Federal Borrowing

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FEDERAL BORROWING AND DEBT


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224 ANALYTICAL PERSPECTIVES

percentage o GDP is estimated to increase in 20092011,reaching 70.1 percent o GDP, and is projected to remainrelatively stable in subsequent years.

Trends in Debt Since World War II

Table 161 depicts trends in Federal debt held by the

public rom World War II to the present and estimatesrom the present through 2014. (It is supplemented orearlier years by Tables 7.17.3 inHistorical Tables, whichis published as a separate volume o the Budget.) Federaldebt peaked at 108.6 percent o GDP in 1946, just aterthe end o the war. From then until the 1970s, because orelatively small decits, an expanding economy, and in-fation, Federal debt as a percentage o GDP decreasedalmost every year. With households borrowing largeamounts to buy homes and consumer durables, and withbusinesses borrowing large amounts to buy plant andequipment, Federal debt also decreased almost every yearas a percentage o total credit market debt outstanding.The cumulative eect was impressive. From 1950 to 1975,

debt held by the public declined rom 80.2 percent o GDPto 25.3 percent, and rom 53.3 percent o credit marketdebt to 18.4 percent. Despite rising interest rates, interestoutlays became a smaller share o the budget and wereroughly stable as a percentage o GDP.

Since the 1970s, Federal debt relative to GDP has beena unction o the Nations scal policy as well as overalleconomic conditions. During the 1970s, large budget de-cits emerged as spending grew and as the economy wasdisrupted by oil shocks and rising infation. The nominalamount o Federal debt more than doubled, and Federaldebt relative to GDP and credit market debt stoppeddeclining ater the middle o the decade. The growth oFederal debt accelerated at the beginning o the 1980s, duein large part to a deep recession, and the ratio o Federaldebt to GDP grew sharply. It continued to grow through-out the 1980s as large tax cuts, enacted in 1981, and sub-stantial increases in deense spending were only partiallyoset by substantial reductions in domestic spending. Theresulting decits were large enough to drive the debt toalmost 50 percent o GDP by 1993. The ratio o Federaldebt to credit market debt also rose, though to a lesser ex-tent. Interest outlays on debt held by the public, calculat-ed as a percentage o either total Federal outlays or GDP,increased as well. The growth o Federal debt held by thepublic was decelerating by the mid-1990s, however, as twomajor budget agreements enacting spending cuts and taxincreases reduced decits to sustainable levels, and thedebt declined markedly relative to both GDP and totalcredit market debt. The decline accelerated as surplusesemerged rom 1997 to 2001. Debt ell steadily rom 49.4percent o GDP in 1993 to 33.0 percent in 2001. Interestas a share o outlays peaked at 16.5 percent in 1989 andthen ell to 8.9 percent by 2002; interest as a percentageo GDP ell in a similar proportion.

An upward trend in debt relative to GDP began in2002. The decline in the stock market, the recession,and the initially slow recovery all reduced tax receipts.The tax cuts o 2001 and 2003 had a similarly large

and longer-lasting eect, as did the growing costs o thewars in Iraq and Aghanistan. Decits ensued and debtbegan to rise, both in nominal terms and as a percent-age o GDP. However, economic growth led to a revivalo receipt growth and decits and Federal debt as ashare o GDP ell in 2006 and 2007.

As a result o the massive nancial and economic chal-

lenges now acing the Nation, the decit began increasingrapidly in 2008. The decit will increase more substantially in 2009 as the Government takes aggressive stepsto restore the health o the Nations economy and nan-cial markets. Decits are projected to begin to decreasein 2010, roughly stabilizing as a percent o GDP in theoutyears. Although debt in nominal dollars is estimatedto continue to increase through 2019, debt as a percent oGDP is anticipated to increase noticeably in 2009 through2011 and then to remain airly level rom 2012 through2019.

Debt Held by the Public and Gross Federal Debt

The Federal Government issues debt securities ortwo principal purposes. First, it borrows rom the public to nance the Federal decit.1 Second, it issues debtto Federal Government accounts, primarily trust undsthat accumulate surpluses. By law, trust und surplusesmust generally be invested in Federal securities. Thegross Federal debt is dened to consist o both the debtheld by the public and the debt held by Government accounts. Nearly all the Federal debt has been issued bythe Treasury and is sometimes called public debt, but asmall portion has been issued by other Government agencies and is called agency debt. 2

Borrowing rom the public, whether by the Treasuryor by some other Federal agency, is important becauseit represents the Federal demand on credit marketsRegardless o whether the proceeds are used or tangibleor intangible investment or to nance current consump-tion, the Federal demand on credit markets has to be -nanced out o the saving o households and businessesthe State and local sector, or the rest o the world. Federalborrowing thereby competes with the borrowing o othercredit market sectors or nancial resources in the creditmarket. Borrowing rom the public thus aects the sizeand composition o assets held by the private sector andthe amount o saving imported rom abroad. It also in-creases the amount o uture resources required to payinterest to the public on Federal debt. Borrowing romthe public is thereore an important concern o Federalscal policy.3 However, borrowing rom the public is an

1 For the purposes o the Budget, debt held by the public is dened as debt held by inves-

tors outside o the Federal Government, both domestic and oreign, including U.S. State and

local governments and oreign governments. It also includes debt held by the Federal Reserve.2 The term agency debt is dened more narrowly in the budget than customarily in th

securities market, where it includes not only the debt o the Federal agencies listed in Table

164, but also the debt o the Government-sponsored enterprises listed in Table 79 at the end

o Chapter 7 o this volume and certain Government-guaranteed securities.3 The Federal subsector o the national income and product accounts provides a measure

o net government saving (based on current expenditures and current receipts) that can be

used to analyze the eect o Federal scal policy on national saving within the ramework o

an integrated set o measures o aggregate U.S. economic activity. The Federal subsector and it

dierences rom the budget are discussed in Chapter 14 o this volume, National Income and

Product Accounts.


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16. FEDERAL BORROWING AND DEBT 225

incomplete measure o Federal impact on credit markets.Dierent types o Federal activities can aect the creditmarkets in dierent ways. With the Federal Governmentsrecent extraordinary eorts to stabilize credit markets,borrowing rom the public is not a good measure o theGovernments net eect on the credit markets, becausethe Government is using the borrowed unds to acquire

nancial assets that would otherwise require nancingin the credit markets directly. (For more inormation onother ways in which Federal activities impact the creditmarket, see the discussion at the end o this chapter.)

Issuing debt securities to Government accounts per-orms an essential unction in accounting or the opera-tion o these unds. The balances o debt represent thecumulative surpluses o these unds due to the excesso their tax receipts, interest receipts, and other collec-tions compared to their spending. The interest on the debtthat is credited to these unds accounts or the act thatsome earmarked taxes and user charges will be spent ata later time than when the unds receive the monies. Thedebt securities are a liability o the general und to the

und that holds the securities and are a mechanism orcrediting interest to that und on its recorded balances.These accounting balances generally provide the undwith authority to draw upon the U.S. Treasury in lateryears to make uture payments on its behal to the pub-lic. Public policy may result in the Governments runningsurpluses and accumulating debt in trust unds and otherGovernment accounts in anticipation o uture spending.

However, issuing debt to Government accounts doesnot have any o the credit market eects o borrow-ing rom the public. It is an internal transaction o theGovernment, made between two accounts that are bothwithin the Government itsel. It is not a current transac-tion o the Government with the public; it is not nancedby private saving and does not compete with the privatesector or available unds in the credit market; it doesnot provide the account with resources other than a legalclaim on the U.S. Treasury, which itsel obtains real re-sources by taxation and borrowing; and its current inter-est does not have to be nanced by other resources.

