Treasury debt held by the public

How much does the U.S. government owe? The number that is subject to the recurrent debt-ceiling wrangling includes intra-government debts that the Treasury is imputed to owe to other Federal government operations. For example, Social Security taxes have historically exceeded benefits paid out. The surplus was used to pay for other government programs, and the Social Security Trust Fund was credited with corresponding holdings of U.S. Treasury securities representing the accumulated value of those surpluses. Many of us think of this as an I.O.U. that the government issued to itself. Economists usually subtract those intra-government debts when talking about the size of the federal debt, relying instead on the Treasury’s measure of debt held by the public. Although many of us have made use of the latter numbers in academic research, policy analysis, and lectures to our students, those data are also getting less reliable in recent years.

Here for example is a graph of the official numbers for U.S. debt held by the public at a monthly frequency. It has the rather astonishing implication that the U.S. Treasury issued over half a trillion dollars in net new debt to the public in the month of November 2015 alone.

U.S. Treasury debt held by the public, in billions of dollars, end-of-month values Sept 2014 to Sept 2016. Data source: Treasury Bulletin, Table FD-1, Dec 2015 and Dec 2016.

Recent theories that claim that quantities of government debt held by the public may matter for interest rates– for example, the entire theoretical underpinning of the large-scale asset purchases conducted by central banks around the world over the last decade– would have quite a challenge explaining how such a volume of new debt could be absorbed by private buyers with nary a ripple in bond markets. Who bought a half-trillion dollars’ worth of new Treasury securities within the space of a few weeks?

Digging a little deeper into these numbers, we find from Table 6 in the November 2015 Monthly Statement of the Public Debt that the Civil Service Retirement and Disability Fund increased its holdings of Treasury securities by $139 billion that month– a 19% increase. This is a defined-benefit retirement program that Federal employees pay into, which, like Social Security, has so far had an inflow of funds greater than payments, with the surplus used to invest in Treasury securities. Federal employees also have the option of investing their own money in a Thrift Savings Plan, similar to a 401(K). The holdings of the Thrift Savings Plan in Treasury securities jumped up $207 billion in November 2015.

The explanation for this lies in the extraordinary measures that the Treasury has come to rely on when Congress does not authorize an increase in the debt ceiling, as was the case in the fall of 2015 and as we are facing again now. When Congress has called for spending in excess of tax receipts (as it did in both instances), of course something has to give whether or not Congress has separately authorized additional borrowing. The Civil Service Retirement Fund and Thrift Savings Fund are two of the main cookies in the jar that the Treasury has relied on to square the circle. Specifically, during a “debt issuance suspension period,” the Treasury temporarily suspends reinvestments of these funds in new Treasury securities. Here’s the description on page 16 of the Civil Service Retirement Fund’s 2015 annual report of what this meant:

instead the amount suspended, $140.6 billion for the CSRDF, was recorded in Fund Balance with Treasury instead of Investments in Government Securities,

which I interpret as replacing Treasury debt with more I.O.U.’s, as a way to artificially reduce the volume of officially acknowledged Treasury debt. Of course CRSDF was perfectly willing to “buy” $140 B in new securities once the shenanigans were lifted when the debt ceiling was eased in November, namely converting the Fund Balance back into regular Treasury obligations.

I draw two lessons from all this. First, users of the recent federal debt data need to be very careful– off-balance-sheet asterisks are more important than ever. To update Everett Dirksen, a hundred billion here and a hundred billion there, and pretty soon you’re talking real money.

Second, the peculiar U.S. political theater, in which our elected representatives pretend that the decision of how much to borrow can be separated from the decision of how much to tax and spend, are making the U.S. look more like a third-world country every day.

25 thoughts on “Treasury debt held by the public

  1. Rick Stryker

    Yes, it’s a very good point that users of debt statistics need to be careful when using the numbers these days. A recent post on econbrowser illustrates the point well.

