What Is National Debt

Simply put, national debt is the total amount of debt a federal government has borrowed and, therefore, owes to creditors or back to itself. National debt is a very important element of a countrys financial system. Around the world, national debt is known by many names, including, but not limited to: government debt  and federal debt. But not every one of these terms is perfectly synonymous with national debt. Other Terms for National Debt Though most of the above terms are used in reference to the same concept, there can be some differences and nuances in their meaning. For instance, in some countries, particularly federal states, the term government  debt may refer to the debt of state, provincial, municipal, or even local governments as well as debt held by a central, federal government. Another example involves the meaning of the term public debt. In the United States, for instance, the term public debt refers specifically to the public debt securities issued by the U.S. Treasury, which includes treasury bills, notes, and bonds, as well as savings bonds and special securities issued to state and local governments. In this sense, U.S. public debt is but one piece of what is considered the gross national debt, or all of the  direct liabilities of the U.S. government. One of the other terms in the United States that is mistakenly used synonymously with national debt is national deficit. Lets discuss how those terms are related, but not interchangeable. National Debt Versus National Deficit in the U.S. While many in the United States confuse the terms national debt and national deficit (including our very own politicians and U.S. government officials), in reality, they are distinct concepts. The federal or national deficit refers to the difference between the governments receipts, or revenues the government takes in, and its outlays, or the money it spends. This difference between receipts and outlays can either be positive, indicating that the government took in more than it spent (at which point the difference would be labeled a surplus rather than a deficit) or negative, which reveals a deficit. The national deficit is officially calculated at the end of the fiscal year. When outlays outnumber revenues in value, the government must borrow money to make up the difference.  One of the ways the government borrows money to fund the deficit is by issuing Treasury securities and savings bonds.   The national debt, on the other hand, refers to the value of those Treasury securities issued. In a sense, one way to consider these two distinct, but related terms  is to view the national debt as accumulated national deficits. The national debt exists as a result of those national deficits. What Makes up the U.S. National Debt? The total national debt includes all of those Treasury securities issued to the public to fund the national deficit as well as those issued to the Government Trust Funds, or intragovernmental holdings, which means that a  portion of the national debt is debt held by the public (public debt) while the other (much smaller) piece is effectively held  by government accounts (intragovernmental debt). When people refer to the debt held by the public, they are specifically excluding that portion that is held by government accounts, which is essentially the debt that the government owes back to itself from borrowing against money earmarked for other uses.  This public debt is debt  held by individuals, corporations, state or local governments, Federal Reserve Banks, foreign governments, and other entities outside the United States.