Furthermore, the debt held by Government accountsdoes not represent the estimated amount o the accountsobligations or responsibilities to make uture payments tothe public. For example, i the account records the transac-tions o a social insurance program, the debt that it holdsdoes not represent the actuarial present value o estimateduture benets (or uture benets less taxes) or the cur-rent participants in the program; nor does it represent theactuarial present value o estimated uture benets (or u-ture benets less taxes) or the current participants plusthe estimated uture participants over some stated timeperiod. The uture transactions o Federal social insuranceand employee retirement programs, which own 92 percento the debt held by Government accounts, are important intheir own right and need to be analyzed separately. This

can be done through inormation published in the actuari-al and nancial reports or these programs.4

This Budget uses a variety o inormation sources toanalyze the condition o Social Security and Medicarethe Governments two largest social insurance programsChapter 13 o this volume, Stewardship, projects SocialSecurity and Medicare outlays to the year 2080 relative to

GDP. It also discusses the actuarial projections preparedor the Social Security and Medicare trustees reportswhich evaluate the long-run outlook or these programsThe excess o uture Social Security and Medicare ben-ets relative to their dedicated income is very dierentin concept and much larger in size than the amount oTreasury debt that these programs hold.

For all these reasons, debt held by the public is a bet-ter gauge o the eect o the budget on the credit marketsthan gross Federal debt.

Government Defcits or Surpluses

and the Change in Debt

Table 162 summarizes Federal borrowing and debtrom 2008 through 2019. In 2008 the Government bor-rowed $768 billion, increasing the debt held by the publicrom $5,035 billion at the end o 2007 to $5,803 billion atthe end o 2008. The debt held by Government accountsincreased $267 billion, and gross Federal debt increasedby $1,035 billion to $9,986 billion.

Debt Held by the Public.The Federal Governmentprimarily nances decits by borrowing rom the publicand it primarily uses surpluses to repay debt held by thepublic.5 Table 162 shows the relationship between theFederal decit or surplus and the change in debt held bythe public. The borrowing or debt repayment depends onthe Federal Governments expenditure programs and taxlaws, on the economic conditions that infuence tax re-ceipts and outlays, and on debt management policy. Thesensitivity o the budget to economic conditions is analyzedin Chapter 12 o this volume, Economic Assumptions.

The total or unied budget surplus consists o twoparts: the on-budget surplus or decit; and the surplus othe o-budget Federal entities, which have been excludedrom the budget by law. Under present law, the o-budgetFederal entities are the Social Security trust unds (Old

Age and Survivors Insurance and Disability Insuranceand the Postal Service und.6 The on-budget and o-budget surpluses or decits are added together to determinethe Governments nancing needs.

4 Extensive actuarial analyses o the Social Security and Medicare programs are published

in the annual reports o the boards o trustees o these unds. The actuarial estimates or So-

cial Security, Medicare, and the major Federal employee retirement programs are summarized

in the Financial Report o the United States Government, prepared annually by the Treasur

Department.5 Treasury debt held by the public is measured as the sales price plus the amortized dis

count (or less the amortized premium). At the time o sale, the book value equals the sales price

Subsequently, it equals the sales price plus the amount o the discount that has been amortized

up to that time. In equivalent terms, the book value o the debt equals the principal amount due

at maturity (par or ace value) less the unamortized discount. (For a security sold at a premium

the denition is symmetrical.) For infation-indexed notes and bonds, the book value includes a

periodic adjustment or infation. Agency debt is generally recorded at par.6 For urther explanation o the o-budget Federal entities, see Chapter 22 o this volume

O-Budget Federal Entities and Non-Budgetary Activities.


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T 16-2. Federal governmenT Financing and debT(In billions o dollars)

Actual Estimate

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

F:

Unied budget decit 4586 1,8412 1,2584 9294 5574 5123 5359 5277 6454 6745 6877 7787Other transactions aecting borrowing rom the

public:Changes in nancial assets and liabilities:1

Change in Treasury operating cash balance 2964 3016 Net disbursements o credit nancing

accounts:Direct loan accounts 272 5674 1283 911 699 822 804 781 734 704 686 652Guaranteed loan accounts 56 44 55 46 71 65 65 63 53 53 31 11Troubled Asset Relie Program (TARP)

equity purchase accounts 1664 95 103 137 144 243 146 104 91 91 58Financing accounts or potential

additional nancial stabilizationeorts 4599 198 217 239 263 289 318 350 385 423 512Subtotal, net disbursements 329 1,1980 936 636 394 481 337 380 333 281 202 92

Net purchases o non-Federal securitiesby the National Railroad RetirementInvestment Trust (NRRIT) 71 84 09 13 09 10 11 13 16 14 15 14

Net change in other nancial assets andliabilities2 124 Subtotal, changes in nancial assets

and liabilities 3098 8880 927 623 385 471 326 367 317 266 187 78Seigniorage on coins 07 06 06 06 06 07 07 07 07 07 07 07

Total, other t ransactions aectingborrowing rom the public 3090 8875 921 617 379 464 319 360 310 259 180 71Total, requirement to borrow rom

the public (equals change indebt held by the public) 7676 2,7286 1,3505 9912 5953 5587 5678 5637 6764 7005 7058 7858

chs dt Sjt t Sttt ltt:

Change in debt held by the public 7676 2,7286 1,3505 9912 5953 5587 5678 5637 6764 7005 7058 7858Change in debt held by Government accounts 2674 1531 2383 2264 2965 3158 3421 3618 3035 2921 2939 2568Less: change in debt not subject to limit and other

adjustments 35 18 07 16 16 21 13 18 17 24 22 12Total, change in debt subject to statutory

limitation 1,0385 2,8835 1,5895 1,2191 8935 8765 9112 9273 9816 9950 1,0018 1,0439

dt Sjt t Sttt ltt, e y:Debt issued by Treasury 9,9606 12,8425 14,4316 15,6497 16,5418 17,4170 18,3268 19,2532 20,2336 21,2279 22,2292 23,2724Less: Treasury debt not subject to limitation () 3 145 129 125 114 101 88 74 64 52 45 40 34Agency debt subject to limitation 01 01 01 01 01 01 01 01 01 01 01 01Adjustment or discount and premium4 137 137 137 137 137 137 137 137 137 137 137 137

Total, debt subject to statutory limitation5 9,9598 12,8433 14,4329 15,6520 16,5455 17,4220 18,3332 19,2605 20,2421 21,2371 22,2389 23,2828

dt otst, e y:

Gross Federal debt:6 Debt issued by Treasury 9,9606 12,8425 14,4316 15,6497 16,5418 17,4170 18,3268 19,2532 20,2336 21,2279 22,2292 23,2724Debt issued by other agencies 252 250 247 242 239 231 232 223 218 201 185 179

Total, gross Federal debt 9,9858 12,8675 14,4563 15,6739 16,5657 17,4402 18,3500 19,2755 20,2554 21,2480 22,2477 23,2903

Held by:Debt held by Government accounts 4,1830 4,3361 4,5744 4,8008 5,0973 5,4131 5,7552 6,1169 6,4204 6,7126 7,0065 7,2633Debt held by the public7 5,8027 8,5314 9,8819 10,8731 11,4684 12,0271 12,5948 13,1586 13,8350 14,5354 15,2412 16,0270

1 A decrease in the Treasury operating cash balance (which is an asset) is a means o nancing a decit and thereore has a negative sign An increase in checks outstanding (which is

a liability) is also a means o nancing a decit and thereore also has a negative sign2Besides checks outstanding, includes accrued interest payable on Treasury debt, uninvested deposit und balances, allocations o special drawing rights, and other liability accounts;and, as an oset, cash and monetary assets (other than the Treasury operating cash balance), other asset accounts, and prot on sale o gold Also includes the impact o changes to theUS quota and US participation in the New Arrangements to Borrow at the International Monetary Fund