    In a previous post, Menzie accused Steven Moore of being a liar or statistically incompetent (or both) since Moore said that the last time he checked the deficit was $1 trillion but in fact the budget deficit is on the order of $600 billion. Here, Menzie was making the incorrect assumption that the budget deficit is always an accurate estimate of the change in borrowing actually performed by the Treasury and that therefore the budget deficit is the only legitimate way to measure that change. I previously commented that the exact size of the deficit didn’t really matter for Moore’s argument, but I’d point out here that Moore was in fact correct. Rather than using the deficit as a proxy for actual borrowing, Moore was measuring actual borrowing as the change in public debt held by the public in the most recent fiscal year (Sept 30, 2015 to Sept 30, 2016), which was 1.05 trillion dollars. The Treasury actually borrowed $1.05 trillion dollars in fiscal 2016, not $600 billion as Menzie incorrectly implied.

    However, how do we reconcile the actual fiscal 2016 deficit of $585 billion with the fact that the Treasury actually borrowed $1.05 trillion over fiscal 2016 as Steven Moore correctly asserted? The answer is the point of JDH’s post. In 2016 there were other factors that required the Treasury to borrow an additional $466 billion.

    The first major factor JDH covers in this post: extraordinary measures. In 2015, the need to borrow $203 billion fewer dollars was due to the temporary suspension of the daily reinvestment of the Thrift Savings Plan (TSP) Government Securities Investment Fund (G-Fund). As one “extraordinary measure,” the Treasury suspended the reinvestment of the TSP-G fund in Treasury securities since issuances of debt would have caused the debt to exceed the debt ceiling. Treasury moved the balances to an “other” category until the debt ceiling was raised, in which case the TSP-G fund was reinvested with foregone interest repaid in November 2015, requiring $203 billion in additional borrowing.

    The other main factor that jdh did not mention was the change in the Treasury operating cash balance. The Treasury increased its operating cash balance by $155 billion over the 2016 fiscal year. The reason for the increase was that in 2015 the Treasury announced that it intended to keep cash balances approximately equal to one week of cash outflows, with a minimum balance of $150 billion.

    These two factors alone increased borrowing requirements by $358 billion in 2016 beyond what was required to finance the budget deficit. In the long run, the budget deficit should be a good approximation to the actual increase in borrowing. But in the short run, the budget deficit can depart significantly from the actual change in borrowing. Menzie’s post went awry because he was assuming that the budget deficit is a good approximation to the change in borrowing at any particular point in time. But Moore looked at the change in actual borrowing. On the other hand, it must be noted that Moore’s statement, although correct, was misleading. Borrowing in 2016 was exaggerated by some very significant temporary factors.

    Reply
    1. baffling

      rick styrker, why do you get soooo long winded when you have a much more direct response. you have already approved of trump lying to achieve his end goals. simply say the same about moore. why should we challenge moore with his falsehoods, when we know from your past comments it is perfectly ok for a conservative to lie in order to promote his agenda. that is what moore did, lied to promote his conservative agenda. stated more concisely than your opus, and avoiding all your mental gymnastics.

      Reply
  2. genauer

    I use the IMF World Economic Outlook (WEO) data for many countries gross and net government debt.
    It is supposed to be comparable, independent, data reach back to 1980, and look forward by about 5 years

    GGXWDN General government net debt Net debt is calculated as gross debt minus financial assets corresponding to debt instruments. These financial assets are: monetary gold and SDRs, currency and deposits, debt securities, loans, insurance, pension, and standardized guarantee schemes, and other accounts receivable. National currency
    GGXWDN_NGDP General government net debt Net debt is calculated as gross debt minus financial assets corresponding to debt instruments. These financial assets are: monetary gold and SDRs, currency and deposits, debt securities, loans, insurance, pension, and standardized guarantee schemes, and other accounts receivable. Percent of GDP
    GGXWDG General government gross debt Gross debt consists of all liabilities that require payment or payments of interest and/or principal by the debtor to the creditor at a date or dates in the future. This includes debt liabilities in the form of SDRs, currency and deposits, debt securities, loans, insurance, pensions and standardized guarantee schemes, and other accounts payable. Thus, all liabilities in the GFSM 2001 system are debt, except for equity and investment fund shares and financial derivatives and employee stock options. Debt can be valued at current market, nominal, or face values (GFSM 2001, paragraph 7.110). National currency
    GGXWDG_NGDP General government gross debt Gross debt consists of all liabilities that require payment or payments of interest and/or principal by the debtor to the creditor at a date or dates in the future. This includes debt liabilities in the form of SDRs, currency and deposits, debt securities, loans, insurance, pensions and standardized guarantee schemes, and other accounts payable. Thus, all liabilities in the GFSM 2001 system are debt, except for equity and investment fund shares and financial derivatives and employee stock options. Debt can be valued at current market, nominal, or face values (GFSM 2001, paragraph 7.110). Percent of GDP

