oversight

Federal Debt: Answers to Frequently Asked Questions--An Update

Published by the Government Accountability Office on 1999-05-28.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                United States General Accounting Office

GAO


May 1999
                Federal Debt : Answers to
                Frequently Asked
                Questions—An Update




GAO/OCG-99-27
GAO   United States
      General Accounting Office
      Washington, D.C. 20548

      Comptroller General
      of the United States

      B-282102

      May 28, 1999

      The Honorable Pete V. Domenici
      Chairman, Committee on the Budget
      United States Senate

      Dear Mr. Chairman:

      As you requested, this report updates information presented in our
      1996 publication, Federal Debt: Answers to Frequently Asked
      Questions (GAO/AIMD-97-12, November 27, 1996). In this update we
      present current information on the federal debt, including how debt
      is defined and measured; who holds federal debt; how much it has
      grown in recent years; and its significance to the national economy.
      As in our earlier report, we attempt to provide the information in a
      clear, concise and easily understandable manner for a nontechnical
      audience.

      This document was prepared under the direction of Paul L. Posner,
      Director of Budget Issues, and Susan J. Irving, Associate Director of
      Budget Issues, Accounting and Information Management Division,
      who may be reached at (202) 512-9573 if there are any questions.

      Sincerely yours,




      David M. Walker
      Comptroller General
      of the United States
Preface



          At the end of fiscal year 1998, the unified budget of
          the federal government was in surplus for the first
          time in almost 30 years, and surpluses were projected
          to continue over the next decade. With this change in
          the budgetary environment, discussion has begun on
          how the federal government should view these
          surpluses and to what degree debt reduction can or
          should be achieved.

          Although the federal government has carried debt
          throughout virtually all of U.S. history, large annual
          budget deficits over the past two decades sharply
          increased the total amount of debt owed to the public
          and its associated annual interest payments.
          Policymakers responded to the historically high debt
          levels in recent years by passing several deficit
          reduction initiatives. These actions, along with
          economic growth, helped shrink annual deficits and
          bring about the 1998 surplus.

          Even after a year of budgetary surplus, debt held by
          the public stands at about 44 percent of the annual
          size of the U.S. economy, a level that the United
          States rarely reached before 1940. However, the
          projected surpluses, if they materialize, would lead to
          a further reduction in this debt. Over the longer term,
          the retirement of the baby boom generation will place
          additional pressures on the budget. These
          pressures—including, for example, increasing
          demand for health services—will require further
          action to prevent debt from rising again in future
          decades.

          Many citizens have recognized that a high level of
          federal debt has serious consequences for them.
          Large deficits and rising debt levels constrain future
          growth in incomes and living standards by reducing
          the amount of saving in the United States available for
          private investment. Deficits may also raise interest



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Preface




rates, increasing household borrowing costs for
homes, cars, and college loans.

In addition to these economic consequences, the
federal budgetary costs of growing publicly held debt
have reduced the ability of the federal government to
provide services—almost 15 cents out of every federal
budget dollar spent is used to pay net interest rather
than to finance other public priorities. Net interest
spending (in nominal terms) grew at an average rate
of 10.6 percent per year between 1980 and 1998. After
Social Security and Defense, net interest is the third
largest spending item in the federal budget. Interest
spending is the least controllable item in the budget
since it is determined by the amount of past
borrowing and interest rates.

Because of the complex and technical nature of debt
issues, there is a substantial amount of
misunderstanding and confusion surrounding them.
For example, the reason the debt limit may need to be
raised even in a time of budgetary surpluses is not
obvious. This update addresses questions that are
frequently asked about the federal debt, deficits and
surpluses, and interest rates. It also addresses some
questions that have arisen about debt in a time of
surplus.

For readers who are interested in more detailed
information on the topics covered here, we also
include a short bibliography.




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Preface




Page 4    GAO/OCG-99-27
Page 5   GAO/OCG-99-27
Contents



Preface                                                                  2

Section I: What is                                                       8
the Federal Debt?
Section II:                                                             15
Budgetary Effects
of Federal Debt
Section III:                                                            29
Economic Effects
of Federal Debt
Section IV:                                                             39
Federal Debt
Management and
Ownership
Section V: Key                                                          52
Issues in
Evaluating Future
Debt Levels
Bibliography                                                            54

Table                Table IV.1: Schedule of Treasury Securities        40
                       Auctions

Figures              Figure I.1: Gross Federal Debt and Its              8
                        Components

                     Figure I.2: Distribution of Federal Debt Held      11
                        by Government Accounts



                     Page 6                                   GAO/OCG-99-27
Contents




Figure II.1: Surplus or Deficit as a Share of     16
   GDP
Figure II.2: Federal Debt Held by the Public      17
   as a Share of GDP
Figure II.3: Federal Debt as a Share of GDP       19
Figure II.4: Net General Government Debt of       20
   Selected Countries
Figure II.5: Unified Budget Deficit or Surplus    22
   and Its Components
Figure II.6: Net Interest as a Share of Total     25
   Federal Outlays
Figure II.7: Federal Outlays by Selected          26
   Functions
Figure II.8: Average Interest Rate on the         27
   Federal Debt
Figure III.1: GDP Per Capita From GAO             31
   Simulations, 1998 to 2070
Figure III.2: Effect of Federal Budget            33
   Surpluses and Deficits on Net National
   Saving
Figure III.3: Effect of Federal Budget            34
   Surpluses and Deficits on Net National
   Saving
Figure III.4: Average Net National Saving         36
   Rates of Selected Countries
Figure III.5: Spending on Social Security,        38
   Medicare, and Medicaid as a Share of GDP
   Through 2070 Under GAO’s “Save the
   Surplus” Simulation
Figure IV.1: Treasury Bills, Notes, and Bonds     41
   Outstanding
Figure IV.2: Estimated Ownership of Debt          44
   Held by the Public


Abbreviations

CBO      Congressional Budget Office
GDP      gross domestic product
GNP      gross national product
OMB      Office of Management and Budget

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Section I: What is the Federal Debt?



                           Q. How large is the federal debt?

                           A. Gross debt is the measure that captures all of the
                           federal government’s outstanding debt. Gross
                           debt—which totaled about $5.5 trillion at the end of
                           fiscal year 1998—is comprised of debt held by the
                           public plus debt held by certain government accounts,
                           such as the Social Security and Medicare trust funds.
                           (See figure I.1.)



