National Debt and Government Bonds: What You Need to Know

Fact checked by Yarilet PerezReviewed by JeFreda R. BrownFact checked by Yarilet PerezReviewed by JeFreda R. Brown

The United States government often spends more money than it takes in through taxes. When this happens, government spending is financed through other sources of revenue, including debt. One of the ways governments raise more money is by issuing bonds, which are a form of government debt.

The United States Department of the Treasury manages the U.S. government’s expenditures and its revenue-raising functions. Learn more about the Treasury’s responsibilities, particularly the reasons for its borrowing, and how it takes on debt.

Key Takeaways

• The U.S. Department of the Treasury manages the government’s expenditures and methods of raising revenues.
• The nation’s national debt is the total amount borrowed and owed by the government and results when the government’s tax revenue is lower than its expenses.
• The primary means by which the government takes on debt is by issuing government bonds to the public. U.S. Treasury bonds are considered one of the safest investments in the world.
• The debt ceiling is the total amount of money the U.S. Treasury is allowed to borrow. If the money owed by the U.S. is higher than the debt ceiling, the federal government is in default on its debts.

What Is the National Debt?

Federal legislation is enacted in consultation with the Executive Branch and authorizes spending levels for federal government operations and programs.

However, the government may often run a budget deficit by spending more money than it receives in current revenues from taxes, including customs duties and stamps. To finance a deficit, the government may raise money by taking on debt, often by borrowing from the public.

From its beginnings, the American government has relied on borrowing. Even before the adoption of the Declaration of Independence, the Continental Congress issued bills of credit to finance the Revolutionary War in 1775.

After Alexander Hamilton became Secretary of the Treasury in 1789, the national government took on responsibility for the full repayment of all war debts. Since then, the federal debt has been fueled by more wars, economic recession, and inflation. 

The federal government debt is a result of accumulated budget deficits. In December 2023, the federal debt passed the $34 trillion mark. This was an increase of over $12 trillion since December 2018. As of July 19, 2024, the national debt is $34.94 trillion.

The Treasury’s Responsibilities

The U.S. Treasury is responsible for managing the government’s spending and revenues, including issuing bonds and debt. The Treasury is divided into two divisions: departmental offices and operating bureaus.

These departments are mainly in charge of policy-making and managing the Treasury, while the bureaus’ duties are to take care of specific operations. The table below highlights some of the key bureaus and their roles.

The Treasury’s primary tasks include:

• Federal tax regulation, enforcement, and collection
• Paying all liabilities of the federal government
• Prescribing tariff rules and regulations
• Printing and minting U.S. notes and U.S. coinage and stamps
• Supervising national banks, federally chartered banks, and thrift banks
• Advising government officials on both national and international economic, financial, monetary, trade, and tax policy and legislation
• Investigating and prosecuting federal tax evaders, counterfeiters, and/or forgers 
• Managing federal accounts and the national public debt

The Role of Congress

Up until World War I, the Executive Branch needed Congressional approval every time it wanted to borrow money. Congress would determine the number of securities that could be issued, their maturity date, and the interest that would be paid on them.

With the Second Liberty Bond Act of 1917, however, the U.S. Treasury was granted borrowing authority up to a debt limit expressed as a number, a ceiling on the total amount that it could borrow without seeking Congress’s consent.

The Treasury also was given the discretion to decide maturity dates, interest rate levels, and the type of instruments that would be offered. The total amount of money that can be borrowed by the government without further authorization by Congress is known as the total public debt subject to a limit. Any amount above this level must receive additional authorization from the legislative branch.

What Is the Debt Ceiling?

In the United States, the debt ceiling or debt limit is a limit on how much the U.S. Treasury can borrow. This limit is set by Congress. If government spending, which is also approved by Congress, is greater than tax revenues, then the debt ceiling must be increased or the U.S. will default on its debts.

If the debt ceiling is reached and not increased, the Treasury Department must find other ways to pay expenses. The debt ceiling has been raised or suspended several times to avoid the risk of default. There have been several political showdowns between Congress and the White House over the debt ceiling amount, some of which have led to government shutdowns.