3Consists primarily o debt issued by or held by the Federal Financing Bank4Consists mainly o unamor tized discount (less premium) on public issues o Treasury notes and bonds (other than zero-coupon bonds) and unrealized discount on Government

account series securities5The statutory debt limit is $12,104 billion, enacted on February 17, 20096Treasury 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 ace value Treasury securities in the Government account series are otherwise measured at ace value less unrealizeddiscount (i any)

7At the end o 2008, the Federal Reserve Banks held $4911 billion o Federal securities and the rest o the public held $5,3116 billion Debt held by the Federal Reserve Banks is notestimated or uture years


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Over the long run, it is a good approximation to saythat the decit is nanced by borrowing rom the publicor the surplus is used to repay debt held by the public.However, the Governments need to borrow in any givenyear has always depended on several other actors be-sides the unied budget surplus or decit, such as thechange in the Treasury operating cash balance. These

other actors other transactions aecting borrowingrom the publiccan either increase or decrease theGovernments need to borrow and can vary considerablyin size rom year to year. As a result o the Governmentsrecent extraordinary eorts to stabilize the Nationscredit markets, these other actors are currently result-ing in dramatic increases in borrowing rom the public.The other transactions aecting borrowing rom the pub-lic are presented in Table 162 (an increase in the need toborrow is represented by a positive sign, like the decit).

In 2008 the decit was $459 billion while these otheractors primarily an increase in the Governments cashbalances increased the need to borrow by $309 billion.

As a result, the Government borrowed $768 billion rom

the public. The large impact o the other actors in 2008was primarily due to the record $296 billion increase inthe cash balance, which was nearly entirely the resulto Treasurys creation o the Supplementary FinancingProgram (SFP). Under this temporary program, Treasuryissues short-term debt and deposits the cash proceedswith the Federal Reserve or use by the Federal Reservein its actions to stabilize the nancial markets.

Largely as a result o the Governments continued e-orts to restore the health o the Nations nancial mar-kets and economyincluding the Troubled Asset RelieProgram (TARP), purchases o mortgage-backed securi-ties issued or guaranteed by the Government-sponsoredenterprises (GSEs) Fannie Mae and Freddie Mac, andother nancial stabilization activitiesthe other ac-tors are estimated to increase borrowing by $887 billionin 2009. In 20102019, these other actors are expectedto increase borrowing by annual amounts ranging rom$7 billion to $92 billion.

Prior to 2008, the eect o these other transactionshad been much smaller. In the 20 years between 1988and 2007, the cumulative decit was $2,956 billion, theincrease in debt held by the public was $3,145 billion, andother actors added a total o $190 billion o borrowing, 6percent o total borrowing over this period. By contrast,the other actors resulted in over 40 percent o the totalincrease in borrowing rom the public or 2008 and areprojected to result in 33 percent o the increase or 2009.

Three specic actors presented in Table 162 are es-pecially important.

Change in Treasury operating cash balance.The cashbalance increased by a record $296 billion in 2008. As not-ed above, this increase was more than accounted or byTreasurys creation o the SFP. In the preceding 10 years,changes in the cash balance had been much smaller, rang-ing rom a decrease o $26 billion in 2003 to an increaseo $23 billion in 2007. The operating cash balance is esti-mated to decrease by $302 billion by the end o 2009, asthe SFP winds down, and then to remain essentially lev-

el. Changes in the operating cash balance, while occasion-ally large, are inherently limited over time. Decreases incasha means o nancing the Governmentare limitedby the amount o past accumulations, which themselvesrequired nancing when they were built up. Increasesare limited because it is generally more ecient to repaydebt.

Net fnancing disbursements o the direct loan andguaranteed loan fnancing accounts.Under the FederaCredit Reorm Act o 1990 (FCRA), budget outlays or di-rect loans and loan guarantees consist o the estimatedsubsidy cost o the loans or guarantees at the time whenthe direct loans are disbursed or the guaranteed loansare made. The cash fows to and rom the public resultingrom these loans and guaranteesthe disbursement andrepayment o loans, the deault payments on loan guarantees, the collections o interest and ees, and so ortharenot costs (or osets to costs) to the Government except orthose costs already included in budget outlays. Thereorethey are non-budgetary in nature and are recorded astransactions o the non-budgetary nancing account or

each credit program.7The nancing accounts also include several types o

intragovernmental transactions. In particular, they receive payment rom the credit program accounts or thecosts o new direct loans and loan guarantees; they alsoreceive payment or any upward reestimate o the costso direct loans and loan guarantees outstanding. Thesecollections are oset against the gross disbursementso the nancing accounts in determining the accountstotal net cash fows. The gross disbursements includeoutfows to the publicsuch as o loan unds or deaultpaymentsas well as the payment o any downwardreestimate o costs to budgetary receipt accounts. Thetotal net cash fows o the nancing accounts, consisting o transactions with both the public and the bud-getary accounts, are called net nancing disbursements. They occur in the same way as the outlays oa budgetary account and thereore aect the require-ment or borrowing rom the public in the same way asthe decit.

The intragovernmental transactions o the nancingaccounts do not aect Federal borrowing rom the pub-lic. Although the decit changes because o the budgetsoutlay to, or receipt rom, a nancing account, the net nancing disbursement changes in an equal amount withthe opposite sign, so the eects are cancelled out. On theother hand, nancing account disbursements to the pub-lic increase the requirement or borrowing rom the public in the same way as an increase in budget outlays thatare disbursed to the public in cash. Likewise, nancingaccount receipts rom the public can be used to nancethe payment o the Governments obligations, and thereore they reduce the requirement or Federal borrowing

7 The Federal Credit Reorm Act o 1990 (sec. 505(b)) requires that the nancing account

be non-budgetary. As explained in Chapter 22 o this volume, O-Budget Federal Entities and

Non-Budgetary Activities, they are non-budgetary in concept because they do not measure cost

For additional discussion o credit reorm, see Chapter 7 o this volume, Credit and Insurance,

Chapter 25, The Budget System and Concepts, and the other reerences cited in Chapter 22

o this volume.


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rom the public in the same way as an increase in budgetreceipts.

In some years, large net upward or downward reesti-mates in the cost o outstanding direct and guaranteedloans may cause large swings in the net nancing dis-bursements. In 2008 and 2009, the downward reestimatesin some accounts largely cancelled out the upward rees-

timates in other accounts, or a net upward reestimate o$2.8 billion in 2008 and $0.5 billion in 2009.

The nancing accounts are estimated to increase theneed or borrowing by a record $1,198 billion in 2009, arexceeding the largest previous increase o $33 billion in2008. Borrowing related to the nancing accounts in 2009is largely driven by credit market stabilization eorts, in-cluding a net $365 billion or the various components othe Troubled Asset Relie Program, $251 billion or pur-chases o mortgage-backed securities issued or guaran-teed by the GSEs, and $460 billion or additional potentialnancial stabilization activities.8 Ater 2009, the credit -nancing accounts are expected to increase borrowing bymuch smaller amounts ranging rom $9 billion to $94 bil-

lion over the next 10 years.Net purchases o non-Federal securities by the National

