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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.
government debtthe 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.