The term national debt refers to the outstanding financial obligation of a country. The national debt of the United States is what the federal government owes to its creditors. 

The U.S. has always carried national debt, and the majority of presidents have added to it. However, the total has been expanding rapidly since 2008 due to a combination of increased government spending and failure to raise taxes.

Understanding National Debt

The federal government borrows money to cover outstanding expenses that accumulate over time. Funds for federal spending are mainly generated by collecting taxes on personal and corporate income, payroll earnings, and borrowing. 

The government then spends this money on programs such as Social Security, healthcare, education, infrastructure, and national defense. When the government spends less than the revenue collected through taxes, there is a budget surplus. When government spending exceeds its revenue, the result is a budget deficit.

To pay for this deficit, the U.S. Treasury borrows money by issuing Treasury bills, notes, and bonds. These can be purchased by investors, financial institutions such as banks and insurers, the Federal Reserve, and other foreign central banks. 

The national debt, which is also referred to as government, federal, or public debt, is made up of this borrowing along with the interest owed to investors who purchased these Treasury securities.

The Growing National Debt

The U.S. has carried debt since it was founded. In fact, the U.S. accumulated more than $75 million in debt during the Revolutionary War, and that increased to greater than $2 billion by the end of the Civil War in 1865. 

Major economic and political events usually trigger an increase in the national debt. Recent events causing a spike in debt levels include the wars in Afghanistan and Iraq, the Great Recession, and the COVID-19 pandemic. Military spending reached record levels of more than $600 billion during the wars in Afghanistan and Iraq. 

Government spending on relief measures during times of economic turmoil, such as the Great Recession and COVID-19, also causes an increase in the national debt. For example, then-President Barack Obama’s American Recovery and Reinvestment Act (ARRA) was an $831 billion fiscal stimulus aimed at restoring jobs during the 2008 recession.

Spending also increased under then-President Donald Trump by about 50% from fiscal year 2019 to fiscal year 2021. This was largely driven by tax cuts and COVID-19 relief measures. Those types of moves, along with increased government spending and decreased tax revenue from high levels of unemployment, can generally cause the national debt to rise sharply. 

Spending decisions made by the president in office also affect the national debt level. A president’s actions to direct government spending toward national defense, healthcare, education, or fiscal stimulus packages can increase debt levels. However, the president can’t always control these decisions, as they may be made in response to unforeseen events like a war, pandemic, or recession. 

