Charting America's Debt: $27 Trillion and Counting
Connect with us

Debt

Charting America’s Debt: $27 Trillion and Counting

Published

on

America's Debt Infographic

Why America’s Debt Doesn’t Stop Growing

Public sector debt has been a contentious topic for many years. While some believe that excessive government borrowing can be harmful over the long term, others have argued that it acts as a powerful tool for stimulating growth.

In the U.S., the latter view appears to have taken hold. Since 2008, America’s national debt has surged nearly 200%, reaching $27 trillion as of October 2020. To gain a better understanding of this ever-growing debt, this infographic takes a closer look at various U.S. budgetary datasets including the 2019 fiscal balance.

America’s Debt vs. GDP

Government debts are often represented by incredibly large numbers, making them hard to comprehend. By comparing America’s debt to its annual GDP, we can get a better grasp on the relative size of the country’s financial obligations.

YearTotal Public Debt (USD)GDP (USD)Debt as % of GDP
1994$4.5T$7.1T63%
1995$4.8T$7.5T64%
1996$5.0T$7.9T63%
1997$5.3T$8.4T63%
1998$5.5T$8.9T62%
1999$5.6T$9.4T60%
2000$5.8T$10.0T58%
2001$5.7T$10.5T54%
2002$5.9T$10.8T55%
2003$6.4T$11.2T57%
2004$7.0T$11.9T59%
2005$7.6T$12.8T59%
2006$8.2T$13.6T60%
2007$8.7T$14.2T61%
2008$9.2T$14.7T63%
2009$10.6T$14.4T74%
2010$12.3T$14.7T84%
2011$14.0T$15.3T92%
2012$15.2T$16.0T95%
2013$16.4T$16.6T99%
2014$17.3T$17.1T101%
2015$18.1T$18.0T101%
2016$18.9T$18.5T102%
2017$19.9T$19.2T104%
2018$20.5T$20.2T101%
2019$21.9T$21.1T104%
2020$23.2T$21.6T107%
April 2020$23.7T$19.5T122%

Source: Federal Reserve, U.S. Treasury

In this context, U.S. debt was relatively moderate between 1994 to 2007, averaging 60% of GDP over the timeframe. This took a drastic turn during the Global Financial Crisis, with debt climbing to 95% of GDP by 2012.

Since then, America’s debt has only increased in relative size. In April 2020, with the COVID-19 pandemic in full force, it reached a record 122% of GDP. This may sound troubling at first, but there are a few caveats.

For starters, there are many other advanced economies that have also surpassed the 100% debt-to-GDP milestone. The most noteworthy is Japan, where the debt-to-GDP ratio has climbed beyond 200%. Furthermore, this is not the first time America has found itself in this situation—by the end of World War II, debt-to-GDP peaked at 106% before declining to historic lows in the 1970s.

What’s Preventing the Debt From Shrinking?

Although the U.S. continuously pays off portions of its debt, the total amount it owes has increased each year since 2001. That’s because the federal government runs consistent budget deficits, meaning it spends more than it earns. During economic crises, these deficits can become incredibly large.

Fiscal Year (Sept 30)Budget Surplus or Deficit (USD billions)
2000+$236B
2001+$128B
2002-$158B
2003-$378B
2004-$418B
2005-$318B
2006-$248B
2007-$161B
2008-$458B
2009-$1,412B
2010-$1,294B
2011-$1,299B
2012-$1,076B
2013-$680B
2014-$485B
2015-$441B
2016-$585B
2017-$665B
2018-$779B
2019-$984B
2020-$3,131B

Source: Federal Reserve

In the aftermath of the Global Financial Crisis, the U.S. recorded an annual deficit of $1.4 trillion in FY2009. This was largely due to the $787 billion American Recovery and Reinvestment Act of 2009, which provided tax rebates and other economic relief.

In the economic battle against COVID-19’s impacts, the boundaries have been pushed even further. The annual deficit for FY2020 weighs in at a staggering $3.1 trillion, the largest ever. Contributing to this historic deficit was the $2 trillion CARES Act, which provided wide-ranging support to the entire U.S. economy.