Railroad Retirement Investment Trust (NRRIT).Thistrust und was established by the Railroad Retirementand Survivors Improvement Act o 2001. In 2003, most othe assets in the Railroad Retirement Board trust undswere transerred to the new trust und, which invests itsassets primarily in private stocks and bonds. The Act re-quired special treatment o the purchase or sale o non-Federal assets by this trust und, treating such purchasesas a means o nancing rather than an outlay. Thereore,the increased need to borrow rom the public to nancethe purchase o non-Federal assets is part o the othertransactions aecting borrowing rom the public ratherthan included as an increase in the decit. While net pur-chases and redemptions aect borrowing rom the public,gains and losses on NRRITs portolio are included in boththe other actors and, with the opposite sign, in NRRITsnet outlays in the decit, or no net impact on borrow-ing rom the public. The increased borrowing associatedwith the initial transer expanded publicly held debt by$20 billion in 2003. Net transactions in subsequent yearshave been much smaller. In 2008, net reductions in the

value o NRRITs portolio were $7 billion, due primarilyto losses rather than redemptions, or little net impact onborrowing rom the public. The net reductions are expect-ed to be $8 billion in 2009 and then to be smaller amountsin uture years.9

Debt held by Government accounts.The amounto Federal debt issued to Government accounts dependslargely on the surpluses o the trust unds, both on-bud-get and o-budget, which owned 93 percent o the totalFederal debt held by Government accounts at the end o2008. In 2008, the total trust und surplus was $266 bil-lion, and trust unds invested $258 billion in Federal secu-

8 For urther discussion o these programs, see Chapter 7 o this volume, Credit and Insur-

ance.9 The budget treatment o this und is urther discussed in Chapter 25 o this volume, The

Budget System and Concepts.

rities. Investment may dier somewhat rom the surplusdue to changes in the amount o cash assets not currentlyinvested. The remainder o debt issued to Government accounts is owned by a number o special unds and revolving unds. The debt held in major accounts and the annualinvestments are shown in Table 165.

Debt Held by the Public Net o

Financial Assets and Liabilities

While debt held by the public is a key measure or ex-amining the role and impact o the Federal Governmentin the U.S. and international credit markets and or oth-er purposes, it provides incomplete inormation on theGovernments nancial condition. The U.S. Governmentholds signicant nancial assets, which must be osetagainst debt held by the public and other nancial lia-bilities to achieve a more balanced understanding o theGovernments nancial condition.

One transaction that can increase both borrowing and

assets is an increase to the Treasury operating cash bal-ance. For example, in 2008, under the SupplementaryFinancing Program, the Government borrowed nearly$300 billion to increase the Treasury operating cash balance held with the Federal Reserve, to assist the Fed in itsactions to stabilize the nancial markets; the cash balancecreated by the program represents an asset that is available to the Federal Government. Looking at both sides othis transactionthe borrowing to obtain the cash andthe asset o the cash holdingsprovides much more inor-mation about the Governments nancial condition thanlooking at only the borrowing rom the public. Another ex-ample o a transaction that simultaneously increases borrowing rom the public and Federal assets is Governmentborrowing to issue direct loans to the public. When thedirect loan is made, the Government is also acquiringan asset in the orm o uture payments o principal andinterest, net o the Governments expected losses on theloans. Similarly, when the National Railroad RetirementInvestment Trust increases its holdings o non-Federalsecurities, the borrowing to purchase those securities isoset by the value o the asset holdings.

The magnitude and the signicance o the Governmentsnancial assets has begun to increase greatly since thelater part o 2008, as the Government takes actions, suchas implementing the Troubled Asset Relie Programto address the challenges acing the Nations nanciamarkets and economy.10

Table 163 presents debt held by the public net o theGovernments nancial assets and liabilities, or net debt.

At the end o 2008, debt held by the public was $5,803 bil-lion, or 40.8 percent o GDP. The Government held $505billion in net nancial assets, including a cash balance o$372 billion, net credit nancing account balances o $153billion,11 and other assets and liabilities that aggregated

10 For more inormation on the specic actions that the Government is taking, see Chapter

7 o this volume, Credit and Insurance.11 Consistent with the presentation in theMonthly Treasury Statement o Receipts and Out

lays o the United States Government (Monthly Treasury Statement), Table 16-3 presents the ne

nancial assets associated with direct and guaranteed loans in the nancing accounts created


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to a net liability o $20 billion. Thereore, net debt was$5,297 billion, or 37.2 percent o GDP. As shown in Table163, the value o the Governments net nancial assetsis projected to nearly triple in 2009, rom $505 billion to$1,499 billion, due nearly entirely to the Governmentscredit market stabilization eorts. As a result o increas-ing Federal nancial assets, while debt held by the publicis expected to increase by more than 19 percent o GDP,rom 40.8 percent to 59.9 percent, net debt is expected toincrease by only 12 percent o GDP, rom 37.2 percent to49.4 percent.

Debt securities and other nancial assets and liabili-ties do not encompass all the assets and liabilities o theFederal Government. For example, accounts payable oc-cur in the normal course o buying goods and services;Social Security benets are due and payable as o the endo the month but, according to statute, are paid duringthe next month; and liabilities or uture pension and re-tiree health payments are incurred as part o the currentcompensation or the services perormed by Federal ci-

vilian and military employees in producing Governmentoutputs. Like debt securities sold in the credit market,these liabilities have their own distinctive eects on theeconomy. The Federal Government also has signicantholdings o non-nancial assets, such as land, mineral de-posits, buildings, and equipment. A unique and importantasset is the Governments sovereign power to tax. Federalassets and liabilities are analyzed within the broaderconceptual ramework o Federal resources and responsi-bilities in the Stewardship chapter o this volume. The

under the Federal Credit Reorm Act o 1990. Thereore, the gures dier by relatively small

amounts rom the gures in the Stewardship Chapter o this volume, which refect all loans

made or guaranteed by the Federal Government, including loans originated prior to implemen-

tation o the FCRA.

dierent types o assets and liabilities are reported annually in the nancial statements o Federal agencies andin theFinancial Report o the United States Governmentprepared by the Treasury Department.

Agency Debt

Some Federal agencies, shown in Table 164, sell orhave sold debt securities to the public and, at times, toother Government accounts. At one time, several otheragencies issued debt securities, but this activity has declined signicantly over time. Currently, new debt is is-sued only by the Tennessee Valley Authority (TVA) andthe Federal Housing Administration (FHA); the remain-ing agencies are repaying existing borrowing. At the endo 2008, total agency debt remained nearly unchanged atthe end-o2007 level o $25.2 billion. Agency debt is lessthan one-hal o one percent o Federal debt held by thepublic. Agencies are estimated to repay small amounts odebt in 2009 and 2010.

The predominant agency borrower is the TVA, whichhad borrowed $24.7 billion rom the public as o the endo 2008, or 98 percent o the total debt o all agencies. TVAsells debt primarily to nance capital expenditures.

The TVA has traditionally nanced its capital construction by selling bonds and notes to the public. Since 2000it has also employed two types o alternative nancingmethods, lease/leaseback obligations and prepayment obligations. Under the lease/leaseback obligations methodTVA signs contracts to lease some acilities and equipment to private investors and simultaneously leases themback. It receives a lump sum or leasing out its assets, andthen leases them back at xed annual payments or a set

T 16-3. debT Held by THe Public neT oF Financial aSSeTS and liabiliTieS(Dollar amounts in billions)

Actual2008

Estimate

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

dt H th P:

Debt held by the public 5,8027 8,5314 9,8819 10,8731 11,4684 12,0271 12,5948 13,1586 13,8350 14,5354 15,2412 16,0270As a percent o GDP 408% 599% 671% 701% 696% 687% 685% 685% 690% 694% 696% 701%

F assts nt lts:

Treasury operating cash balance 3716 700 700 700 700 700 700 700 700 700 700 700

Credit nancing account balances:Direct loan accounts 1958 7632 8915 9826 1,0525 1,1347 1,2152 1,2932 1,3666 1,4370 1,5056 1,5709Guaranteed loan accounts 424 380 434 388 318 252 187 124 71 18 12 23TARP equity purchase accounts 1664 1568 1465 1328 1184 941 795 691 600 509 451Financing accounts or potential

additional nancial stabilization eorts 4599 4401 4184 3945 3682 3393 3075 2725 2340 1916 1404Subtotal, credit nancing account

balances 1534 1,3514 1,4450 1,5086 1,5480 1,5961 1,6298 1,6678 1,7011 1,7292 1,7494 1,7587Government-sponsored enterprise preerred stock 20 1079 1492 1729 1729 1729 1729 1729 1729 1729 1729 1729Non-Federal securities held by NRRIT 248 164 155 142 134 124 113 100 84 69 54 40Other assets net o liabilities 464 464 464 464 464 464 464 464 464 464 464 464

Total, nancial assets net o liabilities 5054 1,4994 1,6333 1,7194 1,7580 1,8050 1,8376 1,8743 1,9060 1,9327 1,9514 1,9593

dt H th P nt F assts lts:Debt held by the public net o nancial assets 5,2973 7,0320 8,2485 9,1536 9,7104 10,2220 10,7572 11,2843 11,9289 12,6027 13,2898 14,0678

As a percent o GDP 372% 494% 560% 591% 590% 584% 585% 588% 595% 601% 607% 615%


10/17


T 164. agency debT(In millions o dollars)

Borrowing or repayment (-) o debtDebt end o

2010estimate

2008actual

2009estimate

2010estimate

bw th p:

Housing and Urban Development:Federal Housing Administration 16 -* 69

Architect o the Capitol 2 6 5 139

National Archives 11 11 13 180

Tennessee Valley Authority:

Bonds and notes 173 13 107 22,554

Lease/leaseback obligations 41 41 48 941

Prepayment obligations 106 105 105 823

Tt, w th p ............ .............. .............. ............. .............. ............. ..... 2 177 278 24,706

bw th s:

Tennessee Valley Authority -* 6

Tt, w th s ............. ............. .............. .............. ............. .............. .. -* 6

Tt, w .............. ............. .............. .............. ............. .............. ......... 2 177 278 24,712

* $500,000 or less

number o years. TVA retains substantially all o the eco-nomic benets and risks related to ownership o the as-sets.12 Under the prepayment obligations method, TVAspower distributors may prepay a portion o the price othe power they plan to purchase in the uture. In return,they obtain a discount on a specic quantity o the uturepower they buy rom TVA. The quantity varies, dependingon TVAs estimated cost o borrowing.

The Oce o Management and Budget (OMB) deter-mined that each o these alternative nancing methods isa means o nancing the acquisition o assets owned andused by the Government, or o renancing debt previouslyincurred to nance such assets. They are equivalent inconcept to other orms o borrowing rom the public, al-though under dierent terms and conditions. The budgetthereore records the upront cash proceeds rom thesemethods as borrowing rom the public, not osetting col-lections.13 The obligations under these methods are re-ported as liabilities on TVAs balance sheet under gener-ally accepted accounting principles. Table 164 presentsthese alternative nancing methods separately rom TVAbonds and notes to distinguish between the types o bor-rowing. At the end o 2008, obligations were $1.0 billion

12 This arrangement is at least as governmental as a lease-purchase without substantial

private risk. For urther detail on the current budgetary treatment o lease-purchase without

substantial private risk, see OMB Circular No. A11, Appendix B.13 This budgetary treatment diers rom the treatment in the Monthly Treasury State-

ment Table 6 Schedule C, and the Combined Statement o Receipts, Outlays, and Balances o the

United States Government Schedule 3, both published by the Department o the Treasury. These

two schedules, which present debt issued by agencies other than Treasury, exclude the TVA

alternative nancing arrangements. This dierence in treatment is one actor causing minor di-

erences between debt gures reported in the Budget and debt gures reported by Treasury. The

other actor is adjustments or the timing o the reporting o Federal debt held by the National

Railroad Retirement Investment Trust.

or lease/leasebacks and $1.0 billion or prepaymentsObligations or these two types o alternative nancingare estimated to continue to decline as TVA ullls theterms o the contracts.

The FHA has or many years issued both checks anddebentures as means o paying claims to the public thatarise rom deaults on FHA-insured mortgages. Issuingdebentures to pay the Governments bills is equivalent toselling securities to the public and then paying the billsby disbursing the cash borrowed, so the transaction is recorded as being simultaneously an outlay and borrowingThe debentures are thereore classied as agency debt.

A number o years ago, the Federal Government guaranteed the debt used to nance the construction o buildings or the National Archives and the Architect o theCapitol, and subsequently exercised ull control overthe design, construction, and operation o the buildingsThese arrangements are equivalent to direct Federal construction nanced by Federal borrowing. The construction expenditures and interest were thereore classiedas Federal outlays, and the borrowing was classied asFederal agency borrowing rom the public.

The amount o agency securities sold to the public hasbeen reduced over time by borrowing rom the FederalFinancing Bank (FFB). The FFB is an entity within theTreasury Department, one o whose purposes is to sub-stitute Treasury borrowing or agency borrowing romthe public. It has the authority to purchase agency debtand nance these purchases by borrowing rom theTreasury. Agency borrowing rom the FFB is not includedin gross Federal debt. It would be double counting to add


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T 165. debT Held by governmenT accounTS1(In millions o dollars)

Description

Investment or Disinvestment (-)Holdings end

o 2010estimate

2008actual

2009estimate

2010estimate

istt Ts t:Legislative Branch: Payments to copyright owners 64 * 1,192

Energy:Nuclear waste disposal und1 560 1,252 2,341 24,200 Uranium enrichment decontamination und 87 148 325 5,183

Health and Human Services:Federal hospital insurance trust und 636 11,322 14,883 292,536 Federal supplementary medical insurance trust und 19,842 5,416 1,717 62,789 Vaccine injury compensation und 42 130 134 2,932

Homeland Security:Aquatic resources trust und 100 33 70 2,050 Oil spill liability trust und 204 156 110 1,390

Housing and Urban Development:Federal Housing Administration mutual mortgage und 3,320 9,752 1,710 11,043 Guarantees o mortgage-backed securities 512 267 381 9,919

Interior:Abandoned mine reclamation und 66 63 26 2,393 Bureau o Land Management permanent operating unds 248 120 130 1,692 Environmental improvement and restoration und 31 6 19 1,145

Justice: Assets oreiture und 278 217 175 2,000

Labor:Unemployment trust und 2,491 44,432 6,000 22,000 Pension Benet Guaranty Corporation1 1,375 1,323 75 14,398

State: Foreign service retirement and disability trust und 478 448 129 15,432

Transportation:Airport and airway trust und 257 154 601 6,919 Highway trust und 607 8,731 1,835 2,245 Aviation insurance revolving und 189 224 188 1,490

Treasury:Exchange stabilization und 411 827 1,080 17,100

Federal Financing Bank 30 463 1,259 1,752

Veterans Aairs:National service lie insurance trust und 480 582 627 8,063 Veterans special lie insurance und 13 1 9 1,991

Corps o Engineers: Harbor maintenance trust und 782 401 442 5,340

Other Deense-Civil:Military retirement trust und 25,717 54,951 52,193 323,093 Medicare-eligible retiree health care und 20,534 18,644 19,965 151,335 Education benets und 309 106 87 1,908

Environmental Protection Agency:Leaking underground storage tank trust und 228 227 199 3,591Hazardous substance trust und 141 141 135 3,160

International Assistance Programs:Overseas Private Investment Corporation 214 164 121 4,976

Oce o Personnel Management:

Civil service retirement and disability trust und 27,186 34,219 33,904 796,973 Postal Service retiree health benets und 6,802 6,926 7,180 46,400 Employees lie insurance und 1,432 1,265 1,189 36,851Employees health benets und 327 377 82 15,270

Social Security Administration:Federal old-age and survivors insurance trust und2 182,389 148,061 150,218 2,448,930 Federal disability insurance trust und2 2,657 8,294 12,089 196,104

District o Columbia: Federal pension und 7 168 135 3,942

Farm Credit System Insurance Corporation:Farm Credit System Insurance und 249 388 458 3,458

Federal Communications Commission:Universal service und 710 * 5,741


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together (a) the agency borrowing rom the FFB and (b)the Treasury borrowing rom the public that is needed toprovide the FFB with the unds to lend to the agencies.

