From $75 Million To Breaching $33 Trillion Historic Milestone; Breaking Down Of US National Debt

The United States' national debt crossed over $33 trillion mark for the first time in history. The performance also comes when Congress struggles to pass all 12 appropriations bills before the deadline of September 30, 2023, the likelihood of this happening is unlikely and hence it could trigger a government shutdown on October 1, 2023. If happens, it would be the fourth federal government shutdown in a decade where all operations except essential federal agencies will be halted.

As per the fiscal data of the US Treasury government, the national debt touched over $33.05 trillion as of September 18, 2023.

What is the US national debt?

US national debt is the amount of money the federal government has borrowed to cover the outstanding balance of expenses incurred over time.

Explaining in detail, the Treasury government report highlighted that in a given fiscal year (FY), when spending (excluding money for roadways) exceeds revenue (excluding money from federal income tax), a budget deficit results. To pay for this deficit, the federal government borrows money by selling marketable securities such as Treasury bonds, bills, notes, floating rate notes, and Treasury inflation-protected securities (TIPS). The national debt is the accumulation of this borrowing along with associated interest owed to the investors who purchased these securities. As the federal government experiences reoccurring deficits, which is common, the national debt grows.

Further, the different types of debt include non-marketable or marketable securities and whether it is debt held by the public or debt held by the government itself (known as intragovernmental). Also, the national debt enables the federal government to pay for important programs and services for the American public.

In simple words, the national debt is similar to a person using a credit card for purchases and not paying off the full balance each month.

Past Performance of US National Debt:

America has carried debt since its inception. During the American Revolutionary War, the nation's debt stood at a meagre $75 million by January 1, 1791. The debt ceiling continued to grow significantly over the next 45 years from here onward, until in 1835, it slipped due to the sale of federally-owned lands and cuts to the federal budget.

Shortly, thereafter, an economic depression pushed the debt ceiling to grow into the millions, the US Treasury data said.

Through the course of the American Civil War, US debt skyrocketed by 4,000%, rising from $65 million in 1860 to $1 billion in 1863 and around $2.7 billion shortly after the conclusion of the war in 1865.

The pace of upside remained steady in the US debt even after 1865, and in the 20th century, it was approximately $22 billion after the country financed its involvement in World War I.

But in recent times, US debt witnessed large spikes which were triggered by a slew of events such as the Afghanistan and Iraq Wars, the 2008 Great Recession, and the COVID-19 pandemic.

It said, "From FY 2019 to FY 2021, spending increased by about 50%, largely due to the COVID-19 pandemic."

"Tax cuts, stimulus programs, increased government spending, and decreased tax revenue caused by widespread unemployment generally account for sharp rises in the national debt," it added.

In over 100 years, US federal debt has increased from $408 billion in 1922 to $30.93 trillion in 2022, which further zoomed to more than $33.05 trillion in less than nine months of 2023.

It also needs to be noted that there are two major categories of federal debt -- debt held by the public and intragovernmental holdings.

In a decade, the debt held by the public jumped by 118% from $11.97 trillion in 2013 to $26.04 trillion so far in 2023. While the intragovernmental holdings increased by 44% from $4.77 trillion in 2013 to $6.87 trillion in 2023 as of now.

Maintaining the National Debt:

The US Treasury government report said the national debt has increased every year over the past ten years. Interest expenses during this period have remained fairly stable due to low-interest rates and investors' judgement that the U.S. Government has a very low risk of default. However, recent increases in interest rates and inflation are now resulting in an increase in interest expense.

By the end of August 2023, it costs $808 billion to maintain the debt, which is 15% of the total federal spending.

Currently, the issue US national debt is at a halt amidst Republican and Democratic lawmakers entanglement towards passing spending bills which would help in sustaining the government till the next funding cycle.

When do government shutdowns happen?

As per the Brookings report, under the Antideficiency Act (initially passed in 1884 and amended in 1950), federal agencies cannot spend or obligate any money without an appropriation (or other approval) from Congress. When Congress fails to enact the 12 annual appropriation bills, federal agencies must cease all non-essential functions until Congress acts. This will be called a government shutdown.

However, if Congress enacts some but not all of the 12 appropriations bills, only agencies without appropriations have to shut down -- which will be called a partial shutdown.

Among the bills, Republican lawmakers are looking for less spending, while the Democrats are supporting President Joe Biden's programs like the Inflation Reduction Act, which as per the University of Pennsylvania budget model is estimated to cost around $1.045 trillion over the next 10 years.

Michael Kikukawa, a White House assistant press secretary said, "Congressional Republicans want to double down on trickle-down by extending President (Donald) Trump's tax cuts and repealing President Biden's corporate tax reforms," as reported by CNBC.

Further, Kikukawa added that Biden's policies to demand the wealthy and big corporations pay their fair share in taxes and slash subsidies to oil and pharmaceutical companies would cut deficits by $2.5 trillion if approved.

Further, NBC News reported on Tuesday that House Republicans released the bill Sunday night, aiming to corral enough GOP support to pass in a floor vote, but in a twist, several rank-and-file ultraconservative lawmakers blasted the deal as too weak. Now, it's at risk of falling apart.

While AF Post tweeted on Tuesday that 15 GOP holdouts plan to defy Speaker McCarthy, and block $826 billion Pentagon spending bill. This would effectively shut down the federal government.

Also, Minyi (Cathy) Huang, Equity Research Associate at HSBC Global Research tweeted saying that "The U.S. government shutdown crisis is approaching. If a budget agreement is not reached before the end of this month, the U.S. federal government will shut down. Goldman Sachs economists believe that despite the higher risk of a shutdown, Fed policy should not be affected, but this may increase the argument for no action in November."

As the shutdown probability looms on the US federal government, it will be keenly watched when the national debt at historic levels will be addressed.

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