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FEDS Notes

October 8, 2015

Federal Debt in the Financial Accounts of the United States


Marco Cagetti, Matthew Hoops, Susan McIntosh, Rick Ogden

This note explains the concept of federal debt in the Financial Accounts of the United States, how it has recently changed, and how it differs from other commonly cited measures of federal debt. As described below, a key factor is the treatment of intragovernmental holdings of U.S. debt securities. In the Financial Accounts, the concept of federal government debt includes debt held by the public and intragovernmental holdings in federal government employee defined benefit retirement accounts, but excludes other intragovernmental holdings, such as the Social Security Trust Fund.

The authoritative source for information on U.S. federal debt is Table I of the Treasury Department's Monthly Statement of the Public Debt (MSPD), which reports that on June 30, 2015, total public debt outstanding was about $18.2 trillion.1 Except for some small adjustments, this number also represents the public debt subject to the congressionally mandated debt limit (reported on table II of the MSPD).2 

Federal debt is categorized as "marketable," such as Treasury bills, notes, bonds, and Treasury inflation-protected securities (TIPS), which can be traded in secondary markets, or "nonmarketable," such as U.S. savings securities, Government Account Series, and State and Local Government Series (SLGS), which cannot be traded. Government Account Series are special securities issued to government trust funds, such as the Social Security Trust Fund, federal employee retirement funds, the Unemployment Trust Fund, etc.

Similarly, federal debt outstanding is categorized as being "intragovernmental," meaning held in government accounts, or "held by the public," meaning all other federal debt. The two concepts of "marketable" debt and debt "held by the public" are closely related--as shown in Table 1 below, the vast majority of marketable debt is held by the public, while the majority of nonmarketable debt is held in intragovernmental accounts. However, some types of nonmarketable debt securities, such as U.S. savings securities, SLGS, and the Thrift Savings Fund are held by the public, and some marketable securities are held intragovernmentally.3 

Table 1: Treasury securities outstanding on June 30, 2015 (Millions of dollars)
Table 1: Treasury securities outstanding on June 30, 2015 (Millions of dollars). See accessible link for data.

Source: Monthly Statement of the Public Debt

Accessible version

In previous publications of the Financial Accounts, the concept of federal debt excluded all intragovernmental holdings and, essentially, included only the debt held by the public. Beginning with the September 18, 2015 publication, the measure of federal debt reported in the Financial Accounts has been broadened to include intragovernmental holdings of Treasury securities held by the federal government employee defined benefit retirement funds.4 This had the effect of adding about $1.3 trillion to the concept of federal debt as of the end of June 2015, raising total federal debt reported in the Financial Accounts from $13.2 trillion to about $14.5 trillion.

Note that these intragovernmental holdings of the federal government employee defined benefit retirement funds were previously accounted for in the Financial Accounts, but not as federal debt--rather, they were considered miscellaneous assets of the federal government employee defined benefit retirement funds, because intergovernmental nonmarketable Treasury securities were not in the concept of federal debt. The change was made to follow international standards as described in the System of National Accounts 2008 (SNA2008). Under SNA guidelines, intragovernmental holdings of federal debt are generally excluded from the concept of federal debt, but federal government employee defined benefit retirement funds are considered financial corporations and thus not part of the government sector. This same treatment applies to the state and local government employee retirement funds.

Broadly speaking, the concept of federal debt in the Financial Accounts now equals Treasury securities held by the public plus intragovernmental holdings in federal government employee defined benefit retirement funds. Importantly, and consistent with SNA guidelines, the Financial Accounts concept still does not include other intragovernmental holdings, by far the largest of which is the $2.8 trillion Social Security Trust fund. Relative to the topline MSPD numbers in Table 1, we also make a few additional small adjustments to be consistent with Financial Accounts concepts. For instance, we net out premiums and discounts (about $55 billion) and include some budget agency securities issued under special financing authorities (about $25 billion).