Figure I.1: Gross Federal Debt and Its Components
(End of Fiscal Year 1998)




                           Source: Department of the Treasury.




                           Page 8                                 GAO/OCG-99-27
Section I: What is the Federal Debt?




Q. What is debt held by the public?

A. The level of debt held by the public—about
$3.7 trillion at the end of fiscal year 19981—is a useful
measure because it reflects how much of the nation’s
wealth is absorbed by the federal government to
finance its obligations. Thus, it best represents the
cumulative effect of past federal borrowing on today’s
economy and the federal budget. In this update, our
discussions focus primarily on debt held by the
public.

The amount of a borrower’s debt by itself is not a
good indicator of the burden imposed by that debt. A
borrower’s income and wealth are also important in
assessing the burden of debt. Therefore, to get a
better sense of the burden represented by the federal
debt, debt is often measured in relation to the nation’s
income. Gross domestic product (GDP) is a commonly
used measure of national income. The GDP is the value
of all goods and services produced within the United
States in a given year. It is a rough indicator of the
economic base from which the government draws its
revenues. Thus, the ratio of debt held by the public as
a share of GDP is a good measure of the burden on the
current economy. In these terms, the federal debt
burden grew in all but two years from 1980 through
the mid-1990s and has decreased steadily from then to
the present. Figure II.3, included later, shows these
changes.




1
 This total is reported in the Department of the Treasury’s Final
Monthly Treasury Statement for Fiscal Year 1998 Through
September 30, 1998 and is net of unamortized premiums and
discounts on public debt securities.

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Section I: What is the Federal Debt?




Q. What is debt held by government accounts?

A. Debt held by government accounts2—about
$1.8 trillion at the end of fiscal year 1998—primarily
represents balances in the Social Security and federal
civilian employee and military retirement trust funds,
which account for almost 75 percent of the total. (See
figure I.2.) The money is invested in special U.S.
Treasury securities that are guaranteed for principal
and interest by the full faith and credit of the U.S.
government. These trust funds have been running
annual surpluses that reduce the need for the
government to borrow from the public today because,
in effect, they are loaned from one part of the
government to another. The transactions net out on
the government’s consolidated financial statements.
However, they also constitute future obligations of
the Treasury since the Treasury must pay back the
debt held by government accounts when these
accounts need to redeem their securities. Just as with
the Treasury’s public debt holders, the government
accounts earn interest on their special Treasury
holdings. Interest on securities held by a government
account may be used for outlays by the account or
invested in additional Treasury securities.




2
 Debt held by government accounts primarily reflects debt owned
by federal trust funds, including Social Security. In addition to trust
funds, several funds such as the Bank Insurance Fund also own
government securities, but these investments represent only a
small portion of the total debt held by government accounts.

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                            Section I: What is the Federal Debt?




Figure I.2: Distribution of Federal Debt Held by Government Accounts (End of
Fiscal Year 1998)




                            Source: OMB.




                            Q. What is the difference between the two types
                            of federal debt?

                            A. Debt held by the public and debt held by
                            government accounts are very different. Debt held by
                            the public approximates the federal government’s
                            competition with other sectors in the credit markets.
                            This competition affects current interest rates and
                            private capital accumulation. Further, interest on debt
                            held by the public is a current burden on taxpayers.




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Section I: What is the Federal Debt?




In contrast, debt held by the trust funds performs an
accounting function, but it typically does not
constitute the government’s total future commitment
to trust fund financed programs. It represents the
cumulative annual surpluses of those trust funds plus
accrued interest and also reflects a future claim on
the U.S. Treasury. It does not have the current
economic effects of borrowing from the public and
does not currently compete with the private sector for
available funds in the credit market. However, when
trust funds redeem securities to obtain cash to fund
expenditures, they compete with the private sector
and thus have an effect on the economy.

Because debt held by the trust funds is neither equal
to future benefit payments nor a measure of the
commitments of the current system, it cannot be seen
as a measure of this future burden. Nevertheless, it
provides an important signal of the existence of this
burden. Whether the debt recognizes an existing
burden or constitutes a new economic burden for the
future depends on whether or not these currently
promised benefits would be paid even if trust fund
revenues and holdings of securities were insufficient
to cover the full costs.

Q. What is the debt limit? Does it provide a way
to control the amount we borrow?

A. The gross debt, excluding some minor
adjustments,3 is the measure that is subject to the
federal debt limit. Prior to 1917, the Congress
approved each issuance of debt. In 1917, to facilitate
planning in World War I, the Congress established a
dollar ceiling for federal borrowing, which has been

3
 A very small amount of the gross debt is excluded from the debt
limit (less than 1 percent at the end of fiscal year 1998). The
amount excluded is mainly issued by agencies other than the
Department of the Treasury, such as the Tennessee Valley
Authority.

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Section I: What is the Federal Debt?




raised periodically over the years. This limit, currently
$5.95 trillion, receives increased public attention
periodically when the Congress and the President
debate raising the limit to accommodate further
borrowing. At the end of fiscal year 1998, the amount
of debt subject to limit was about $5.4 trillion.

The debt limit does not determine federal borrowing
needs. These needs result from all of the revenue and
spending decisions the government makes as well as
the performance of the economy. Therefore,
whenever the government’s borrowing approaches
the debt limit, the Congress and the President must
eventually raise the limit to pay the government’s bills
as they come due.

Q. Under what circumstances would the debt
limit have to be raised during periods of budget
surpluses?

A. Under its January 1999 baseline projections, the
Congressional Budget Office (CBO) estimates that the
debt limit—currently $5.95 trillion—will not be
reached through 2009. However, some policy actions
or economic changes resulting in a reduction in
annual budget surpluses may cause the debt limit to
be reached sooner. Additionally, any change that
would increase the balances of the trust funds, such
as the Social Security trust funds,4 would cause the
debt limit to be reached sooner unless it also caused
debt held by the public to fall by at least an equal
amount. Interestingly, because the Social Security
trust funds hold balances in special Treasury
securities, Social Security reform could trigger a rise
in gross debt if it led to increases in trust fund
balances. In this case, debt held by government
accounts would increase, causing gross debt to rise as

4
 Social Security trust funds refers to the combined Old-Age and
Survivors Insurance Trust Fund and Disability Insurance Trust
Fund.

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Section I: What is the Federal Debt?




well unless debt held by the public were reduced
commensurately.




