Some Simple Facts about U.S. Government Debt
The federal budget is irresponsibly out of balance
The U.S. government budget is characterized by vast sums that are too abstract for most people to easily comprehend. This fact sheet translates the billions and trillions in government budget figures into terms that non-experts can more directly relate to. The goal is to empower more Americans to speak out about the irresponsibility of government spending and borrowing and make their voices heard.
While federal government finances have some unique features that make the federal budget unlike any American household budget, putting government spending and borrowing in terms of their cost per household will illustrate just how out of balance the federal budget is and why a course correction is both necessary and urgent.
U.S. government debt is too high and growing too fast.
Government debt is larger than all the goods and services produced by individuals and businesses in the United States in one year. If Congress decided to collect the money to pay off the debt next year, no American would have any income left to pay their rent, buy food, or for anything else, for a whole year.
If we split government debt among all American households, each would owe $194,000 this year. If we waited 30 years and then split government debt among all households, each would owe $696,000.
Economic researchers have found that countries that borrow as much as the U.S. government does experience negative effects, such as lower economic growth, reduced incomes for their population, and higher interest rates that affect everything from mortgages to auto loans. If government debt grows too far out of control, countries can face a so-called fiscal crisis, which could affect people worse than the 2008 financial crisis or Great Recession. Banks could collapse, people would lose their jobs, and everyday goods and services would become unaffordable.
The government budget is irresponsibly out of balance.
If any typical American family spent and borrowed like the federal government does, this family would spend $100,000 a year, despite only earning $78,000. This family would borrow the additional $22,000 in one year, on top of having already borrowed more than $400,000 in total.
That’s one way to think about the federal government spending $6.3 trillion in 2022, after collecting only $4.9 trillion in taxes, and putting the additional $1.4 trillion on top of the $22.3 trillion U.S. public debt.
Of every $10 the government spends, more than $7 is spent on autopilot, without members of Congress having to vote before spending that money. Congress only votes on how to spend $3 of every $10.
Download a printable PDF version of this fact sheet here.
Romina, thanks for covering this! It is an important topic for the public to understand. There is not enough public discussion of this matter. Putting the debt in terms of household debt is good so that people can visualize the magnitude. A trillion is hard to image. It's a million X a million - hard to wrap the mind around that.
One quick note, the article states that the public debt is $22.3 trillion. It is actually in excess of $31.4 trillion.
source: https://fred.stlouisfed.org/series/GFDEBTN
source: https://econ-intel.com/federal-government-dashboard/
Economists fail to recognize the significance and benefits of government debt. I explain this in my article, The True Meaning of Debt.
All new money is debt and the manufacturing sector of the GDP cannot rise unless the money supply is increased, which means debt must be continually increased. Compared to individual consumers and businesses who use relatively small amounts of credit for specific purposes, the government gathers huge amounts of money to support large expenditures for Social Security, and Medicare, defense, highway maintenance, building construction, research, and education.
Missing from the discussion of government debt is that this debt is only about 1/3 of the total debt in the economy and the private debt has more serious implications than the public debt.
Government borrows at much lower interest rates than private agencies and its debt can be easily rolled over. Lending to consumers and businesses incurs risks that affect the banking system. Recessions are never caused by too much government debt; they are caused by private financial arrangements, often due to overextension of debt and bankruptcies that harm creditors. Because the money supply drives the economy, when private credit and spending stagnate, the government must employ deficit spending to stimulate the economy. This has occurred during several recessions.
The June 2021 Federal Reserve Holdings of almost $6 trillion is due to the Fed Open Market Operations for stimulating the economy and maintaining low-interest rates. The Fed is responsible for acquiring and extinguishing that debt. Foreign holdings of about $8 trillion of government debt come from the need to equalize the balance of payments. Because the balance of payments between nations is “zero,” the dollars accumulated by the foreign exporters are either kept as reserves, purchase U.S. assets, or used to acquire American government debt. The government debt retrieves dollars that left the shores and assures they do not return to inflate and purchase U.S. fixed assets. Failure of U.S. companies to increase exports and balance them with imports is the reason for this debt. If companies increase exports and consumers reduce imports, that portion of the debt will be gradually reduced. This leaves about $16 trillion in government debt. About $7 trillion is intra-government debgt, what government agencies owe to other government agencise. This leaves about $9 trillion in government debt in hands of the public, which is owned by ultra-conservative investors — private and state pension funds, credit unions, associations, institutions, and individual investors who want to keep their money in a safe and fairly liquid investment. By allowing safe investment opportunities and making certain that a portion of the money supply circulates in the economy, publicly-held government debt serves a major purpose.
The problem is not government debt or any other debt; the problem is that the capitalist economy cannot grow without increasing debt. Solving the problem starts with facing the truth, which is that the economy is the cause of its debt problem and will forever be subjected to calamities arising from excessive debt.