More About the Federal Debt

The federal debt has two different components. One is “debt held by the public,” which primarily consists of the U.S. Treasury bonds that anyone can buy. Most of this debt is held by the Federal Reserve, state and local governments, and the American public, but a substantial chunk (about 44 percent in late 2006) is owned by foreign banks and governments.

The second component is “intergovernmental debt,” where one part of the federal government borrows from another part. The best examples of this are the Social Security and Medicare trust funds. The federal government has been borrowing the surplus from these trust funds to fund its operations and giving Treasury bonds in return.

Most economists focus on debt held by the public, since it affects the broader economy more directly, but as Social Security and Medicare are forced to redeem their Treasury bonds to pay benefits to the baby boomers, the intergovernmental debt will begin to have a bigger impact on the federal budget.

More information on the federal debt, including the current total down to the last penny, is available from the Treasury Department at http://www.treasurydirect.gov/govt/govt.htm.