Page 14                                GAO/OCG-99-27
Section II: Budgetary Effects of Federal
Debt


              Q. What does it mean to have a budget surplus
              or deficit and how are they related to federal
              debt?

              A. The budget surplus or deficit (also called the
              “unified” or “total” budget surplus or deficit) is the
              difference between total federal spending and
              revenue in a given year. To finance a budget deficit,1
              the government borrows from the public. Available
              surpluses in trust funds reduce or eliminate the need
              for the government to borrow from the public to pay
              for current expenditures. Alternatively, when a
              budget surplus occurs, the government accumulates
              excess funds that are used to reduce debt held by the
              public. In other words, deficits or surpluses generally
              approximate the annual net change in the amount of
              government borrowing from the public, while the
              debt held by the public generally represents the
              amounts of unified deficits accumulated over time
              less any surpluses.

              When the Congress makes budgetary decisions, it is
              also indirectly making decisions about the nominal
              level of debt held by the public. If the budget is in
              deficit, the government has to issue new debt to the
              public in addition to rolling over maturing debt. In the
              case of a balanced budget, the amount of debt held by
              the public would remain essentially unchanged
              because the government does not retire a portion of
              its principal each year. Rather, the Treasury pays only
              the interest costs of debt held by the public. The
              principal that comes due is paid off with cash raised



              1
               The surplus or deficit is approximately equal to the yearly change
              in the debt held by the public. However, several minor types of
              transactions referred to as “other means of financing” account for
              differences between the two amounts. These “other means”
              include changes in the Treasury’s cash balances, outstanding
              payment obligations, and net financing disbursements by the
              government’s loan guarantee and direct loan accounts.

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                             Section II: Budgetary Effects of Federal
                             Debt




                             by issuing new securities, and the debt is rolled over.2
                             A unified budget surplus allows the Treasury to
                             reduce the nominal level of debt held by the public by
                             rolling over less debt when it matures. (See section IV
                             for more information about the Treasury’s debt
                             management.)

                             Figures II.1 and II.2 show the budget surplus or deficit
                             and the debt held by the public as shares of GDP.



Figure II.1: Surplus or Deficit as a Share of GDP (1797-1998)




                             Note: Data until 1940 are shown as a percent of gross national
                             product (GNP); data from 1940 to present are shown as a
                             percent of GDP.

                             Sources: OMB and Department of Commerce.
                             2
                              A balanced budget would not change debt levels themselves but
                             would reduce the ratio of debt to GDP assuming continued
                             economic growth.

                             Page 16                                         GAO/OCG-99-27
                            Section II: Budgetary Effects of Federal
                            Debt




                            Short deficit periods have caused increases in debt
                            that lingered long after annual deficit levels declined.
                            For example, the federal budget deficit increased
                            sharply from about 4 percent to about 30 percent of
                            the economy between the years 1941 and 1943 and,
                            correspondingly, federal debt held by the public
                            increased sharply until it reached its zenith as a
                            percentage of GDP in 1946. It then took 17 years, from
                            1946 until 1963, for the debt-GDP ratio to return to its
                            1941 level.



Figure II.2: Federal Debt Held by the Public as a Share of GDP (1797-1998)




                            Note: Data until 1940 are shown as a percent of GNP; data
                            from 1940 to present are shown as a percent of GDP.

                            Sources: OMB and Department of Commerce.




                            Page 17                                        GAO/OCG-99-27
Section II: Budgetary Effects of Federal
Debt




In the past, the debt-GDP measure rose substantially
only as the result of wars and recessions. Borrowing
during these times helped protect the nation from
foreign aggression and stabilize the economy.
Between the early days of the republic and the recent
past, the only events that led debt held by the public
to increase above 30 percent of GDP were the Civil
War, World War I, the Great Depression, and World
War II.

Recent increases in the debt broke with historical
patterns by climbing significantly during a period
marked by the absence of either a major war or
depression. Beginning in the late 1970s, rising federal
budget deficits fueled a corresponding increase in
debt held by the public which essentially doubled as a
share of GDP over a 15-year period through the
mid-1990s and reached about 50 percent of GDP in
1993. Since then, the debt-GDP measure has stabilized
and begun to drop, as budget deficits turned to a
surplus in 1998 and economic growth continued.

At the end of fiscal year 1998, debt held by the public
was about 44 percent of GDP. While it has begun to
decline, this level still is relatively high by historical
standards. In fact, prior to 1990, the only time the
debt-GDP measure had exceeded the current level was
from World War II through 1961.

CBO’s January 1999 projection shows that sustained
surpluses could allow debt held by the public to drop
to about 9 percent of GDP by 2009, the lowest level
since 1917. CBO’s projection, however, is a baseline
projection that assumes no changes in tax or
spending policies over the period—that is, it assumes
that the entire unified budget surplus would be used
to reduce debt held by the public. Under this
assumption, debt held by the public as a percentage
of GDP would be lower than debt held by government



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                            Section II: Budgetary Effects of Federal
                            Debt




                            accounts as a percentage of GDP beginning in 2004.
                            Debt held by government accounts will continue to
                            rise steadily during this timeframe under CBO’s
                            projections. (See figure II.3.)



Figure II.3: Federal Debt as a Share of GDP (1970-2009)




                            Sources: OMB and CBO (January 1999 projections for fiscal
                            years 1999 through 2009).




                            While the current ratio of debt held by the public to
                            GDP in the United States is high by historical
                            standards, in 1997 the United States was in the middle
                            of a group of seven major industrialized nations when




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                            Section II: Budgetary Effects of Federal
                            Debt




                            looking at net general government debt3 as a share of
                            the economy. (See figure II.4.)



Figure II.4: Net General Government Debt of Selected Countries (1997 Estimates)




                            Source: Organization for Economic Cooperation and
                            Development




                            3
                             Net general government debt includes the consolidated debt of all
                            levels of government (national, state or regional, and local).

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Section II: Budgetary Effects of Federal
Debt




Q. What is the role of trust funds in measuring
budget deficits or surpluses?

A. Although the unified budget balance is the most
comprehensive measure of net annual spending or
revenue in a given year, another measure—the federal
funds balance—is necessary to explain annual
changes in the gross federal debt. As noted earlier, the
gross debt includes the debt held by federal trust fund
accounts. Recently, in the aggregate, these trust funds
have been running cash surpluses which are invested
in special U.S. Treasury securities.4 These surpluses
reduce the need for the federal government to borrow
from the public. When the trust fund surpluses and
the interest they earn from the Treasury are excluded
from the budget, there is a deficit in the remainder of
the budget—the so-called federal funds portion. At
the end of 1998, the unified budget had a surplus of
$69.2 billion—the net result of a trust funds surplus of
$161.2 billion and a federal funds deficit of
$92.0 billion. (See figure II.5.) This is the first time
since 1969 that trust funds surpluses exceeded the
federal funds deficit—leading to a unified budget
surplus.