The debt ceiling is often used as leverage to push budgetary agendas. It was raised in 2014, 2015, 2017, and 2019. In August 2019, President Trump signed a bill to suspend the debt ceiling through July 31, 2021.

On Aug. 2, 2021, the Treasury Department implemented extraordinary measures, authorized by law, to finance the government temporarily by suspending government investments in certain federal benefit and retirement funds.

On Sept. 8, 2021, the Treasury Secretary notified Congress that cash and extraordinary measures likely would be exhausted during October 2021, and urged prompt adoption of a suspension of, or increase in, the debt limit to prevent adverse economic consequences at that time.

The debt ceiling was raised again in December 2021 under President Biden by $2.5 trillion to $31.4 trillion.

On May 28, 2023, after months of negotiation, it was announced that President Joe Biden and former House Speaker Kevin McCarthy agreed to a tentative deal to suspend the debt ceiling until January 2025.

Who Owns U.S. Debt?

U.S. Government debt is sold in the form of securities to both domestic and foreign investors, as well as corporations and other governments. U.S. securities issue Treasury bills (T-bills), notes, and bonds, as well as U.S. savings bonds. There are both short- and long-term investment options; short-term T-bills are offered regularly, as well as quarterly notes and bonds.

When a debt instrument matures, the Treasury can pay the cash owed (including interest) and reduce its total debt by the amount of the payment or it can issue new securities, thereby maintaining a corresponding amount of debt.

Debt instruments issued by the U.S. government are considered the safest investments in the world because interest payments do not have to undergo yearly authorization by Congress. In fact, the money the Treasury uses to pay the interest is automatically made available by law.

The public debt is calculated daily. After receiving end-of-day reports from about 50 different sources (such as Federal Reserve Bank branches) regarding the number of securities sold and redeemed that day, the Treasury calculates the total public debt outstanding.

The total debt amount is released the following morning. It represents the total marketable and non-marketable principal amount of securities outstanding (i.e., not including interest).

War Time

In wartime, a government needs more money to support the effort. To finance its war needs, the U.S. government will often issue what are commonly known as war bonds. These bonds appeal to the nation’s patriotism to raise money for a war effort.

Following Sept. 11, 2001, Congress passed the U.S.A. Patriot Act. Among other things, it authorized federal agencies to initiate ways to combat global terrorism. To raise money for the war on terrorism, the U.S. Treasury issued war bonds known as Patriot Bonds.

These were Series EE savings bonds with the words Patriot Bond printed on the top half. They were issued between 2001 and 2011 (after which the Treasury stopped issuing paper bonds).

Patriot Bonds have the standard EE bond terms and conditions, including a 30-year term. The Treasury also has become a key institution working with financial institutions to draft new policies aimed at battling counterfeiting and money laundering related to terrorism.

What Is the Current U.S. National Debt?

As of July 19, 2024, the U.S. national debt is $34.94 trillion.

Who Owns the National Debt?

The largest portion of the national debt, approximately $27.79 trillion, is held by the public. Intragovernmental holdings make up approximately $7.15 trillion, for a total debt of approximately $34.94 trillion.

What Is an Example of National Debt?

One of the most common examples of the national debt is government bonds. Government bonds are issued by the governments of nations in order to raise revenue for many of the expenses that governments incur, such as infrastructure costs, military spending, and salaries for government employees.

The Bottom Line

The public debt is a U.S. government liability, and the Bureau of Public Debt is responsible for the technical aspects of its financing. The only way for the government to reduce debt is to take measures to ensure that revenue raised from federal taxes is higher than the federal budget‘s expenditures.

Both the federal budget and the federal debt ceiling must be approved by Congress. U.S. federal debt is considered one of the safest investments in the world. Defaulting on the federal debt would impact the credit rating of the U.S. and decrease the perceived stability of U.S. Treasury bonds.

Depending on the circumstances at the time of budget formulation, running a deficit may be the country’s only choice. The size of a deficit reflects policy choices on tax revenue, federal spending, and setting the debt ceiling.

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