Debt Held by Government Accounts

Trust unds, and some special unds and public enter-prise revolving unds, accumulate cash in excess o cur-rent needs in order to meet uture obligations. These cashsurpluses are generally invested in Treasury debt.

Ater increasing or several consecutive years, invest-ment by trust unds and other Government accounts ellrom $293 billion in 2007 to $267 billion in 2008, duein part to the eects o worsening economic and nan-cial conditions on the collections and expenditures oGovernment accounts that invest in Treasury securities.Investment by Government accounts is estimated to be$153 billion in 2009 and $238 billion in 2010, as shownin Table 165. The holdings o Federal securities byGovernment accounts are estimated to grow to $4,574 bil-lion by the end o 2010, or 32 percent o the gross Federaldebt. The percentage is estimated to remain relativelystable over the next 10 years.

The large investment by Government accounts isconcentrated among a ew unds: the Social SecurityOld-Age and Survivors Insurance (OASI) and DisabilityInsurance trust unds; the Medicare Hospital Insuranceand Supplementary Medical Insurance trust unds; andour Federal employee retirement unds. These Federalemployee retirement unds include the military retire-ment trust und, the special und or uniormed servicesMedicare-eligible retiree health care, the Civil ServiceRetirement and Disability Fund (CSRDF), and a separatespecial und or Postal Service retiree health benets.

At the end o 2010, these Social Security, Medicare, andFederal employee retirement unds are estimated to own94 percent o the total debt held by Government accountsDuring 20082010, the Social Security OASI und has alarge surplus and is estimated to invest a total o $481billion, 73 percent o total net investment by Governmentaccounts. Over this period, the military retirementtrust und is projected to invest $133 billion, another 20percent o the total. As a result o the economic and -nancial challenges acing the Nation and other actorssome Government accounts reduce their investments inFederal securities during 20082010. During these yearsthe Unemployment Trust Funds investments are ex-

T 165. debT Held by governmenT accounTS1ct(In millions o dollars)

Description

Investment or Disinvestment () Holdings endo 2010estimate

2008actual

2009estimate

2010estimate

Federal Deposit Insurance Corporation:Federal deposit insurance und 17,578 29,937 FSLIC resolution und 137 34 48 3,402

National Credit Union Administration:Share insurance und 107 6,512 1,636 2,369

Postal Service und2 626 1,605 Railroad Retirement Board trust unds 166 177 79 2,086 United States Enrichment Corporation und 40 69 73 1,684 Other Federal unds 203 326 135 3,679 Other trust unds 5 63 60 4,086 Unrealized discount1 328 1,830

Tt, stt Ts t1 ................................................................. 267,417 153,056 238,320 4,574,402

istt t:

Railroad Retirement Board:National Railroad Retirement Investment Trust * 6

Tt, stt t1 ................................................................... * 6

Tt, stt F t1 .............................................................. 267,416 153,056 238,320 4,574,408

memorandum

Investment by Federal unds (on-budget) 8,696 17,241 37,050 320,493 Investment by Federal unds (o-budget) 626 1,605 Investment by trust unds (on-budget) 72,719 32,135 63,141 1,610,711Investment by trust unds (o-budget) 185,047 139,767 138,129 2,645,034 Unrealized discount1 328 1,830

* $500 thousand or less1Debt held by Government accounts is measured at ace value except or the Treasury zero-coupon bonds held by the Nuclear waste disposal und and the

Pension Benet 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 I recorded at ace value, at the end o 2008 the debt gures would be$220 billion higher or the Nuclear waste disposal und and $36 billion higher or PBGC than recorded in this table

2O-budget Federal ent ity


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pected to all by $53 billionabout two thirdsand theFederal Deposit Insurance Fund is expected to entirelydisinvest its holdings o Federal securities.

Technical note on measurement.The Treasury securi-ties held by Government accounts consist almost entirelyo the Government account series. Most were issued atpar value (ace value), and the securities issued at a dis-

count or premium were traditionally recorded at par inthe OMB and Treasury reports on Federal debt. However,there are two kinds o exceptions.

First, Treasury issues zero-coupon bonds to a very ewGovernment accounts. Because the purchase price is asmall raction o par value and the amounts are large, theholdings are recorded in Table 165 at par value less un-amortized discount. The only two Government accountsthat held zero-coupon bonds during the period o this tableare the Nuclear Waste Disposal Fund in the Departmento Energy and the Pension Benet Guaranty Corporation(PBGC). The total unamortized discount on zero-couponbonds was $25.6 billion at the end o 2008.

Second, Treasury subtracts the unrealized discount on

other Government account series securities in calculatingnet Federal securities held as investments o Governmentaccounts. Unlike the discount recorded or zero-couponbonds and debt held by the public, the unrealized discountis the discount at the time o issue and is not amortizedover the term o the security. In Table 165 it is shown asa separate item at the end o the table and not distributedby account. The amount was $1.8 billion at the end o 2008.

Limitations on Federal Debt

Defnition o debt subject to limit.Statutory limi-tations have usually been placed on Federal debt. UntilWorld War I, the Congress ordinarily authorized a specicamount o debt or each separate issue. Beginning withthe Second Liberty Bond Act o 1917, however, the natureo the limitation was modied in several steps until it de-

veloped into a ceiling on the total amount o most Federaldebt outstanding. This last type o limitation has been ineect since 1941. The limit currently applies to most debtissued by the Treasury since September 1917, whetherheld by the public or by Government accounts; and otherdebt issued by Federal agencies that, according to explicitstatute, is guaranteed as to principal and interest by theUnited States Government.

The third part o Table 162 compares total Treasurydebt with the amount o Federal debt that is subject to thelimit. Nearly all Treasury debt is subject to the debt limit.

A large portion o the Treasury debt not subject tothe general statutory limit was issued by the FederalFinancing Bank. The FFB is authorized to have outstand-ing up to $15 billion o publicly issued debt. It issued $14billion o securities to the Civil Service Retirement andDisability Fund on November 15, 2004, in exchange oran equal amount o regular Treasury securities. The FFBsecurities have the same interest rates and maturities asthe regular Treasury securities or which they were ex-changed. The securities mature on dates rom June 30,2009, through June 30, 2019.

The Housing and Economic Recovery Act o 2008 created a new type o debt not subject to limit. This debttermed Hope Bonds, is issued by Treasury to the FederalFinancing Bank or the HOPE or homeowners programTreasury issued $30 million in Hope Bonds in 2008Outstanding Hope Bonds are projected be $0.5 billion atthe end o 2009, $1.8 billion at the end o 2010, and $2.5

billion at the end o 2011, and then to increase by smallamounts in subsequent years.

The other Treasury debt not subject to the general limit consists almost entirely o silver certicates and othercurrencies no longer being issued. It was $494 million atthe end o 2008 and is projected to gradually decline overtime.

The sole agency debt currently subject to the generallimit, $51 million at the end o 2008, is certain debenturesissued by the Federal Housing Administration.14

Some o the other agency debt, however, is subject toits own statutory limit. For example, the Tennessee Valley

Authority is limited to $30 billion o bonds and notes out-standing.

