The national debt, also known as public debt, is the total amount owed to creditors by a country.
What Does National Debt Represent?
Debt may take many forms, ranging from credit card bills and vehicle loans to mortgages and the $5 you owe to a buddy. Debt is typically the result of expenditure surpassing income for both individuals and businesses.
So, how can a country build its national debt? It’s comparable to how people and businesses accumulate debt. National debt increases when a country’s yearly expenditures exceed its annual revenue, although other variables influence governments differently than regular borrowers.
Each country has an annual budget that includes funds for defense, infrastructure, social programs, and other things. Taxes and other types of national income, such as custom costs, are the primary sources of budget support. They do not, however, always cover the entire country’s annual expenses.
Governments issue bonds, also known as Treasury securities or Treasury bonds, to cover income shortfalls and maintain a continuous and predictable source of budget funding. The national debt is the total outstanding value of all Treasury bonds issued by the government.
What is the Amount of US National Debt?
The current national debt of the United States is $33.69 trillion, according to the US Department of the Treasury. It is a substantial sum, amounting to nearly $94,000 per individual.
Ordinary people, on the other hand, are not required to repay their portion of the national debt. Debt payment consumes a set amount of the annual budget.
There’s a real-time representation of the national debt, known as the “National Debt Clock.” This iconic digital billboard, located in New York City, provides a visual and constantly updating display of the current national debt.
The United States Congress sets a limit on the amount of debt the government can incur, known as the “debt ceiling.” When the debt approaches this limit, it sparks debates and potential government shutdowns. These situations can have far-reaching consequences for financial markets and the economy.
National Debt vs. Budget Deficit
A budget deficit happens when a country’s yearly budget spending exceed its total annual income. National debt, on the other hand, is the total outstanding value of all government-issued Treasury bonds.
In the United States, Congress is in charge of approving the federal government’s yearly budget. The Treasury, which reports to the White House and is part of the executive branch, collects taxes, gets other income, and sells US Treasury securities, often known as Treasury bonds.
The US budget deficit arises when the yearly budget approved by Congress exceeds the Treasury’s collection of taxes and other income. A budget surplus occurs when income surpasses spending.
The Treasury sells bonds on a regular basis to fund the budget. It issues many forms of debt securities with varying durations and maturity periods, but they are all government liabilities. Investors anticipate monthly interest payments and the repayment of the principal amount when the securities mature.
The US national debt is the total value of all outstanding Treasury bonds. Because the Treasury sells bonds regardless of budget fluctuations, the link between national debt and budget deficit is partly indirect.
What is the Debt-to-GDP Ratio?
The Gross Domestic Product (GDP) of a country is the total value of all products and services generated in that country in a given year.
The debt-to-GDP ratio is computed by dividing a country’s total national debt by its total GDP over a year.
Total National Debt / GDP = Debt-to-GDP Ratio
The US national debt is $33.69 trillion, and the US GDP is $26.24 trillion. By dividing the former by the latter, we obtain a debt-to-GDP ratio of 128.6% for the United States.
While this may appear to be a high debt-to-GDP ratio, it is not the highest in the world. Japan now has the highest debt-to-GDP ratio.