4
 The Social Security trust funds have run the largest surpluses.
Some other trust funds like the Hazardous Substance Superfund
had deficits in 1998.

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                            Section II: Budgetary Effects of Federal
                            Debt




Figure II.5: Unified Budget Deficit or Surplus and Its Components (1968-1998)




                            Source: OMB.




                            When a trust fund program needs to pay benefits and
                            expenses and these outlays exceed dedicated tax
                            receipts, it redeems some of its Treasury securities as
                            needed. The Treasury would need to obtain cash to
                            pay these redemptions. Cash could be obtained in one
                            of the following ways: increased taxes, spending cuts,
                            increased borrowing from the public, or (if the unified
                            budget is in surplus) retiring less debt. Some trust
                            funds support programs with long-term commitments
                            where current expenditures on benefits and



                            Page 22                                    GAO/OCG-99-27
Section II: Budgetary Effects of Federal
Debt




administration already exceed dedicated annual tax
revenues (a cash deficit). The Medicare Hospital
Insurance (Part A) Trust Fund has had a cash deficit
since 1992 and, as needed, it redeemed a portion of its
accumulated securities each year to pay current
claims. The combined Social Security trust funds are
projected to reach the point when current
expenditures exceed annual receipts by 2014.5

Q. How does the federal debt affect the federal
budget and how has this relationship changed
over time?

A. The federal debt primarily affects the federal
budget through the level of interest spending. The
federal government pays interest to holders of
Treasury securities. There are two measures of
federal interest—net interest and gross interest. Net
interest, largely the interest paid on the debt held by
the public,6 represents the current burden of servicing
the debt. It reflects the amount the government pays
to its outside creditors.

Gross interest includes both interest paid to the
public and the interest credited to federal government
trust funds and other government accounts that hold
federal debt. The trust funds interest payments do not
affect either the budget or the economy because there
is no net change in current spending—in effect, one

5
 This date has been recently revised from 2013. See Social Security
and Surpluses: GAO’s Perspective on the President’s Proposals
(GAO/T-AIMD/HEHS-99-95, February 23, 1999); Social Security and
Surpluses: GAO’s Perspective on the President’s Proposals
(GAO/T-AIMD/HEHS-99-96, February 23, 1999); and Social Security:
What the President’s Proposal Does and Does Not Do
(GAO/T-AIMD/HEHS-99-76, February 9, 1999).
6
 In addition to the interest that the federal government pays on
debt held by the public, the government also earns some interest
from various sources and pays interest for purposes other than
borrowing from the public. These amounts are only a small portion
of net interest and, taken together, somewhat reduce its total.

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Section II: Budgetary Effects of Federal
Debt




part of the government pays the interest and another
part receives it. However, this interest, along with all
other trust fund revenue, makes up part of the trust
fund surplus, which is invested in government debt
securities.

Net interest rose sharply from about 9 percent of total
federal spending in fiscal year 1980 to about a
15 percent share in fiscal year 1995 and has remained
almost flat since then. (See figure II.6.) In 1998, net
interest spending was about $243 billion—
14.7 percent of total federal outlays—and it remained
the third largest spending item in the federal budget.
(See figure II.7.) This relatively large interest burden
can significantly reduce budgetary flexibility. Unlike
most of the budget, it cannot be changed directly.




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                             Section II: Budgetary Effects of Federal
                             Debt




Figure II.6: Net Interest as a Share of Total Federal Outlays (1940-2009)




                             Sources: OMB and CBO (fiscal years 1999-2009 projection).




                             Page 25                                       GAO/OCG-99-27
                             Section II: Budgetary Effects of Federal
                             Debt




Figure II.7: Federal Outlays by Selected Functions (Fiscal Year 1998)




                             Source: OMB.




                             Interest spending is a function of interest rates and
                             the amount of debt on which interest must be paid. At
                             any given interest rate, additional borrowing will
                             drive up interest payments. Similarly, at any given
                             level of debt, higher interest rates increase the
                             amount of interest paid.

                             Although the debt incurred during World War II was
                             extremely large, interest rates were much lower than
                             they are today. (See figures II.2 and II.8.)




                             Page 26                                    GAO/OCG-99-27
                             Section II: Budgetary Effects of Federal
                             Debt




Figure II.8: Average Interest Rate on the Federal Debt (1940-1998)




                             Source: OMB.




                             In the past, interest payments contributed to deficits
                             and helped fuel a rising debt burden. Rising debt, in
                             turn, raised interest costs to the budget, and the
                             federal government increased debt held by the public
                             to finance these interest payments.

                             A change from a budget deficit to a surplus reduces
                             federal debt and replaces this “vicious cycle” with a
                             “virtuous cycle” in which budget surpluses result in
                             lower debt levels. Lower debt levels lead to lower




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Section II: Budgetary Effects of Federal
Debt




interest payments—possibly at lower interest rates.7
These lower interest payments in turn lead to larger
potential surpluses and/or increased budget
flexibility. CBO figures show that if all projected
surpluses are retained and are used to reduce debt
held by the public, net interest—primarily the interest
paid on debt held by the public—will decline from
about 15 percent of net outlays in fiscal year 1998 to
about 4 percent in fiscal year 2009.8 (See figure II.6.)
CBO numbers also show that about 23 percent of the
growing budget surpluses projected over the next 10
years come from interest savings if the surplus is
maintained and is fully used to reduce debt held by
the public. Using CBO estimates, if the budget were to
be in balance rather than in surplus from 2000-2009,
net interest costs in fiscal year 2009 would be
$123 billion greater—or about $568 billion
cumulatively between now and then. Nevertheless,
despite the stabilization of the interest burden since
1995, the budget remains vulnerable to changes in
interest rates because the debt remains relatively high
as a percentage of GDP. CBO estimates that if interest
rates rise by 1 percentage point above their projected
levels for fiscal years 2000-2009, the surplus would be
about $20 billion lower each year.9




7
 Just as deficits put upward pressure on interest rates, a period of
budget surpluses should relieve this pressure. Lower interest rates
then reduce interest costs.
8
 CBO, The Economic and Budget Outlook: Fiscal Years 2000-2009,
January 1999.
9
 Ibid. p. 112.


