What is Federal Debt?

What is Federal Debt?

Federal debt is the money owed by the government. The primary source of this debt is Treasury Bonds (Notes), which constitute debt obligations.

About 25% of the current national debt is owed internally between different government agencies, mostly to the Social Security Trust Funds. The Federal Debt is also, and perhaps more commonly, referred to as the National Debt. Currently the debt is approximately $19 Trillion.

A quick visit to usdebtclock.org will reveal how much momentum this amount of debt has, because you can watch how quickly the interest adds to the total amount owed. It doesn’t help that the country hasn’t had a balanced budget since Bill Clinton was president.

Every other year in recent history the government has operated at a deficit, adding to to debt and accelerating the buildup. Primarily the debt is in the form of Treasury Bonds, many of which were sold en masse to countries like China and Japan who desired to manipulate the value of their own currency down versus the dollar in order to make their exports more appealing (cheaper) to help grow their economy.

So it’s not the kind of debt you have when you got something for nothing and you owe someone (found here). This is the corporate / organization form of debt which is purchased and sold on the market and commonly known as bonds. Companies should try not to issue too many debt securities to raise capital if they have other options.

When debt ratios get too high in comparison to revenues or valuations, the creditworthiness of companies can be downgraded due to an increased risk of default, which is exactly what happened to the US in the wake of the 2008 crises, when it was downgraded from AAA to AA.

What is Foreign Debt?
What is the Size of our National Debt?