U.S. National Debt by Year

Source: U.S. Treasury

Debt-to-GDP Ratio 

The debt-to-GDP ratio is the ratio of a country’s public debt to its gross domestic product (GDP). 

Looking at a country’s debt compared with its GDP is similar to a lender looking at someone’s credit history—it reveals how likely the country is to pay back its debt. 

The debt-to-GDP ratio is usually expressed as a percentage and is used as a reliable indicator of a country’s economic situation, because it compares what the country owes to what it produces, in turn showing its ability to repay the debt. The higher a country’s debt-to-GDP ratio, the less likely the country is to pay off its debt. This also puts the country at higher risk of default, which is concerning to investors as it could cause financial panic in domestic and international markets. 

According to a study by The World Bank, countries with a debt-to-GDP ratio above 77% for a prolonged period experience significant slowdowns in economic growth. As of the fourth quarter of 2022, the U.S. debt-to-GDP ratio was 120.2%. The U.S. debt-to-GDP ratio has been above 77% since 2009, following the financial crisis that started in 2007.

The graph below shows the debt-to-GDP ratio for the U.S. from 1966 to 2022. 

Types of Debt Included in the National Debt

Different types of debt comprise the national debt, including: 

Marketable and Nonmarketable Securities

Marketable securities such as Treasury bills, bonds, notes, and Treasury Inflation-Protected Securities (TIPS) can be traded on the secondary market, and their ownership can be transferred from one person or entity to another. Nonmarketable securities, which include savings bonds, government account series, and state and local government series, can’t be sold to other investors. 

Debt Held by the Public

The U.S. federal debt is mainly held by the American public, followed by foreign governments, U.S. banks, and investors. This portion of the debt held by the public doesn’t include U.S. debt held by the federal government or intragovernmental debt. Debt held by the public includes individuals, corporations, state or local governments, Federal Reserve banks, foreign investors and governments, and other entities outside the U.S. government. 

Intragovernmental Debt 

Intragovernmental debt is debt held by the government itself. It is what one part of the government owes to another part.

Intragovernmental debt hasn’t increased as sharply as publicly held debt over the past decade, because it mainly includes debt on federal programs’ surplus revenue invested in Treasury debt.

The U.S. national debt doesn’t include debt carried by state and local governments, or personal debt carried by individuals such as credit cards and mortgages.

Tracking, Maintaining, and Managing the National Debt

The Bureau of the Fiscal Service provides accounting and reporting services for the government and manages all federal payments and collections. One of the Fiscal Service’s main roles is to track and report the national debt. 

Like the rest of us, the federal government is also charged interest for borrowing money. How much interest the government pays depends on the total national debt and the interest rates of different securities. When the target range for the federal funds rate (fed rate) is increased by the Federal Open Market Committee (FOMC), carrying debt becomes more expensive for the government, too. 

Interest expenses have been relatively stable despite debt rising every year over the past decade, thanks to low interest rates. However, when interest rates increase, maintaining the national debt gets more costly. As the Federal Reserve has repeatedly raised benchmark interest rates since 2022 to cool high inflation, the U.S. could pay as much as $1 trillion more on interest payments for the national debt this decade, according to the Peter G. Peterson Foundation.

The Treasury’s main goal when managing national debt is to ensure that the federal government is able to borrow at the lowest cost over time. The Treasury does this by offering marketable securities that are attractive to a wide variety of investors because they are safe and liquid. 

The Treasury needs to consider the amount of securities it offers to investors in the context of what’s happening in the financial markets, and to be prepared for policy changes and economic events that could significantly affect federal cash flow and borrowing needs. 

The Debt Ceiling

The debt ceiling, or debt limit, is the maximum amount that the U.S. government can borrow by issuing bonds. When the debt ceiling is reached, the Treasury must find other ways to pay expenses. 

Otherwise, there is a risk that the U.S. will default on its debt, which sounds alarm bells for investors because that could have severe consequences for national and global markets. To avoid the risk of default, the debt ceiling needs to be raised by Congress, which has been done several times. 

In January 2023, U.S. Treasury Secretary Janet Yellen announced that the U.S. government hit its debt ceiling. Yellen said the U.S. government would begin taking “extraordinary measures” to prevent a sovereign default, which could come in mid-2023 if the debt ceiling isn’t raised or abolished altogether.

Extraordinary measures authorized by Congress would temporarily suspend certain intragovernmental debt, allowing the Treasury to borrow more money for a limited amount of time. The debt ceiling was last raised to $31 trillion (a record) in late 2021—a limit that has now been reached—by President Joe Biden and Congress.

The Bottom Line

The national debt is the total amount of money that a country owes to its creditors. The government spends money on programs such as healthcare, education, and Social Security, and accumulates debt by borrowing to cover the outstanding balance of expenses incurred over time.

Major economic and political events, such as recessions or a pandemic, can affect government spending. The U.S. government in early 2023 again hit the debt limit, which is the maximum amount it can borrow. The debt ceiling needs to be raised by Congress to avoid risk of the federal government defaulting on its debt—this has never happened, but if it does, it could have significant ramifications for U.S. and global markets.