    If somebody has any reason to question these data, I would like to hear it.

    Reply
  3. 2slugbaits

    Another thing that both ordinary Americans and economists don’t always appreciate is the non-intuitive interpretation of government spending. When people talk about government spending they usually mean one of two things; either spending authorizations or the NIPA expenditures. The problem is that they tend to get conflated. Monies that are authorized (i.e., what Congress appropriates) might not show up as actual expenditures from the Treasury (i.e., what shows up in the NIPA tables) for a very long time. It depends on the “color” of the money. Some monies must be disbursed by the Treasury within the same fiscal year in which they were authorized; e.g., Operations & Maintenance accounts. Others have an 8 year life (e.g., tanks, rifles, howitzers). Others have a 10 year life (e.g., military housing, ships, aircraft, etc.). And other types of spending have other life limits (e.g., R&D has an 18 month life). So if Congress appropriates a billion dollars for some ship, that billion will show up in the OMB budgets in the current year but might not show up in the NIPA tables until 2027. And then within these categories there are other revolving capital working fund accounts that do not have a life. Government budgeting and execution are extremely arcane subjects…downright byzantine. This is one of those problems that always comes up when economists argue about whether or not government spending stimulates aggregate demand. In theory it’s neither the year of authorization (since the contractor doesn’t know when the authorization will be “obligated”) nor the year of expenditure as measured in the NIPA tables (because the economic activity has already occurred by the time it is recorded in the NIPA tables). To the extent that government spending stimulates aggregate demand economists need to look at the time of budget “execution” (or “obligation”), which refers to when a contract is signed….or perhaps budget “commitment” which is when the solicitation is let. That’s when contractors initiate economic activity; e.g., arranging for loans, hiring, procurement of raw materials, etc.

    Rick Stryker This business about maintain operating cash balances at the Treasury is yet another arcane and byzantine topic. It’s actually a combination of predicting tax revenues (which is obvious), but also monies that go the Treasury as a result of internal “sales” within the government through various revolving fund accounts that cross budgetary appropriation lines.

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  4. PeakTrader

    Yes, if you add what government owes and pays in Social Security and Intragovernment Debt to the interest payments on the National Debt, it’s a lot of money and seems inevitable it’ll get much worse.

    Of course, the government has lots of assets too. Maybe, it’ll eventually sell Alaska, e.g. when the last of the Baby-Boomers (born between 1946-64) reach 65 in 2029.

    Reply
  5. joseph

    Megapixel Stryker: “Menzie’s post went awry because he was assuming that the budget deficit is a good approximation to the change in borrowing at any particular point in time. But Moore looked at the change in actual borrowing. On the other hand, it must be noted that Moore’s statement, although correct, was misleading.”

    Megapixel Stryker (remember he was the one who leaped to the defense of his Dear Leader on crowd sizes) debases himself once again as he tries to defend the indefensible for Stephen Moore.

    He says: “Menzie’s post went awry because he was assuming that the budget deficit is a good approximation to the change in borrowing.”</I

    Actually, no. Menzie assumed no such thing. It is you who is making the absurd argument that the budget deficit is only measured by the change in U.S. Treasuries issued. That is the stupidest argument I’ve seen from a Republican in a while, and that’s saying something.

    Funny, I never heard Stryker or Moore congratulate Obama for running a near zero deficit in 2015, using the same tendentious logic, because fewer treasury bonds were issued. Only a devoted Trumpite like Stryker could argue that you could eliminate deficits by simply refusing to issue treasury bonds. Deficits simply don’t count, according to Stryker, unless new bonds are issued. Likewise, he claims that the budget deficit increases only when the Treasury issues a new bonds.