As shown below in Figure 1, the rate of growth of federal debt is very similar using both the Financial Accounts concept and total federal debt reported in the MSPD. The most notable differences are in periods when the debt approaches its statutory limit. During these instances, the Treasury Department can use "extraordinary measures" to temporarily obtain additional room to borrow.5 Some of these measures involve the suspension of investments into various trust funds. Once the debt limit is increased, the Treasury is required to restore these investments.

Figure 1: Treasury securities outstanding
Figure 1: Treasury securities outstanding. See accessible link for data.

Source: Monthly Statement of the Public Debt and Financial accounts of the United States, September 18, 2015

Note: Financial Accounts data includes marketable and nonmarketable Treasury securities held by the public (net of premiums and discounts) and Treasury securities held by federal government employee retirement funds.

Accessible version

The Financial Accounts also break down holdings of federal debt by sector.6 This breakdown comes from a number of data sources, including regulatory reports of many types of financial institutions.7 As shown in Table 2, the rest of the world sector is the largest holder of U.S. federal debt in the Financial Accounts, with over $6 trillion, or 43 percent of federal debt.8 The monetary authority sector (i.e., the Federal Reserve) is currently the second largest holder, with nearly $2.5 trillion, or 17 percent of the Financial Accounts concept of federal debt.9 The federal government employee retirement funds hold nearly ten percent, most of which is held in intragovernmental accounts.

Table 2: Sectoral distribution of Treasury securities (2015:Q2)
Table 2: Sectoral distribution of Treasury securities (2015:Q2). See accessible link for data.

Source: Monthly Statement of the Public Debt and Financial accounts of the United States, September 18, 2015

Note: Financial Accounts data includes marketable and nonmarketable Treasury securities held by the public (net of premiums and discounts) and Treasury securities held by federal government employee retirement funds.

Accessible version


 


1. See https://www.treasurydirect.gov/govt/reports/pd/mspd/2015/2015_jun.htm. Return to text

2. The debt limit is the total amount of money that the U.S. is authorized to borrow to meet its existing legal obligations. For more information, see http://www.treasury.gov/initiatives/Pages/debtlimit.aspx. Return to text

3. The Federal Reserve's holdings of Treasury securities are categorized as "held by the public," because they are not in government accounts, and they are marketable (purchased on the secondary market). Return to text

4. The federal government employee retirement funds include the Civil Service Retirement and Disability Fund, Railroad Retirement Board, judicial retirement funds, Military Retirement Fund, Foreign Service Retirement and Disability Fund, and the National Railroad Retirement Investment Trust. Return to text

5. For a discussion of how these events are reflected in the Financial Accounts, see the FEDS Note The Federal Debt-Limit Standoff of 2013 in the Financial Accounts of the United States by Ivan Vidangos (April 21, 2014; http://www.federalreserve.gov/econresdata/notes/feds-notes/2014/federal-debt-limit-standoff-of-2013-in-the-financial-accounts-of-the-united-states-20140421.html). Return to text

6. See table L.210 (http://www.federalreserve.gov/apps/FOF/Guide/P_115_coded.pdf). This table includes only Treasury securities and excludes agency securities. Return to text

7.In the Financial Accounts, the household and nonprofit organizations sector is the residual holder of the Treasury securities not allocated to the other sectors. Because, among others, data on hedge funds are not available, the household and nonprofit organizations sector implicitly includes the securities held by domestic hedge funds. Offshore hedge funds are included in the rest of the world sector. Return to text

8. The rest of the world sector's holdings of U.S. federal debt include the official holdings of foreign governments and other holdings held abroad. Return to text

9. For comparison, the Social Security Trust Fund, which is excluded from the Financial Accounts concept and makes up most of the difference between the Financial Accounts concept and the MSPD, was about $2.8 trillion at the end of June 2015.Return to text

Disclaimer: FEDS Notes are articles in which Board economists offer their own views and present analysis on a range of topics in economics and finance. These articles are shorter and less technically oriented than FEDS Working Papers.

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Last update: October 8, 2015