Breaking Down the 2019 Fiscal Balance

Even in the years between these two economic crises, government spending still outpaced revenues. To find out more, we’ve broken down the 2019 fiscal balance into its various components.

Federal Spending

Total spending in FY2019 was roughly $4.4 trillion, and can be broken out into three components.

The first component is Mandatory Spending, which accounted for 62% of the total. Mandatory spending is required by law, and includes funding for important programs such as social security.

CategoryAmount (USD billions)Percent of Total Federal Spending
Health programs$1,121B25.5%
Social security$1,039B23.6%
Income security$301B6.8%
Federal civilian and military retirement$164B3.7%
Other$109B2.5%
Total mandatory spending$2,735B62.2%

Figures may not add to 100 due to rounding. Source: Peter G. Peterson Foundation

The largest category here was Health, with $1.1 trillion in funding for programs such as Medicare and Medicaid. Social security, which provides payments to retirees, was the second largest at $1.0 trillion.

The second component is Discretionary Spending, which accounted for 30% of the total. Discretionary spending is determined on an annual basis by Congress and the President.

Discretionary SpendingAmount (USD)Share of Total Federal Spending
Defense$677B15.4%
Transportation$100B2.3%
Veteran's benefits & services$85B1.9%
Education$72B1.6%
Health$66B1.5%
Administration of justice$59B1.3%
International affairs$52B1.2%
General government$51B1.2%
Housing assistance$49B1.1%
Natural resources and environment$44B1.0%
General science, space, and technology$32B0.7%
Community and regional development$27B0.6%
Training, employment, and social services$23B0.5%

Total discretionary spending


$1,338B


30.4%

Figures may not add to 100 due to rounding. Source: Peter G. Peterson Foundation

At $677 billion, the Defense category represents over half of total discretionary spending. These funds are spread across the five branches of the U.S. military: the Army, Marine Corps, Navy, Air Force, and Space Force.

The third component of spending is the net interest costs on existing government debt. For FY2019, this was approximately $327 billion.

Federal Revenues

Revenues in FY2019 fell short of total spending, coming in at approximately $3.5 trillion. These inflows can be traced back to six categories.

CategoryAmount (USD billions)Percent of Total Revenues
Individual income taxes$1,732B50.0%
Payroll taxes$1,247B36.0%
Corporate income taxes$242B7.0%
Other$104B3.0%
Excise taxes$104B3.0%
Customs duties$69B2.0%
Total revenues$3,464B100.0%

Figures may not add to 100 due to rounding. Source: Peter G. Peterson Foundation

Revenues overwhelmingly relied on individual income and payroll taxes, which together, accounted for 86% of the total. Corporate income taxes, on the other hand, accounted for just 7%.

Is America’s Debt a Cause for Concern?

The general consensus following the events of 2008 is that large fiscal stimulus (supported by government borrowing) was effective in speeding up the consequent recovery.

Now facing a pandemic, it’s likely that many Americans would support the idea of running large deficits to boost the economy. Surveys released in July 2020, for example, found that 82% of Americans wanted federal relief measures to be extended.

Looking beyond COVID-19, however, does reveal some warning signs. One frequent criticism of the ever-growing national debt is its associated interest costs, which could cannibalize investment in other areas. In fact, the effects of this dilemma are already becoming apparent. Over the past decade, the U.S. has spent more on interest than it has on programs such as veterans benefits and education.

us federal net interest costs chart

With low interest rates expected for the foreseeable future, the federal government is likely to continue running its large annual deficits—at least until the effects of COVID-19 have fully subsided. Perhaps after this crisis is over, it will be time to assess the long-term sustainability of America’s rising national debt.

Subscribe to Visual Capitalist
Click for Comments

Money

Visualizing $65 Trillion in Hidden Dollar Debt

Since 2008, the value of unrecorded dollar debt has doubled. Here’s why this is increasing risk in global financial markets.

Published

on

Visualizing $65 Trillion in Hidden Dollar Debt

This was originally posted on Elements. Sign up to the free mailing list to get beautiful visualizations on natural resource megatrends in your email every week.

The scale of hidden dollar debt around the world is huge.