    We knew Stryker was a devoted Trumpite. Now we know there are no limits to his devotion.

    Reply
    1. Rick Stryker

      As usual, you’ve missed the point. I didn’t say anything like what you think I said. For example, you think I said: “Likewise, he claims that the budget deficit increases only when the Treasury issues a new bonds.” That’s nonsense–I said no such thing.

      The budget deficit is an accounting device that measures the difference between government expenditures and revenues. Economists however care about what the government actually borrows, which is separate although related. See jdh’s remark above that economists look at debt held by the public in academic research, policy analysis, and lectures.

      You never seem to follow any of the discussion on this blog.

      Reply
  6. joseph

    Ha, CoRev, you missed Stryker’s point. Ya, see, by Megapixel Stryker’s accounting, because of “extraordinary measures” hundreds of billions of dollars of treasury bond sales were delayed for a month or two in 2015 and therefore don’t count as a deficit. Because of the delay they instead count for 2016’s deficit. Hey, that’s not my argument. That’s Stryker’s. It’s all right there in the megapixels photos for everyone to see.

    Of course, Stryker is missing the whole point of JDH’s posting in which he patiently explains that only an ignorant idiot, only a fool, or only a liar like Stryker or Stephen Moore would look at the graph at the top of the page and say, OMG!, the budget deficit jumped by $200 billion dollars in November 2015.

    From your comment, CoRev, apparently you think Megapixel Strkyer is full of it, too. And you would be right.

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    1. Corev

      Joseph, let me clear. My response had littel to do with Rick, but everything to do with your error. $439B does not equal ZERO, and a couple of months soes not equal a year. You were very very wrong in your response.

      Reply
    2. Rick Stryker

      No, you missed the point. I was not making an argument. I was stating a fact: government borrowing increased by 1.05 trillion dollars in fiscal 2016. You can look that up in the government statistics. Moore was correct about that.

      I also pointed out that 2016 number was anomalous and went through the factors explaining it. I also pointed out that what Moore said was misleading but correct.

      You of course feel you must make up things I said instead since you can’t dispute what I’m actually saying. Very dishonest.

      Reply
      1. baffling

        “You of course feel you must make up things I said instead since you can’t dispute what I’m actually saying. Very dishonest.”
        rick stryker, you have advocated that donald trump do this very same thing on this blog. why the false outrage now? hypocrite or hack?

        as i told you at the time rick, be careful about defending trump’s ability to lie to achieve his goals. you have lost all moral credibility because of your defense of his deceit.

        Reply
  7. Bernard Leikind

    Professor Hamilton,
    Where does the US government debt held by the Federal Reserve on its balance sheet show up in these accounts.
    Is this considered to be held by the public, or is it in the debt that one government agency owes another?
    I understand that the Treasury pays the Fed interest on the government debt the Fed holds, and the Fed returns these interest payments to the Treasury as bank profit.
    Why doesn’t the Fed mark this debt Paid in Full, since the public entity that loaned the Treasury money has been paid back?

    Reply
    1. James_Hamilton Post author

      Bernard Leikind: Fed holdings are included in the “held by the public” numbers.

      Reply
  8. Paul Mathis

    The Entire Federal Budget/Debt Discussion is Nonsense

    Because the federal government alone in the U.S. operates a “unified” budget that incorporates both capital and operating expenses as one and the same. No other government in the U.S. does this and businesses don’t do it either for the simple reason that it is accounting nonsense.

    Capital expenses — roads, bridges, etc. — should be “off-budget” just as war fighting expenses are. A new bridge that replaces an obsolete one just substitutes one asset for another: money for useful infrastructure. To pretend otherwise is just stupid.

    Reply
  9. joseph

    CoRev, I was was not saying that the deficit was zero. I was pointing out that Megapixel Stryker’s logic implied that the deficit was zero.

