U.S. Public Debt: What it is exactly – Who owes what and to whom – Why it matters.

This is a subject where there’s a lot of confusion, don’t you agree? This is why we are inviting students to send us questions, queries and concerns about the size of the U.S. public debt.
A group of students from Franklin College Switzerland sent us a bunch of questions, including the following set, which begins our discussion.  More will follow.

Has the U.S. government ever not been in debt? Has it even become close to repaying its debt?

The U.S. has had debt since its inception.
Find the dollar value of U.S. National Debt since 1791 here
Find a chart of U.S. National Debt since 1950 here
“By January of 1835, for the first and only time, all of the government’s interest-bearing debt was paid off.“ This has never happened since. Find more here.
You may want to know that the worst depression on record occurred in 1837, two years after paying off national debt: see :

How has public debt reached the current levels?

U.S. National Debt increases when the U.S. Government issues interest-bearing debt and sells it to the public for cash, or to the banks for bank reserves. Accumulation of cash held by the private sector, and of reserves held by the banks, results from government spending exceeding government taxing.

If public debt levels are so high, has the U.S. government ever been declared bankrupt or insolvent?

No, and it has always been able to pay its debt when due. Today, government makes these payments to government debt holders by converting the interest-bearing debt they hold into bank reserves, or cash.

What is the collateral for the national debt? How is this enforced?

There is no collateral for national debt, in the same way as there is no collateral for cash (dollar banknotes in circulation).

3 thoughts on “U.S. Public Debt: What it is exactly – Who owes what and to whom – Why it matters.

  1. Andrea Terzi Post author

    In any nation with a fiat floating currency like the U.S. your return on Treasuries is
    -set directly by the Fed for all short-term Treasury bills
    -set directly by the Fed and/or by market expectations of what interest rates the Fed will set in the future for all other Treasury notes and bonds.

  2. Jeremy Montgomery

    So as an investor in federal bonds & bills my return on investment is dependent on the interest of the national debt? Therefor they choose their interest rate therefor choosing the interest of my investment. Am I correct in this assumption?

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