Page 28                                            GAO/OCG-99-27
Section III: Economic Effects of
Federal Debt


              Q. What are the economic consequences of
              federal borrowing?

              A. Borrowing has both benefits and costs. Many
              believe that additional borrowing is appropriate under
              certain circumstances. For example, some believe
              that the automatic increase in federal borrowing that
              occurs during recessions benefits the economy by
              helping to maintain income and spending levels. Such
              net borrowing may occur in response to the reduced
              tax receipts that result from a shrinking economy and
              the increased need for federal benefit payments (for
              example, unemployment insurance).

              Others believe that additional federal borrowing also
              is appropriate for investment spending, such as
              building roads, training workers, or conducting
              scientific research.1 If an investment is well chosen, it
              can ultimately boost worker productivity and
              economic growth in the long term, producing a larger
              economy from which to pay the interest and principal
              on the borrowed funds. However, from 1986 to 1998,
              federal borrowing was accompanied by a decline in
              federal investment spending as a share of the
              economy.

              If net federal borrowing is not used for any of the
              purposes described above, many believe that the
              costs are likely to outweigh the benefits. In this case,
              the benefits of any increased federal spending or tax
              reduction are likely to be more concentrated in the
              short term, while the costs tend to occur mainly in the
              long term. This timing difference can have important


              1
               However, CBO’s analysis showed that many federal investment
              projects yield economic benefits that are small or even negative. A
              limited number of other federal investment projects have high
              returns that would be forgone without federal involvement;
              however, because they are few in number, their potential impact on
              growth is small. See The Economic Effects of Federal Spending on
              Infrastructure and Other Investments, June 1998.

              Page 29                                          GAO/OCG-99-27
Section III: Economic Effects of
Federal Debt




implications for different generations. The cost of
today’s increase in borrowing will be imposed upon
tomorrow’s workers and taxpayers, who may not fully
share in the benefits of the additional spending (or
lower taxes) made possible by the borrowing. To the
extent that deficits reduce private investment, they
also may reduce or slow the growth of the living
standards of future generations.

Figure III.1 shows our latest simulation2 illustrating
that saving all or a significant share of the surplus in
the near term would produce demonstrable gains in
per capita GDP over the long run. This higher GDP in
turn would increase the nation’s economic capacity to
handle all its commitments in the future.




2
 Simulations should not be viewed as forecasts of budgetary or
economic outcomes 50 or more years in the future. Rather, they
should be seen only as illustrations of the budget or economic
outcomes associated with alternative policy paths based on current
information about demographic and budgetary trends and the
functioning of the economy.

Page 30                                          GAO/OCG-99-27
                           Section III: Economic Effects of
                           Federal Debt




Figure III.1: GDP Per Capita From GAO Simulations, 1998 to 2070




                           Note: The “on-budget balance” path assumes that the
                           non-Social Security part of the budget is balanced, and the
                           overall fiscal position of the government reflects the surplus or
                           deficit of the Social Security trust funds. The “save the surplus”
                           path assumes that there will be no changes in current policies
                           and that budget surpluses through 2027 are used to reduce
                           debt held by the public. The “no surplus” path assumes that tax
                           cuts and permanent increases in discretionary spending
                           eliminate the surpluses but keep the budget in balance through
                           2008. Thereafter, deficits reemerge as spending pressures
                           grow.

                           Source: GAO long-term model.




                           Page 31                                           GAO/OCG-99-27
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Federal borrowing can reduce the funds that are
available for private investment and exert an upward
pressure on interest rates. Since the federal
government competes with private investors for
scarce capital, federal borrowing can reduce the
amount available for other investors. Government
borrowing can be large enough to affect the overall
level of interest rates, making borrowing more
expensive for individuals and families who take out
loans for homes, cars, and college.

Q. What is the interaction between federal
borrowing and saving?

A. The large amounts of federal borrowing in the
1980s and 1990s occurred at a time when private
saving was declining as a share of the economy. This
meant that large federal government deficits further
decreased a shrinking pool of domestic private
savings available for private investment. The federal
government ran a surplus in fiscal year 1998—for the
first time since 1969—so that it added to, instead of
subtracting from, the saving of other sectors. The
private saving rate, however, has diminished further
in 1998, reaching its lowest level since shortly after
World War II. This makes the contribution of federal
surpluses to national saving even more important.
(See figures III.2 and III.3.)




Page 32                                 GAO/OCG-99-27
                             Section III: Economic Effects of
                             Federal Debt




Figure III.2: Effect of Federal Budget Surpluses and Deficits on Net National
Saving (1960-1989)




                             Note: Net national saving is composed of total private and
                             public sector saving. Net nonfederal saving excludes capital
                             depreciation and is composed of private saving and the
                             aggregate state and local government surplus/deficit. All data
                             are on a national income and product accounts basis.

                             Source: Department of Commerce.




                             Page 33                                          GAO/OCG-99-27
                             Section III: Economic Effects of
                             Federal Debt




Figure III.3: Effect of Federal Budget Surpluses and Deficits on Net National
Saving (1990-1998)




                             Note: Net national saving is composed of total private and
                             public sector saving. Net nonfederal saving excludes capital
                             depreciation and is composed of private saving and the
                             aggregate state and local government surplus/deficit. All data
                             are on a national income and product accounts basis.

                             Source: Department of Commerce.




                             The U.S. national saving rate is not only low by
                             historical standards, it has been well below that of
                             other major industrial countries over the past few


                             Page 34                                          GAO/OCG-99-27
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Federal Debt




decades. From 1960 through 1996, U.S. net national
saving as a share of GDP was sixth among a group of
seven major industrialized countries. (See figure
III.4.) A low national saving rate can have serious
implications for the economy, particularly for its
long-term growth. Saving provides the resources to
build new factories, develop new technologies, and
improve the skills of the workforce. Such investments
may boost workers’ productivity, which in turn
produces higher wages and faster economic growth.
Less investment today means slower economic
growth tomorrow.




Page 35                                GAO/OCG-99-27
                            Section III: Economic Effects of
                            Federal Debt




Figure III.4: Average Net National Saving Rates of Selected Countries (1960-1997)




                            Source: Organization for Economic Cooperation and
                            Development.




