How Much Debt Is the U.S. in?

According to the Treasury Department's Bureau of the Public Debt, which publishes a new figure every day on its

Web site, the national debt stands at about $5.6 trillion. As this chart shows, it has grown almost every year.

However, the percentage increase from 1999 to 2000 was the smallest since 1960, when the total decreased by a small amount. And measured on a monthly (as opposed to annual) basis, the national debt peaked at $5.776 trillion in December 1999.

How Did We Amass So Much Debt?

By running federal budget deficits. When the federal government spends more than it collects in taxes and other revenue, it has to borrow the difference. The federal government has run a deficit pretty much every year since the early 1960s, but it wasn't until the deficits widened sharply during the Reagan administration that the national debt started to really pile up. The growth rate of the debt has slowed in recent years because the federal government stopped running deficits and started running surpluses in 1998.

What Does the National Debt Consist of?

The national debt consists in large part of outstanding Treasury securities. The federal government borrows by issuing Treasury securities -- borrowing money from the investing public. At last glance there were about $3 trillion of Treasury securities outstanding. This is the

marketable

portion of the public debt.

The rest of the national debt -- about $2.6 trillion -- is

nonmarketable

. It consists chiefly of debt owed to the Social Security trust funds. Savings bonds and special Treasury securities issued for municipal finance purposes account for the rest of the nonmarketable debt.

Why Are Our Politicians Borrowing From the Social Security Trust Funds?

Because that's where the money is.

You probably have some notion of how Social Security works. Current workers pay into it, and those funds are used to pay current beneficiaries.

At the moment, the system runs a surplus: Current workers -- a big demographic -- pay in more than is required to support current beneficiaries -- a smaller demographic. This has been the case since the mid-1980s.

The Social Security surpluses

could

be used to buy investments that would mature in the future, providing the system with the funds it will need when the Baby Boom generation starts retiring. At that point, the needs of beneficiaries will outstrip the contributions of the working-age population.

Instead, politicians spend the Social Security surpluses and write the system an IOU, adding to the public debt.

These Social Security surpluses count for most of the surpluses the federal government has been running, and for most of the surpluses that are projected for the future, as this table shows. (Social Security accounts for the bulk of the off-budget surplus.)

What Is the Government Doing With the Surpluses?

The government has been using the surpluses to reduce the amount of

marketable

debt outstanding in two ways. Some of the money has been used to

buy Treasury securities back from investors. And some has been used to repay the holders of maturing issues.

Here is an example. From September 1999 to September 2000, the amount of marketable debt outstanding declined to $3.024 trillion from $3.233 trillion, a drop of $209 billion.

During that period, about $335 billion of new Treasury notes and bonds were issued. But a much larger quantity -- $482 billion -- matured. Instead of issuing $482 billion of new notes and bonds to raise the money to repay the holders of the maturing issues, the Treasury issued only $335 billion, and used a portion of the surplus to repay the remaining $147 billion, paying down that amount of debt.

In the bill sector, the Treasury issued $37 billion less than matured, bringing the total paydown over the 12-month period to $183 billion.

Accounting for the rest of the $209 billion reduction, the Treasury bought back from investors about $25 billion of Treasury securities.

Why Doesn't the Treasury Just Use the Surplus to Repay the Holders of Maturing Debt? Why Does It Also Conduct Buybacks?

If the Treasury were to use the entire surplus to repay the holders of maturing debt, debt reduction would be concentrated in the shortest-maturity issues. As a result, the average maturity of the marketable debt would increase.

So what?

Debt issuers like to maintain a blend of short- and long-term debt, so that if interest rates decline, they can take advantage by issuing new debt when their short-term debt matures. Overreliance on long-term debt leaves issuers unable to avail themselves of declines in interest rates.

What Is Projected to Happen to the Supply of Marketable Debt as a Result of Paydowns and Buybacks?

The outgoing Clinton administration has forecast that if surpluses continue to be used for debt reduction, the amount of debt securities held by the public (marketable debt plus nonmarketable savings bonds) would decline to zero by 2012, as this chart shows.

What Is Projected to Happen to the National Debt?

By using Social Security surpluses to reduce the amount of marketable debt outstanding, the government merely replaces one kind of debt with another. As this chart shows, the national debt is forecast to continue to rise, though at a much slower rate.