End of Fiscal Year	Debt (in Billions, Rounded)	Major Events by Presidential Term
1929	$17	Market crash
1930	$16	Smoot-Hawley Tariff Act reduced trade
1931	$17	Dust Bowl drought raged
1932	$20	Hoover raised taxes
1933	$23	New Deal increased GDP and debt
1934	$27
1935	$29	Social Security
1936	$34	Tax hikes renewed Great Depression
1937	$36	Third New Deal
1938	$37	Dust Bowl ended
1939	$40	Depression ended
1940	$43	FDR increased spending and raised taxes
1941	$49	U.S. entered World War II
1942	$72	Defense tripled
1943	$137
1944	$201	Bretton Woods Agreement
1945	$259	World War II ended
1946	$269	Truman’s first-term budgets and recession
1947	$258	Cold War
1948	$252	Recession
1949	$253	Recession
1950	$257	Korean War boosted growth and debt
1951	$255
1952	$259
1953	$266	Recession when war ended
1954	$271	Eisenhower’s budgets and recession
1955	$274
1956	$273
1957	$271	Recession
1958	$276	Eisenhower’s 2nd term and recession
1959	$285	Fed raised rates
1960	$286	Recession
1961	$289	Bay of Pigs
1962	$298	JFK budgets and Cuban Missile Crisis
1963	$306	U.S. aids Vietnam; JFK killed
1964	$312	LBJ’s budgets and war on poverty
1965	$317	U.S. entered Vietnam War
1966	$320
1967	$326
1968	$348
1969	$354	Nixon took office
1970	$371	Recession
1971	$398	Wage-price controls
1972	$427	Stagflation
1973	$458	Nixon ended gold standard; OPEC oil embargo
1974	$475	Watergate; Nixon resigns; budget process created
1975	$533	Vietnam War ended
1976	$620	Stagflation
1977	$699	Stagflation
1978	$772	Carter budgets and recession
1979	$827
1980	$908	Fed Chairman Volcker raised fed rate to 20%
1981	$998	Reagan tax cut
1982	$1,142	Reagan increased spending
1983	$1,377	Jobless rate 10.8%
1984	$1,572	Increased defense spending
1985	$1,823
1986	$2,125	Reagan lowered taxes
1987	$2,350	Market crash
1988	$2,602	Fed raised rates
1989	$2,857	S&L Crisis
1990	$3,233	First Iraq War
1991	$3,665	Recession
1992	$4,065
1993	$4,411	Omnibus Budget Reconciliation Act
1994	$4,693	Clinton budgets
1995	$4,974
1996	$5,225	Welfare reform
1997	$5,413
1998	$5,526	Long-Term Capital Management crisis; recession
1999	$5,656	Glass-Steagall Act repealed
2000	$5,674	Budget surplus
2001	$5,807	9/11 attacks; Economic Growth and Tax Relief Reconciliation Act
2002	$6,228	War on Terror
2003	$6,783	Jobs and Growth Tax Relief Reconciliation Act; second Iraq War
2004	$7,379	Second Iraq War
2005	$7,933	Bankruptcy Act; Hurricane Katrina
2006	$8,507	Bernanke chaired Fed
2007	$9,008	Banks crisis
2008	$10,025	Bank bailouts; quantitative easing (QE)
2009	$11,910	Bailout cost $250 billion; American Recovery and Reinvestment Act (ARRA) added $242 billion
2010	$13,562	ARRA added $400B; payroll tax holiday ended; Obama tax cuts; Affordable Care Act; Simpson-Bowles debt reduction plan
2011	$14,790	Debt crisis, recession, and tax cuts reduced revenue
2012	$16,066	Fiscal cliff
2013	$16,738	Sequester; government shutdown
2014	$17,824	QE ended; debt ceiling crisis
2015	$18,151	Oil prices fell
2016	$19,573	Brexit
2017	$20,245	Congress raised the debt ceiling
2018	$21,516	Trump tax cuts
2019	$22,719	Trade wars
2020	$26,945	COVID-19 and recession
2021	$28,428	COVID-19 and American Rescue Plan Act
2022	$30,928	Inflation Reduction Act
2023	$33,167

Source: U.S. Treasury

Debt-to-GDP Ratio 

The debt-to-GDP ratio is the ratio of a country’s public debt to its gross domestic product (GDP). 

Looking at a country’s debt compared with its GDP is similar to a lender looking at someone’s credit history—it reveals how likely the country is to pay back its debt. 

The debt-to-GDP ratio is usually expressed as a percentage and is used as a reliable indicator of a country’s economic situation, because it compares what the country owes to what it produces, in turn showing its ability to repay the debt. The higher a country’s debt-to-GDP ratio, the less likely the country is to pay off its debt. This also puts the country at higher risk of default, which is concerning to investors as it could cause financial panic in domestic and international markets. 

According to a study by the World Bank, countries with a debt-to-GDP ratio above 77% for a prolonged period experience significant slowdowns in economic growth. As of the third quarter of 2023, the U.S. debt-to-GDP ratio was 120.13%. The U.S. debt-to-GDP ratio has been above 77% since 2009, following the financial crisis that started in 2007.

The graph below shows the debt-to-GDP ratio for the U.S. from 1966 to 2022. 

Types of Debt Included in the National Debt

There are different types of debt that comprise the national debt. We've highlighted some of them below.