                            A drop in national saving does not necessarily result
                            in an equivalent decline in investment because the
                            United States can borrow from abroad to help finance
                            domestic investment. Indeed, part of the recent
                            decline in national saving has been offset by
                            increased borrowing from foreign investors. The
                            effects of foreign investment, however, are mixed.
                            While foreign investment benefits the United States
                            by allowing it to invest more than it saves, the interest
                            payments on this investment flow abroad.


                            Page 36                                      GAO/OCG-99-27
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Federal Debt




Some analysts believe that the United States will have
to pay higher interest rates to attract foreign
investment in the future. This is because other
countries have economic and fiscal challenges of their
own, such as the aging of the baby boom generation.
Other countries could earn relatively higher returns
on their savings at home if there were more profitable
opportunities available in their own countries.
Further, the United States dollar faces a new
competitor in international capital markets—the euro,
which is the single currency of 11 European countries
including France, Germany, Italy, Spain, and the
Netherlands. Some have suggested that the
availability of the euro eventually could eliminate the
unique advantage held by U.S. securities—a broad,
deep market for low-risk securities denominated in an
easily convertible currency. Because the debt of these
countries will be denominated in a single currency,
some analysts believe that euro-denominated debt
securities may someday become close competitors
for U.S. Treasury securities.

Q. What are the projected demographic changes
and their implications for debt?

A. The baby boom generation’s retirement has serious
implications for the future path of federal debt. First,
under current federal budget policies, as the baby
boom generation leaves the workforce, spending
pressures will grow rapidly due to increased costs of
Medicare, Medicaid, and Social Security. If no further
policy actions are taken, these three programs alone
will double as a share of GDP by 2070. (See figure
III.5.) Unless offsetting fiscal actions were taken,
deficits would re-emerge in the second decade of the
twenty-first century, thereby prompting higher levels
of debt and interest costs. Second, because there will
be fewer workers per beneficiary in the future,
workers will face greater burdens in financing these



Page 37                                  GAO/OCG-99-27
                            Section III: Economic Effects of
                            Federal Debt




                            costs. Reducing federal debt would expand the future
                            growth of the economy, permitting tomorrow’s
                            workforce to finance more easily the retirement costs
                            of the baby boom generation.



Figure III.5: Spending on Social Security, Medicare, and Medicaid as a Share of
GDP Through 2070 Under GAO’s “Save the Surplus” Simulation




                            Note: In 2030, net interest as a share of GDP is –0.9 percent.

                            Source: GAO’s long-term model.




                            Page 38                                           GAO/OCG-99-27
Section IV: Federal Debt Management
and Ownership


             Q. How does the government borrow and what
             instruments are used?

             A. The federal government borrows by issuing
             securities, mostly through the Department of the
             Treasury. The U.S. Treasury has the single largest
             outstanding stock of debt instruments in the financial
             markets. Most of the securities that constitute debt
             held by the public are marketable, meaning that once
             the government issues them, they can be resold by
             whoever owns them.1 These marketable securities
             consist of bills that mature in a year or less, notes
             with original maturities of at least one year to over
             10 years, and bonds with original maturities from
             more than 10 years out to 30 years. (See table IV.1.)




             1
              The government also issues nonmarketable securities, which
             cannot be resold. Examples of nonmarketable securities include
             savings bonds and special securities for state and local
             governments. The securities held by government trust funds (such
             as Social Security and Medicare) and other government accounts
             also are primarily nonmarketable.

             Page 39                                         GAO/OCG-99-27
                               Section IV: Federal Debt Management
                               and Ownership




Table IV.1: Schedule of Treasury Securities Auctions
Maturity                                    Frequency
Treasury bills
91-day (3-month)                               Weekly
182-day (6-month)                              Weekly
52-week (1 year)                               Every 4 weeks
Cash Management                                Irregular, as needed
Notes
2-year                                         Monthly
5-year                                         February, May, August, November
10-year                                        February, May, August, November
Bonds
30-year                                        February, August, November
Inflation-indexed securities
10-year                                        January and July
30-year                                        April and October
                               Source: Department of the Treasury


                               Bills are issued at a discount from the par amount—or
                               face value—and the Treasury repays the par value at
                               maturity. The difference constitutes interest. Notes
                               and bonds pay interest semi-annually at a fixed rate.
                               Most of these notes and bonds, called nominal
                               securities, return the par value at maturity; others,
                               called inflation-indexed securities, repay principal
                               adjusted for inflation. At the end of fiscal year 1998, a
                               total of $3.3 trillion in all forms of marketable
                               securities was outstanding.

                               The mix of securities changes regularly as new debt is
                               issued. The mix of securities is important because it
                               can have a significant influence on interest payments.
                               For example, a long-term nominal bond typically


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                            Section IV: Federal Debt Management
                            and Ownership




                            carries a higher interest rate—or cost to the
                            government—than a shorter term security because
                            investors demand higher interest to compensate for
                            what they see as greater risks, such as higher inflation
                            in the future. However, long-term bonds offer the
                            certainty of knowing what Treasury’s payments will
                            be over a longer period. (See figure IV.1.)



Figure IV.1: Treasury Bills, Notes, and Bonds Outstanding (End of Fiscal Years
1990-1998)




                            Source: Department of the Treasury.




                            Page 41                                   GAO/OCG-99-27
Section IV: Federal Debt Management
and Ownership




The Treasury introduced inflation-indexed securities
in 1997 because it believed that allowing investors to
avoid the risk of inflation would reduce the cost to
the government of longer term securities. Interest
payments on inflation-indexed securities are adjusted
for inflation as they are paid because they are figured
on the inflation-adjusted principal. However, the
largest payments to investors are back-loaded; that is,
the payments for inflation-adjusted principal are
made at maturity. If inflation is higher than expected,
the financing costs of inflation-indexed securities may
be greater than the cost of nominal securities. The
converse would be true if inflation were lower than
anticipated. Both the pattern of payment and total
costs of inflation-indexed securities are different from
those of nominal securities. With inflation-indexed
securities, small changes in inflation can have a
significant effect on the budget.