No less than $65 trillion in unrecorded dollar debt circulates across the global financial system in non-U.S. banks and shadow banks. To put in perspective, global GDP sits at $104 trillion.

This dollar debt is in the form of foreign-exchange swaps, which have exploded over the last decade due to years of monetary easing and ultra-low interest rates, as investors searched for higher yields. Today, unrecorded debt from these foreign-exchange swaps is worth more than double the dollar debt officially recorded on balance sheets across these institutions.

Based on analysis from the Bank of International Settlements (BIS), the above infographic charts the rise in hidden dollar debt across non-U.S. financial institutions and examines the wider implications of its growth.

Dollar Debt: A Beginners Guide

To start, we will briefly look at the role of foreign-exchange (forex) swaps in the global economy. The forex market is the largest in the world by a long stretch, with trillions traded daily.

Some of the key players that use foreign-exchange swaps are:

  • Corporations
  • Financial institutions
  • Central banks

To understand forex swaps is to look at the role of currency risk. As we have seen in 2022, the U.S. dollar has been on a tear. When this happens, it hurts company earnings that generate revenue across borders. That’s because they earn revenue in foreign currencies (which have likely declined in value against the dollar) but end up converting earnings to U.S. dollars.

In order to reduce currency risk, market participants will buy forex swaps. Here, two parties agree to exchange one currency for another. In short, this helps protect the company from unfavorable foreign exchange rates.

What’s more, due to accounting rules, forex swaps are often unrecorded on balance sheets, and as a result are quite opaque.

A Mountain of Debt

Since 2008, the value of this opaque, unrecorded dollar debt has nearly doubled.

Date
Non-U.S. Bank
Unrecorded Debt
Non-U.S. Shadow Bank
Unrecorded Debt
2022*$39.4T$26.0T
2021$37.1T$25.0T
2020$34.5T$22.9T
2019$32.9T$21.5T
2018$32.4T$20.1T
2017$31.2T$18.8T
2016$27.9T$17.0T
2015$25.1T$15.6T
2014$30.0T$17.0T
2013$30.8T$15.7T
2012$28.9T$15.9T
2011$27.5T$14.7T
2010$24.8T$15.0T
2009$21.4T$12.1T
2008$21.9T$12.4T

*As of June 30, 2022

Driving its rise in part was an era of rock-bottom interest rates globally. As investors sought out higher returns, they took on greater leverage—and forex swaps are one example of this.

Now, as interest rates have been rising, forex swaps have increased amid higher market volatility as investors look to hedge currency risk. This appears in both non-U.S. banks and non-U.S. shadow banks, which are unregulated financial intermediaries.

Overall, the value of unrecorded debt is staggering. An estimated $39 trillion is held by non-U.S. banks along with $26 trillion in overseas shadow banks around the world.

Past Case Studies

Why does the massive growth in dollar debt present risks?

During the market crashes of 2008 and 2020, forex swaps faced a funding squeeze. To borrow U.S. dollars, market participants had to pay high rates. A lot of this hinged on the impact of extreme volatility on these swaps, putting pressure on funding rates.

Here are two examples of how volatility can heighten risk in the forex market:

  • Exchange-rate volatility: Sharp swings in USD can spur a liquidity crunch
  • U.S. interest-rate volatility: Sudden rate fluctuations can mean much higher costs for these trades

In both cases, the U.S. central bank had to step in to provide liquidity in the market and prevent dollar shortages. This was done through pumping cash into the system and creating swap lines with other non-U.S. banks such as the Bank of Canada or the Bank of Japan. These were designed to protect from declining currency values and a liquidity crunch.

Dollar Debt: The Wider Implications

The risk from growing dollar debt and these swap lines arises when a non-U.S. bank or shadow bank may not be able to hold up their end of the agreement. In fact, on a daily basis, there is an estimated $2.2 trillion in forex swaps exposed to settlement risk.

Given its vast scale, this dollar debt could have greater systemic spillover effects. If participants fail to pay it could undermine financial market stability. Because demand for U.S. dollars increases during market uncertainty, a worsening economic climate could potentially expose the forex market to more vulnerabilities.

Continue Reading

Subscribe

Popular