The comparison between Treasury debt and debt sub-ject to limit also includes an adjustment or measurementdierences in the treatment o discounts and premiums

As explained earlier in this chapter, debt securities maybe sold at a discount or premium, and the measurement odebt may take this into account rather than recording theace value o the securities. However, the measurementdiers between gross Federal debt (and its components)and the statutory denition o debt subject to limit. Anadjustment is needed to derive debt subject to limit (asdened by law) rom Treasury debt. The amount is relatively small: $13.7 billion at the end o 2008 compared tothe total unamortized discount (less premium) o $64.1billion on all Treasury securities.

Changes in the debt limit.The statutory debt limithas been changed many times. Since 1960, Congress haspassed 76 separate acts to raise the limit, extend the du-ration o a temporary increase, or revise the denition.15

During the 1990s, the debt limit was increased threetimes by amounts large enough to last or two years ormore. All three o these increases were enacted as part oa decit reduction package or a plan to balance the bud-get and were intended to last a relatively long time: theOmnibus Budget Reconciliation Act o 1990; the OmnibusBudget Reconciliation Act o 1993; and the BalancedBudget Act o 1997. The 1997 increase lasted until 2002Since 2002, the debt limit has been raised eight times.

In ve instances o increases to the debt limit since2002, the debt reached or neared the ceiling prior to theincrease, and the ceiling was raised by an amount su-cient to last less than two years. The debt limit was in-creased to $6,400 billion on June 28, 2002, to $7,384 bil-lion on May 27, 2003, to $8,184 billion on November 192004, to $8,965 billion on March 20, 2006, and to $9,815billion on September 29, 2007.

14 At the end o 2008, $18 million o FHA debentures was not subject to limit.15 The Acts and the statutory limits since 1940 are listed in Historical Tables, Budget o th

United States Government, Fiscal Year 2010, Table 7.3.


14/17


At many times in the past several decades, including2002, 2003, 2004, and 2006, the Government has reachedthe statutory debt limit beore an increase has been en-acted. When this has occurred, it has been necessary orthe Treasury Department to take administrative actionsto meet the Governments obligation to pay its bills andinvest its trust unds while remaining below the statu-

tory limit. One such measure is the partial or ull dis-investment o the Government Securities InvestmentFund (G-und). This und is one component o the ThritSavings Plan (TSP), a dened contribution pension planor Federal employees. The Secretary has statutory au-thority to suspend investment o the G-und in Treasurysecurities as needed to prevent the debt rom exceedingthe debt limit. Treasury determines each day the amounto investments that would allow the und to be investedas ully as possible without exceeding the debt limit. TheTreasury Secretary is also authorized to declare a debtissuance suspension period, which allows him or her toredeem a limited amount o securities held by the CivilService Retirement and Disability Fund and stop invest-

ing its receipts. The law requires that when any suchactions are taken with the TSP G-und or the CSRDF,the Secretary is required to make the und whole aterthe debt limit has been raised by restoring the orgoneinterest and investing the und ully. Another measureor staying below the debt limit is disinvestment o theExchange Stabilization Fund.

In addition to these steps, Treasury has previously re-placed regular Treasury securities with borrowing by theFFB, which, as explained above, is not subject to the debtlimit. This measure was most recently taken in November2004, and the outstanding FFB securities will begin tomature in June 2009.

Because the September 29, 2007, increase was enacted be-

ore the limit was reached, it was not necessary to take any othese actions. However, prior to the enactment, on September21, as the anticipated reaching o the limit approachedTreasury announced that it would discontinue the acceptance o subscriptions to the State and local government se-ries o securities, beginning on September 27. On September28, ollowing Congressional passage o the debt limit increaseTreasury reinstated acceptance o these subscriptions.

Since July 2008, the debt limit has been increasedthree times, in each case beore the Government approached the limit. In these three instances, the increasewas included in a larger piece o legislation aimed atstabilizing the nancial markets and restoring economicgrowth. The increases provided room under the statutory

debt ceiling or the activities authorized by each pieceo legislation. On July 30, 2008, the debt limit was in-creased by $800 billion, to $10,615 billion, as part o theHousing and Economic Recovery Act o 2008. On October3, 2008, the Emergency Economic Stabilization Act o2008 increased the debt limit by $700 billion, to $11,315billion. On February 17, 2009, the American Recovery andReinvestment Act o 2009 increased the statutory limit by

T 166. Federal FundS Financing and cHange in debT SubJecT To STaTuTory limiT(In billions o dollars)

Description Actual2008

Estimate

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

ch gss F dt:

Federal unds decit (+) 7246 1,9778 1,4371 1,1301 8189 7955 8057 8057 8971 9208 9338 9865Other transactions aecting borrowing rom thepublic -- Federal unds1 3161 8958 930 630 388 474 330 373 326 274 195 85Increase (+) or decrease () in Federal debt heldby Federal unds 93 188 370 258 351 326 723 838 518 458 478 490Adjustments or trust und surplus not invested inFederal securities2 154 269 217 13 09 10 11 13 16 14 15 14Change in unrealized discount on Federal debtheld by Government accounts 03

Tt f qts ....................... 1,0350 2,8817 1,5888 1,2176 8918 8744 9099 9255 9799 9926 9997 1,0427

ch dt Sjt t lt:

Change in gross Federal debt 1,0350 2,8817 1,5888 1,2176 8918 8744 9099 9255 9799 9926 9997 1,0427Less: increase (+) or decrease () in Federaldebt not subject to limit * 18 07 16 16 21 13 18 17 24 22 12Less: change in adjustment or discount and

premium3 35 Tt, h t sjt t t .......... 1,0385 2,8835 1,5895 1,2191 8935 8765 9112 9273 9816 9950 1,0018 1,0439

addendum

Debt subject to statutory limit4 9,9598 12,8433 14,4329 15,6520 16,5455 17,4220 18,3332 19,2605 20,2421 21,2371 22,2389 23,2828

* $50 million or less1 Includes Federal und transactions that correspond to those presented in Table 16-2, but that are or Federal unds alone with respect to the public and trust unds2Includes trust und holdings in other cash assets and changes in the investments o the National Railroad Retirement Investment Trust in non-Federal securities3Consists o unamortized discount (less premium) on public issues o Treasury notes and bonds (other than zero-coupon bonds)4The statutory debt limit is $12,104 billion


15/17


$789 billion, to $12,104 billion. At the dates o enactment,the debt subject to limit was at least a ew hundred billiondollars below the previous ceiling. Thereore, it was notnecessary or Treasury to take any administrative actionsto stay below the ceiling.

Methods o changing the debt limit.The statutory

limit is usually changed by normal legislative procedures.Under the rules adopted by the House o Representatives,it can also be changed as a consequence o the annualCongressional budget resolution, which is not itsel a law.The budget resolution includes a provision speciying theappropriate level o the debt subject to limit at the endo each scal year. The rule provides that, when the bud-get resolution is adopted by both Houses o the Congress,the vote in the House o Representatives is deemed tohave been a vote in avor o a Joint Resolution setting thestatutory limit at the level specied in the budget resolu-tion. The Joint Resolution is transmitted to the Senate orurther action, where it may be amended to change thedebt limit provision or in any other way. I it passes both

Houses o the Congress, it is sent to the President or sig-nature. The House o Representatives rst adopted thisrule or 1980, although it was not included in the rules orseveral years beore 2003. The rule was last used or the2007 debt limit increase.

Federal unds fnancing and the change in debtsubject to limit.The change in debt held by the public,as shown in Table 162, is determined primarily by the totalGovernment decit or surplus. The debt subject to limit, how-ever, includes not only debt held by the public but also debtheld by Government accounts. The change in debt subject tolimit is thereore determined both by the actors that deter-mine the total Government decit or surplus and by the ac-tors that determine the change in debt held by Governmentaccounts. The eect o debt held by Government accounts onthe total debt subject to limit can be seen in the second parto Table 162. The change in debt held by Government ac-counts results in 23 percent o the estimated total increasein debt subject to limit rom 2009 through 2019.