The budget includes interest outlays for both nominal
and inflation-indexed securities similarly—on an
accural basis rather than when the interest is paid to
investors.2

Q. Who holds Treasury securities and how have
investors changed over time?

A. The federal debt held by the public is owed to a
wide variety of investors, including individuals,
banks, businesses, pension funds, the Federal
Reserve, state and local governments, and foreign
governments. These buyers are attracted by the
securities’ perceived freedom from credit risk, ready

2
 On nominal securities, the interest is computed as a fixed
percentage of the principal, accrued monthly in the budget, and
paid in cash semi-annually. On inflation-indexed securities, the
principal is adjusted for inflation, accrued monthly in the budget,
and not paid until the security is redeemed. Interest on
inflation-indexed securities is computed as a fixed percentage of
the inflation-adjusted principal, accrued monthly in the budget, and
paid in cash semi-annually.

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marketability, exemption from state and local taxes,
and wide range of maturities. The Department of the
Treasury estimated that the largest share of debt held
by the public—35 percent—was owned by businesses
and various (mainly financial) institutions at the end
of fiscal year 1998. Since the Department of the
Treasury does not track sales between investors,
information on ownership is estimated based on
survey and actual data. (See figure IV.2.) Most
securities are sold initially to dealers and brokers that
resell the securities.3




3
 In 1997 auctions, dealers and brokers, who would likely resell
Treasury securities, were allotted about 71 percent of nominal
notes, about 65 percent of nominal bonds, about 55 percent of
inflation-indexed notes, and about 53 percent of bills.

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                            Section IV: Federal Debt Management
                            and Ownership




Figure IV.2: Estimated Ownership of Debt Held by the Public (End of Fiscal Years
1990 and 1998)




                            Note: The Treasury has indicated that it will revise the
                            presentation of ownership statistics in the June 1999 Treasury
                            Bulletin.

                            Source: Department of the Treasury, Treasury Bulletin, Tables
                            OFS-1 and OFS-2, December 1993 and December 1998.




                            Although debt ownership is concentrated among
                            businesses and other institutions, many small
                            investors also directly own Treasury securities. For
                            example, anyone who owns a United States savings
                            bond holds a portion of the debt. Further, many
                            pension funds and money market accounts include
                            debt securities, so small investors also are
                            represented indirectly through these holdings.

                            The Treasury Department estimates that about
                            two-thirds of the debt is owed to U.S. investors, which


                            Page 44                                          GAO/OCG-99-27
Section IV: Federal Debt Management
and Ownership




means that interest and principal payments are made
mainly to U.S. residents and institutions. The
remaining one-third of the debt is owned by foreign
investors, including central banks as well as private
investors. Estimates of foreign and international
ownership increased from about 18 percent to about
32 percent between 1990 and 1998 due, in part, to
attractive returns and uncertainties in financial
markets worldwide. The United States benefits from
foreign purchases of government bonds because
foreign investors fill part of our borrowing needs.
However, to service this foreign-owned debt, the
United States government must send interest
payments abroad, which adds to the incomes of
residents of other countries rather than to the
incomes of United States residents.

State and local governments purchase special
non-marketable Treasury securities, known as State
and Local Government Series (SLGs) securities, to
temporarily invest funds until they are needed for
other purposes. For example, a state may issue debt
securities or borrow funds to facilitate their financing
of capital projects. In addition, states and local
governments purchase other Treasury securities as
investments for their pension funds. Treasury
estimates that holdings by state and local
governments amount to about 12.5 percent of debt
held by the public in 1998—down from 22 percent in
1990 but up from a low of 11.7 percent in 1997.

Federal Reserve ownership of public debt increased
from 9 percent to 12 percent between 1990 and 1998
in line with the growth in demand for bank reserves
and currency.




Page 45                                  GAO/OCG-99-27
    Section IV: Federal Debt Management
    and Ownership




    Q. What are the Treasury’s goals for debt
    management?

    A. The U.S. Treasury has the following three principal
    goals for debt management:

•   to ensure the government has sufficient cash at all
    times to pay its obligations,
•   to ensure the government finances its debt at the
    lowest cost, and
•   to promote efficient capital markets.

    The first goal—sound cash management—represents
    the Treasury’s central mission—receiving revenues
    and paying the expenses of the U.S. government. Cash
    balances vary throughout the fiscal year, reflecting
    the significant seasonal swing in receipts and outlays.
    The cycles for issuing bills, notes, and bonds are
    determined largely by the Treasury’s cash
    management needs. When the budget was in deficit,
    the government generally borrowed heavily in all but
    the third quarter of the fiscal year, which includes the
    April income tax deadline. In fiscal year 1998, which
    showed a budget surplus, the government borrowed
    heavily in the first half of the fiscal year but reduced
    debt held by the public in the second half of the fiscal
    year. Cash on hand may vary significantly if actual
    revenue or outlays differ significantly from
    projections. The Treasury also issues cash
    management bills from time to time to cover seasonal
    low points in available cash.

    Treasury officials believe the best approach to
    achieving the lowest cost-financing is to maintain a
    regular and predictable auction schedule as well as




    Page 46                                  GAO/OCG-99-27
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and Ownership




broad and deep markets.4 The Treasury takes a
long-term perspective on the cost of debt and does
not “time the market” to take advantage of market
conditions.

The efficient markets goal is achieved by issuing debt
with various maturities and in sufficient amounts to
appeal to the broadest range of investors. That is, the
Treasury’s intent is to ensure that the market is
sufficiently liquid—broad and deep—in outstanding
issues. For example, the Treasury seeks to balance
the needs of individual investors who may want to
buy and hold short-term Treasury bills and notes with
the needs of financial dealers who purchase long-term
notes and bonds for resale on the secondary market.
One way the Treasury balances the needs of different
investors with the need to ensure sufficient amount of
debt in a maturity range is by changing specific
instruments in response to market demands.
Prompted by reduced borrowing accompanying the
surplus, for example, in May 1998, the Treasury
discontinued 3-year notes because it determined that
investor demand was being met with the existing
2-year and 5-year notes. To bolster market efficiency
and liquidity, the Treasury also decided to auction
new 5-year notes quarterly rather than
monthly—allowing 4 larger auctions rather than 12
smaller ones.




4
 The regular and predictable offering schedule has helped to reduce
the government’s borrowing costs because, for example, investors
uncertain about the schedule may switch to alternative instruments
and offerings may become compressed. Maintaining broad and
deep markets appeals to a broader range of investors and mitigates
refunding risks.

Page 47                                          GAO/OCG-99-27
Section IV: Federal Debt Management
and Ownership




Q. How does the Treasury balance its three goals
for debt management?

A. These three goals are interrelated, but they are not
always entirely compatible. Because of this, the
Treasury chooses strategies that balance its needs at
a given time. These strategies include varying the size
of debt issues, changing the timing of auctions, and
varying the types of debt instruments it offers. For
example, in the early 1990s when debt outstanding
was quite large, the Treasury reduced the average
maturity on the debt and issued fewer long-term
bonds to lower its interest costs.

