal year. Compared to this point last fiscal year, spending has run 9% higher while revenues have fallen by 3%.
Revenues also fell by 3% from last November, mostly reflecting a drop in withheld individual income and payroll taxes due to lower levels of employment.
Tracking The Federal Deficit: September 2020
Each September, the government receives substantial revenue from individual and corporate income taxes, which generally produces a monthly surplus. For example, the federal government recorded an $83 billion surplus last September . This year, however, greater spending in response to the pandemic and recession dominated the usual revenue increase, and the government ran a monthly deficit of $124 billion. This deficit was the difference between revenues of $372 billion and spending of $496 billion.
Revenue this September fell 1% from last September, the result of lost economic activity and policy changes allowing some taxes to be deferred or reduced. For instance, individual income and payroll taxes were 5% below last years level, while corporate income taxes fell 16%. Individual income tax refunds also increased by 68%, further lowering net revenue.
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Tracking The Federal Deficit: March 2020
The Congressional Budget Office reported that the federal government generated a $117 billion deficit in March, the sixth month of fiscal year 2020. Marchs deficit is a $30 billion decrease from the $147 billion deficit recorded a year earlier in March 2019. Marchs deficit brings the total deficit so far this fiscal year to $741 billion, which is 7% higher than the same period last year. Total revenues so far in FY2020 increased by 6% , while spending increased by 7% , compared to the same period last year.
Analysis of Notable Trends in This Fiscal Year to Date: Through the first six months of FY2020, federal reserve remittances increased by 22% because of lower short-term interest rates, which decreased the Federal Reserves interest expenses and increased its payments to the Treasury. As in previous months, the rise in spending was driven by increasing expenditures on the military , Social Security, Medicare, and Medicaid , and net interest on the public debt . Notably, the March 2020 report was not significantly impacted by the new coronavirus pandemic nor the federal governments emergency measures responding to it. CBO anticipates that those budgetary effects will be more noticeable in April.
Income Security And Covid
Income security spending of $1.6 trillion was boosted by $569.5 billion in pandemic relief payments and $79 billion in child tax credit payments. It also included $397.9 billion for unemployment compensation, $168.1 billion on food and nutrition assistance, $89.8 billion in housing assistance, and $156.1 billion in federal employee retirement and disability costs.
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Who Decides How Much Interest The Us Pays On Its Debt
Supply and demand. In other words, the marketplace. When the government needs to raise debt financing, it sells debt securities in an auction. Bidders offer to buy the debt for a specific rate, yield, or discount margin, and all successful bidders receive the highest yield or discount the Treasury accepts. Government debt buyers may include central banks, though their goal is typically to foster sustainable economic growth rather than to finance deficit spending.
Recovery From The Civil War
The Civil War alone is estimated to have cost $5.2 billion when it ended and government debt skyrocketed from $65 million to $2.6 billion. Post-Civil War inflation along with economic disturbance from Europes financial struggles contributed to the vulnerable economic climate of the late 19th century.
The collapse of Jay Cooke & Co., a major bank invested in railroading, caused the Panic of 1873. Nearly a quarter of the countrys railroads went bankrupt, more than 18,000 businesses closed, unemployment hit 14 percent and the New York Stock Exchange began sinking.
This period of deflation and low growth continued for 65 months making it the longest depression, according to the National Bureau of Economic Research. During this time the government collected less money in taxes and the national debt grew.
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Trends In Housing Debt
Home prices have experienced upward pressure since the beginning of the COVID-19 pandemic. This is evidenced by the Case-Shiller U.S. National Home Price Index, which has increased by 34% since the start of the pandemic.
Driving this growth are various pandemic-related impacts. For example, the cost of materials such as lumber have seen enormous spikes. Weve covered this story in a previous graphic, which showed how many homes could be built with $50,000 worth of lumber. In most cases, these higher costs are passed on to the consumer.
Another key factor here is mortgage rates, which fell to all-time lows in 2020. When rates are low, consumers are able to borrow in larger quantities. This increases the demand for homes, which in turn inflates prices.
Ultimately, higher home prices translate to more mortgage debt being incurred by families.
No Need to Worry, Though
Economists believe that todays housing debt isnt a cause for concern. This is because the quality of borrowers is much stronger than it was between 2003 and 2007, in the years leading up to the financial crisis and subsequent housing crash.
In the chart below, subprime borrowers are represented by the red-shaded bars:
We can see that subprime borrowers represent very little of todays total originations compared to the period between 2003 to 2007 . This suggests that American homeowners are, on average, less likely to default on their mortgage.
| Year |
|---|
| 3.2% |