    Stryker said that Menzie was in error when he pointed out that Stephen Moore lied about the deficit being $1 trillion. Stryker tried to prove that Moore was correct by moving approximately half a billion dollars from the 2015 deficit into 2016 to come up with his bogus $1 trillion deficit. This was an absurd argument showing the extremes that Stryker would go in order to support the lies of his Dear Leader.

    But by Stryker’s logic if you move half a billion dollars into 2016, you must move a corresponding half a billion dollars out of 2015, thereby reducing it’s deficit to nearly zero. This is an absurd result, as you noted, which points out the absurdity of Stryker’s argument. It is not my conclusion but Stryker’s you have a beef with. I said that the zero deficit in 2015 is the absurd conclusion “using the same [Strykers’s] tendentious logic.”

    If you want to understand Stryker’s argument, look at the graph at the top of the post. Stryker tries to claim that when Stephen Moore talked about the $1 trillion deficit, he was referring to the change in borrowing. So according to Stryker, looking at the graph, the change in borrowing was flat in 2015 (the deficit was zero) and jumps sharply in 2016 (the deficit was $1 trillion).

    This is absurd, as you noted. Stryker is making a ridiculous argument. No serious economist refers to the budget deficit this way.

    Reply
    1. Rick Stryker

      “Stryker tried to prove that Moore was correct by moving approximately half a billion dollars from the 2015 deficit into 2016 to come up with his bogus $1 trillion deficit.”

      Ridiculous–I didn’t move anything. I merely quoted official government statistics that anyone can look up.

      “But by Stryker’s logic if you move half a billion dollars into 2016, you must move a corresponding half a billion dollars out of 2015, thereby reducing it’s deficit to nearly zero.”

      More absurdity. I quoted the official statistics on the increase in government borrowing as measured by the change in debt held by the public for fiscal year 2016. Anyone can look these statistics up. For fiscal year 2015, the number is $339 billion, not zero. And if you are talking about the deficit–the difference between government expenditure and revenues in a fiscal year–the number for fiscal year 2015 is $439 billion (as Corev aleady point out to you), not zero.

      Reply
      1. CoRev

        Rick, I just gave up on Joseph. someone who think $1/2 billion is significant in comparing $1 trillion obviously has no concept of the size of the budget.

        Reply
        1. Rick Stryker

          Corev,

          Yes, that’s the sensible thing to do. I’ve never seen him get anything right, ever. Since no one is capable of being wrong all the time, I think he must be a troll, like Baffled.

          Reply
          1. baffling

            hey snowflake, you are the one who advocates lying to achieve your goals. you use intentionally misleading arguments to push your agenda. i simply point out those faults to you. but i will give you a participation trophy if it makes you feel better.

  10. Ken

    ” …the peculiar U.S. political theater, in which our elected representatives pretend that the decision of how much to borrow can be separated from the decision of how much to tax and spend….”

    We need to remember that the debt ceiling law is merely a law, not a constitutional requirement. As with any law, it can be repealed. And should be. It is nothing more than a soapbox for politicians to pontificate on. I won’t bet that it’ll be repealed any time soon, though.

    Reply
  11. Erik Poole

    ” …the peculiar U.S. political theater, in which our elected representatives pretend that the decision of how much to borrow can be separated from the decision of how much to tax and spend….”

    Perhaps the USA is overdue for radical constitutional reform?

    Separate head of state from head of government. Choose the head of government through a British parliamentary type system where legislators are elected on a basis of proportional representation. Abolish the Senate.

    Reply
    1. baffling

      the british are probably not a good example to use at this time. the us system of representative democracy is fine. we just need people to be more responsible for their voting actions.

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  12. Erik Poole

    baffling: It is not the “British” per se but the British parliamentary system which is used in the majority of rich OECD countries, several of which sport better socio-economic outcomes than the USA.

    The lack of credible 3rd parties in the USA is argument enough. “American exceptionalism” might also an argument in favour.

    Reply
  13. baffling

    erik, there is still not another country in the world which is better than the usa. a credible 3rd party may be nice, but it is certainly not a necessary condition. for the most part, the senate has been one of the stronger institutions. mcconnell may indeed destroy the institution, but for most of its history it served a purpose of good.

    Reply

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