Tensions exist among the Treasury’s goals. Cash
management needs may not be entirely compatible
with the goal of maintaining efficient markets through
optimal market liquidity across the maturity
spectrum. Because new Treasury bills are issued
weekly, they represent an easy way for the Treasury
to increase or dispose of cash balances. For example,
if the Treasury received a large unexpected influx of
cash it could reduce the amount of new bills it issued
at the next weekly auction. If the reduction were large
enough or happened often enough, this could have a
negative effect on liquidity in the bill market (by
reducing the supply too low to meet market demand
without a premium) and, therefore, reduce market
efficiency. It also will cause a greater share of the
remaining debt to be shifted at least temporarily to
higher interest-bearing, longer term securities. This
was the case in the third quarter of fiscal year 1998
when the Treasury had to quickly absorb a
surprisingly large revenue inflow from tax receipts.
The Treasury significantly reduced the amount of bills
it rolled over, thus raising the percentage of
outstanding debt held in longer term, higher cost
instruments.




Page 48                                  GAO/OCG-99-27
Section IV: Federal Debt Management
and Ownership




Another trade-off that the Treasury must address is
the relative proportions of longer-term versus
shorter-term debt and the resulting implications for
cost and market efficiency. Interest rates for
shorter-term debt usually are lower than those for
longer-term debt in part because borrowers face less
interest rate risk. For the Treasury, this means that
issuing short-term debt lowers the cost of borrowing
today but runs the risk of higher costs when the debt
must be refinanced. Issuing more long-term debt
sacrifices lower costs initially for a more predictable
cost over a longer term, albeit one that denies the
Treasury the benefit of rate decreases before
long-term debt is due. At the end of fiscal years 1997
and 1998, the Treasury held more longer term than
shorter term debt.

Q. How does debt management in a time of
budget surplus differ from debt management
during periods of budget deficits?

A. The Treasury’s three debt management
goals—sufficient cash on hand, lowest cost financing,
and efficient markets—remain the same regardless of
whether the unified budget is in surplus or deficit.
However, the Treasury may use different strategies to
pursue these goals when debt levels are declining.
Additionally, while the Treasury continually makes
decisions on the composition of the federal debt,
balancing the goals becomes more challenging when
the amount of debt held by the public is being
reduced.

During periods of budget deficits and increasing debt,
the Treasury’s primary consideration was how to
make debt instruments more attractive to potential
investors and whether to introduce new instruments.
Under these conditions, it is easier to maximize two
goals—lowest cost financing and promoting efficient



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markets. In contrast, budget surpluses and reductions
in debt held by the public present a particular
challenge to the Treasury in achieving its goals of
lowest cost financing and maintaining market
efficiency. As debt held by the public falls, the
trade-offs between lowest cost financing and
promoting efficient markets by offering a wide variety
of debt instruments with a variety of maturities and
yields become more pronounced. That is, as budget
surpluses reduce the need for the Treasury to issue
debt to the public, the Treasury will face a challenge
in sustaining efficient markets in each and every
instrument. In looking at the efficient market issue,
the Treasury considers the demand of potential
investors for different instruments—such as those
who want to purchase bills and those who want notes
or bonds. This balancing act becomes more difficult
with a declining supply of government securities
available to the public. The Treasury also considers
the needs of investors such as brokers and dealers
who want to purchase nominal notes and bonds5 for
resale on the secondary market as well as the desires
of other investors that want securities such as
inflation-indexed instruments to buy and hold over
longer periods of time. Furthermore, introducing a
new class of security, such as inflation-indexed notes
and bonds, when overall debt held by the public is
being reduced means that the Treasury can issue less
new nominal debt to preserve the liquidity of other
issues and adds complexity to achieving these goals.

To balance its goals in a time of declining debt held
by the public, the Treasury has a number of options.
For example, it can choose not to issue new debt to
replace the maturing debt (that is, not rolling over
debt) and/or it could repurchase outstanding debt in
the market in advance of its maturity date. Other debt
management actions—such as eliminating a debt
instrument, reducing the number of debt instruments

5
 Nominal notes and bonds are not indexed for inflation.

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Section IV: Federal Debt Management
and Ownership




in a given auction, and/or changing the auction
cycle—also can be helpful in the context of debt
reduction.




Page 51                                GAO/OCG-99-27
Section V: Key Issues in Evaluating
Future Debt Levels


              Q. What are the key issues in evaluating the
              level of debt in the future?

              A. While the debt held by the public has declined
              recently as a share of GDP, it remains relatively high.
              Further reductions in the debt-to-GDP ratio will help
              build the fiscal capacity to provide baby boom
              retirees with needed retirement and health care
              services if such reductions lead to more private
              investment and greater productive capacity. Boosting
              saving, thus raising investment and economic growth,
              is a key to responding to these challenges and will
              create a larger economy.

              However, there is no consensus on the optimal level
              of debt as a share of the economy or on how quickly
              to reduce debt. As we have seen in our nation’s
              history, debt levels have fluctuated over time, even
              when there was consensus on the need to reduce debt
              and general progress toward that goal.

              Although the situation the United States is now
              facing—how to respond to a budget
              surplus—presents new challenges, it is not unique. A
              number of other countries have faced such questions.
              Several of those countries that have come to the
              conclusion that their debt burden is too high have
              made debt levels an explicit part of their fiscal
              decision-making process. Australia, New Zealand, and
              the United Kingdom all attempt to define prudent
              debt levels as national goals. These debt goals can
              prove important in times of surplus. New Zealand, for
              example, used its debt goals as justification for
              maintaining spending restraint and attempting to run
              sustained surpluses. The government promised that
              once it met its initial debt target, it would give a tax
              cut. When it hit that specified debt target, it delivered
              on its promised tax cut.




              Page 52                                   GAO/OCG-99-27
Section V: Key Issues in Evaluating
Future Debt Levels




Evaluating the overall level of debt for the future
involves balancing a number of considerations, such
as the uses of federal borrowing (either for
investment or consumption), the desired mix of
private versus public investment spending, and future
needs (for example, paying for the retirement of the
baby boom generation).




Page 53                                GAO/OCG-99-27
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                 Page 54                                   GAO/OCG-99-27
                   Bibliography




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