Marketable and Nonmarketable Securities

Marketable securities such as Treasury bills, bonds, notes, and Treasury Inflation-Protected Securities (TIPS) can be traded on the secondary market, and their ownership can be transferred from one person or entity to another.

Nonmarketable securities, which include savings bonds, government account series, and state and local government series, can’t be sold to other investors. 

Debt Held by the Public

The U.S. federal debt is mainly held by the American public, followed by foreign governments, U.S. banks, and investors. This portion of the debt held by the public doesn’t include U.S. debt held by the federal government or intragovernmental debt. Debt held by the public includes individuals, corporations, state or local governments, Federal Reserve banks, foreign investors and governments, and other entities outside the U.S. government. 

Intragovernmental Debt 

Intragovernmental debt is debt held by the government itself. It is what one part of the government owes to another part.

Intragovernmental debt hasn’t increased as sharply as publicly held debt over the past decade because it mainly includes debt on federal programs’ surplus revenue invested in Treasury debt.

Tracking, Maintaining, and Managing the National Debt

The Bureau of the Fiscal Service provides accounting and reporting services for the government and manages all federal payments and collections. One of the Fiscal Service’s main roles is to track and report the national debt. 

Like the rest of us, the federal government is also charged interest for borrowing money. How much interest the government pays depends on the total national debt and the interest rates of different securities. When the target range for the federal funds rate (fed rate) is increased by the Federal Open Market Committee (FOMC), carrying debt becomes more expensive for the government, too. 

Interest expenses have been relatively stable despite debt rising every year over the past decade, thanks to low interest rates. However, when interest rates increase, maintaining the national debt gets more costly. As the Federal Reserve has repeatedly raised benchmark interest rates since 2022 to cool high inflation, the U.S. could pay as much as $1 trillion more on interest payments for the national debt this decade, according to the Peter G. Peterson Foundation.

The Treasury’s main goal when managing national debt is to ensure that the federal government is able to borrow at the lowest cost over time. The Treasury does this by offering marketable securities that are attractive to a wide variety of investors because they are safe and liquid. 

The Treasury needs to consider the amount of securities it offers to investors in the context of what’s happening in the financial markets and to be prepared for policy changes and economic events that could significantly affect federal cash flow and borrowing needs. 

The Debt Ceiling

The debt ceiling, or debt limit, is the maximum amount that the U.S. government can borrow by issuing bonds. When the debt ceiling is reached, the Treasury must find other ways to pay expenses. 

If what the federal government owes reaches the debt limit, and that limit is not raised, there is a risk that the U.S. will default on its debt. This sounds alarm bells for investors because that could have severe consequences for national and global markets. To avoid the risk of default, the debt ceiling needs to be raised by Congress, which has been done many times. 

In January 2023, U.S. Treasury Secretary Janet Yellen announced that the U.S. government hit its debt ceiling. Yellen said the U.S. government would take “extraordinary measures” to prevent a sovereign default, which could come in mid-2023 if the debt ceiling isn’t raised or abolished altogether.

Extraordinary measures authorized by Congress would temporarily suspend certain intragovernmental debt, allowing the Treasury to borrow more money for a limited amount of time. The debt ceiling was last raised to $31 trillion (a record) in late 2021—a limit that has now been reached—by President Joe Biden and Congress. In June 2023, a deal was struck between Democrats and Republicans to suspend the debt ceiling and allow further spending until 2025.

The Bottom Line

The national debt is the total amount of money that a country owes to its creditors. The government spends money on programs such as healthcare, education, and Social Security, and accumulates debt by borrowing to cover the outstanding balance of expenses incurred over time. Major economic and political events, such as recessions, wars, or pandemics, can affect government spending.

In early 2023, the U.S. government hit the debt limit again. This is the maximum amount it can borrow before the debt limit is suspended. If the debt ceiling is reached and not suspended or raised by Congress, the federal government could default on its debt. This has never happened, but if it does, it could have significant ramifications for U.S. and global markets.