The budget is composed o two groups o unds, Federalunds and trust unds. The Federal unds, in the main, arederived rom tax receipts and borrowing and are used orthe general purposes o the Government. The trust unds,on the other hand, are nanced by taxes or other receiptsearmarked by law or specied purposes, such as payingSocial Security benets or making grants to State govern-ments or highway construction.16

A Federal unds decit must generally be nanced byborrowing, which can be done either by selling securities tothe public or by issuing securities to Government accountsthat are not within the Federal unds group. Federal undsborrowing consists almost entirely o Treasury securitiesthat are subject to the statutory debt limit. Very little debtsubject to statutory limit has been issued or reasons ex-cept to nance the Federal unds decit. The change indebt subject to limit is thereore determined primarily by

16 For urther discussion o the trust unds and Federal unds groups, see Chapter 22 o this

volume, Trust Funds and Federal Funds.

the Federal unds decit, which is equal to the dierencebetween the total Government decit or surplus and thetrust und surplus. Trust und surpluses are almost entirely invested in securities subject to the debt limit, and trustunds hold most o the debt held by Government accountsThe trust und surplus reduces the total budget decit orincreases the total budget surplus, decreasing the need to

borrow rom the public or increasing the ability to repayborrowing rom the public. When the trust und surplus isinvested in Federal securities, the debt held by Governmentaccounts increases, osetting the decrease in debt held bythe public by an equal amount. Thus, there is no net eecton gross Federal debt.

Table 166 derives the change in debt subject to limit. In2008 the Federal unds decit was $725 billion, and otheractors increased nancing requirements by $316 billionThe rise in the Treasury operating cash balance increasednancing requirements by $296 billion and the net nancing disbursements o credit nancing accounts increasednancing requirements by $33 billion. These increaseswere partly oset by other actors, which reduced nancing

requirements by $13 billion. In addition, special unds andrevolving unds, which are part o the Federal unds groupinvested a net o $9 billion in Treasury securities. An ad-

justment is also made or the dierence between the trustund surplus and the trust unds investment in Federalsecurities (including the changes in the National RailroadRetirement Investment Trusts investments in non-Federal securities). As a net result o all these actors, $1,035billion in nancing was required, increasing gross Federadebt by that amount. Since Federal debt not subject to limitincreased by $37 million and the adjustment or discountand premium changed by $3.5 billion, the debt subject tolimit increased by $1,039 billion, while debt held by thepublic increased by $768 billion.

The debt subject to limit is estimated to increase to$12,843 billion by the end o 2009, above the current limito $12,104 billion. The estimated increases in the debtsubject to limit are caused by the continued Federal undsdecit, supplemented by the other actors shown in Table166. While debt held by the public increases by $6,792billion rom the end o 2008 through 2014, debt subject tolimit increases by $8,373 billion.

Debt Held by Foreign Residents

During most o American history, the Federal debt washeld almost entirely by individuals and institutions with-in the United States. In the late 1960s, oreign holdingswere just over $10 billion, less than 5 percent o the totalFederal debt held by the public. Foreign holdings beganto grow signicantly starting in 1970. This increase hasbeen almost entirely due to decisions by oreign centralbanks, corporations, and individuals, rather than the di-rect marketing o these securities to oreign residents.

Foreign holdings o Federal debt are presented in Table167. At the end o 2008, oreign holdings o Treasury debtwere $2,802 billion, which was 48 percent o the total debtheld by the public.17 Foreign central banks owned 67 per

17 The debt calculated by the Bureau o Economic Analysis, Department o Commerce, is dieren


16/17


cent o the Federal debt held by oreign residents; privateinvestors owned nearly all the rest. The percentage heldby oreign central banks is down rom 69 percent at theend o 2007. All the Federal debt held by oreign residentsis denominated in dollars.

Although the amount o Federal debt held by oreignresidents has grown greatly over this period, the propor-

tion that oreign residents own, ater increasing abruptlyin the very early 1970s, remained about 1520 percent un-til the mid-1990s. During 199597, however, growth in or-eign holdings accelerated and oreign holdings increasedrom 19 percent at the end o 1994 to 33 percent at the endo 1997. Federal debt held by oreign residents resumedgrowth in the early part o the current decade, increasing

though similar in size, because o a dierent method o valuing securities.

rom 34 percent at the end o 2002 to 42 percent at the endo 2004. Foreign holdings increased to 44 percent in 2007and 48 percent in 2008. The increase in oreign holdingswas about 74 percent o total Federal borrowing rom thepublic in 2008 and about 71 percent over the last ve years

Foreign holdings o Federal debt are around 1520percent o the oreign-owned assets in the United States

depending on the method o measuring total assets. Theoreign purchases o Federal debt securities do not mea-sure the ull impact o the capital infow rom abroad onthe market or Federal debt securities. The capital infowsupplies additional unds to the credit market generallyand thus aects the market or Federal debt. For examplethe capital infow includes deposits in U.S. nancial intermediaries that themselves buy Federal debt.

T 167. Foreign HoldingS oF Federal debT(Dollar amounts in billions)

Fiscal YearDebt held by the public Change in debt held by the public

Total Foreign 1Percentage

oreign Total 2 Foreign1

1965 2608 123 47 39 03

1970 2832 140 50 51 38

1975 3947 660 167 510 92

1980 7119 1217 171 716 14

1985 1,5073 2229 148 2003 473

1990 2,4116 4638 192 2208 720

1991 2,6890 5063 188 2774 425

1992 2,9997 5628 188 3107 565

1993 3,2484 6191 191 2487 563

1994 3,4331 6820 199 1847 629

1995 3,6044 8204 228 1713 1384

1996 3,7341 9934 266 1297 1730

1997 3,7723 1,2305 326 383 2371

1998 3,7211 1,2242 329 512 63

1999 3,6324 1,2814 353 887 572

2000 3,4098 1,0579 310 2226 2235

2001 3,3196 1,0055 303 902 523

2002 3,5404 1,2008 339 2208 1953

2003 3,9134 1,4542 372 3730 2534 2004 4,2955 1,7987 419 3821 3445

2005 4,5922 1,9306 420 2967 1319

2006 4,8290 2,0273 420 2368 967

2007 5,0351 2,2372 444 2062 2099

2008 5,8027 2,8019 483 7676 5647 1 Estimated by Treasury Department These estimates exclude agency debt, the holdings o which are believed to be small The

data on oreign holdings are recorded by methods that are not ully comparable with the data on debt held by the public Projections ooreign holdings are not available The estimates include the eects o benchmark revisions in 1984, 1989, 1994, and March 2000, andannual June benchmark revisions or 2002-2008

2Change in debt held by the public is dened as equal to the change in debt held by the public rom the beginning o the year to theend o the year


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Federal, Federally Guaranteed, and

Other Federally Assisted Borrowing

The eect o the Government on borrowing in thecredit market arises not only rom its own borrowing tonance Federal operations but also rom its assistanceto certain borrowing by the public. The Government

guarantees various types o borrowing by individuals,businesses, and other non-Federal entities, thereby pro-

viding assistance to private credit markets. In addition,the Government has established private corporationsGovernment-sponsored enterprisesto provide nancialintermediation or specied public purposes; it exempts

the interest on most State and local government debt romincome tax; it permits mortgage interest to be deductedin calculating taxable income; and it insures the depositso banks and thrit institutions, which themselves makeloans.

Federal credit programs and other orms o assistance

including the substantial Government eorts to supportthe credit markets during the recent nancial turmoilare discussed in Chapter 7 o this volume, Credit andInsurance. Detailed data are presented in tables at theend o that chapter.

Documents

Federal Borrowing