National debt

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National debt

Treasury bills, notes, bonds, and other debt obligations that constitute the debt owed by the federal government.

National Debt

The total of all bonds and other debt owed by a government. Most of the time, the national debt comes from bonds and other debt securities, but some countries in the developing world borrow directly from international institutions such as the World Bank. The national debt may be internal, that is, owed to bondholders and banks within the country, or external, that is, owed to foreign governments, institutions, and/or individuals. In the United States, paying the interest on the national debt is a major part of the federal budget. See also: Deficit.

National debt.

The total value of all outstanding Treasury bills, notes, and bonds that the federal government owes investors is referred to as the national debt.

The government holds some of this debt itself, in accounts such as the Social Security, Medicare, Unemployment Insurance, and Highway, Airport and Airway Trust Funds. The rest is held by individual and institutional investors, both domestic and international, or by overseas governments.

There is a debt ceiling imposed by Congress, but it is typically raised when outstanding debt approaches that level.

Interest on the national debt is a major item in the federal budget, but the national debt is not the same as the federal budget deficit. The deficit is the amount by which federal spending exceeds federal income in a fiscal year.

national debt


government debt

the money owed by central government to domestic and foreign lenders. A national debt arises as a result of the government spending more than it receives in taxation and other receipts (BUDGET DEFICIT). This may arise because of, for example, a ‘one-off’ event (the financing of a war) or reflect the government's commitment to an expansionary FISCAL POLICY.

National debt in the UK is made up of a number of financial instruments, primarily short-dated TREASURY BILLS and long-dated BONDS, together with national savings certificates. INTEREST on the national debt is paid out of current budget receipts.

Concern is sometimes expressed at the size of the national debt. In 2003, for example, the UK's net national debt stood at £375,200 million, compared to current GROSS DOMESTIC PRODUCT of £1,099,896 million. Provided that the bulk of the debt is held by domestic residents and institutions, however, there is no cause for alarm. In terms of the CIRCULAR FLOW OF NATIONAL INCOME, the interest paid on the national debt to domestic lenders is only a TRANSFER PAYMENT and does not represent a net reduction in the real resources of the economy or compromise the ability of the economy to provide goods and services. In 2003,90% of the UK's national debt was held domestically and interest payments accounted for only 5% of total GOVERNMENT EXPENDITURE.

In recent years, however, particular attention has been focused on the potentially INFLATIONARY effects of deficits financing (see PUBLIC SECTOR BORROWING REQUIREMENT) whereby deficits are financed by excessive monetary expansion. In the European Union, ‘fiscal stability’ has been written into the MAASTRICHT TREATY, with countries being under an obligation to ensure that total outstanding government debt should not exceed 60% of GDP. The UK government has gone further than this. Under the ‘sustainable-investment rule’, the government has committed itself to ensuring that total outstanding public debt should not exceed a maximum of 40% of GDP. See BUDGET ( GOVERNMENT), PUBLIC SECTOR DEBT REQUIREMENT.

References in periodicals archive ?
If two economies are compared, one with a national debt and the other without any national debt, then, other things being equal, demand will be higher in the first economy.
Some mention should be made of the point raised by Ricardo (1817) and Barro (1974) that rational consumers should not regard the national debt as being part of their wealth.
Box B illustrates this numerically, using parameters which, broadly speaking represent the UK economy, but in which the national debt is held at home rather than by foreigners.
The above analysis can be contrasted with the long-term effects of national debt for an economy whose capital assets are perfect substitutes for those in the rest of the world, and which is an insignificant participant in world capital markets.
Consider the simplest open-economy case in which the entire amount of any increment to the national debt is sold to foreigners.
This will probably mean that a high national debt is associated with higher interest rates and a lower domestic capital stock as well as reduced net foreign assets.
But in a steady state with a constant growth rate, there is a one-for-one relationship between asset stocks (capital, the national debt and net foreign assets) and the related flows (domestic investment, the budget deficit and the current account of the balance of payments).
However, since the link between public saving and national saving only holds in the steady state, it seems more sensible to look to see whether there is any evidence that the ratio of national saving to GDP is influenced by the level of the national debt.
In this situation they show that the national debt has the effect of imposing a lump-sum tax on young people which is paid out to old people.
A different type of influence arises from the taxes which are needed to service the national debt.
It cannot both keep the tax rate constant and achieve any particular target value for the national debt even in the long run.
We now proceed to discuss whether it may be sensible to consider the idea of an optimal national debt as an alternative framework for thinking about fiscal policy.

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