U.S. National Debt and Government Bonds: What You Need to Know

U.S. National Debt and Government Bonds: What You Need to Know
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U.S. National Debt and Government Bonds: What You Need to Know

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Few topics ignite as much acrimony in political debates as the U.S. national debt. More than $36 trillion as of 2025, this figure often becomes a political football, kicked between parties vying for fiscal credibility. But what exactly is the national debt, and what does this have to do with the government bonds that finance it?

The national debt is the amount of money the federal government owes to its creditors, within the government and domestic and foreign investors. The federal debt is not just a number, but a reflection of U.S. fiscal policies and priorities as a nation. The debt accumulates when the government spends more than it collects in revenue, primarily through taxes.

To bridge this gap, the U.S. Department of the Treasury issues various types of bonds, essentially IOUs that promise repayment with interest. These bonds, ranging from short-term Treasury bills to 30-year bonds, are considered among the safest investments in the world, backed by the “full faith and credit” of the U.S. government.

While the raw number for the total federal debt at any time can seem alarming, economists often focus on the debt-to-gross domestic product (GDP) ratio as a more meaningful measure of the country’s financial health. This ratio compares the national debt to the size of the economy, providing context for the debt’s manageability. As of the third quarter of 2024 (the most recent data available), the U.S. debt-to-GDP ratio stands at about 121%, a figure that has sparked intense debate about its long-term implications for economic growth and stability.

The national debt has far-reaching consequences for everything from Social Security to international relations, and the U.S. Department of the Treasury is the agency that manages this debt. Below, we’ll learn more about the Treasury’s responsibilities, particularly the reasons for U.S. borrowing, and how it administers the debts of the U.S. government.

Key Takeaways

  • The U.S. Department of the Treasury manages the government’s expenditures and its means of raising revenues, including overseeing the Internal Revenue Service (IRS), the country’s tax agency.
  • The nation’s national debt is the total amount borrowed and owed by the government and accumulates 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 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 United States is higher than the debt ceiling, the federal government is in default on its debts.

What Is the National Debt?

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 fully repaying all war debts. Since then, the federal debt has been fueled by more wars, economic recession, and inflation. The national debt accumulates when the government spends more money than it collects in revenue, primarily through taxes.

As of 2025, the total money owed by the U.S. federal government to creditors stands at more than $36 trillion, a number so large it can be challenging to comprehend. Each year’s deficit adds to the overall national debt. It’s important to note that the debt isn’t just from one administration or Congress; it’s the result of decades of financial decisions made by both political parties. The roots of these deficits lie in the yearly federal budget process.

The roots of these deficits lie in the federal budget process, which has become increasingly complex (or dysfunctional) in recent years. In theory, each fiscal year (Oct. 1 to Sept. 30), Congress and the president negotiate and pass a comprehensive budget outlining government spending and projected revenues. This budget would cover everything from military spending and Social Security payments to infrastructure projects and education funding. However, in practice, the United States has increasingly relied on continuing resolutions (CRs)—temporary funding measures that maintain spending at previous levels when a full budget can’t be agreed upon.

No one in the political branches or parties thinks these CRs, while allowing the government to continue operating, are anything but stopgap measures that are inefficient and avoid long-term fiscal planning. However, they result from political gridlock and are likely a contributor to the national debt since CRs maintain funding levels that may not align with present economic conditions or revenue projections.

Note

Since the U.S. government has run annual budget deficits much of the time since the 1930s, the extensive sale of Treasurys each year has become a crucial part of global economy. A sudden halt to the sale of this safe-haven asset would disrupt financial markets and cause significant volatility, at least in the short term.

U.S. debt takes two main forms:

  1. Public debt: This is owed to individuals, corporations, state and local governments, the Federal Reserve Bank, and foreign governments. When you hear about China or Japan “owning U.S. debt,” this is what’s being referenced. Public debt accounts for about four-fifths of the national debt.
  2. Intragovernmental holdings: This is debt that the government owes to itself, primarily to government trust funds like Social Security and Medicare. It represents the remainder of the total debt.

When the U.S. debt is discussed, this isn’t the same as the “public debt,” which is only about 78% of the total of U.S. debt obligations, with the rest owed to specific federal programs. It’s also not the same as the budget deficit, which is the annual amount federal outlays outpace its income.

To finance this debt, the U.S. Treasury issues various types of securities, including the following:

These securities are considered among the safest investments globally, backed by the “full faith and credit” of the U.S. government.

While the nominal amount of national debt can seem staggering, economists often focus on the debt-to-gross domestic product (GDP) ratio. This compares the national debt to the size of the country’s economy, as measured by GDP.

As of 2025, the U.S. debt-to-GDP ratio is about 124%, meaning the debt is 1.24 times the size of the annual U.S. economy. This ratio helps contextualize the debt’s manageability and allows for historical and international comparisons. Below is a chart of the ratios for countries worldwide (hover over the map to compare the U.S. to other nations).

Understanding the national debt is crucial because it impacts various aspects of the economy and policy making—hence it’s a constant source of discussion in political debates. High levels of debt can lead to higher interest rates, potentially slower economic growth, and reduced fiscal flexibility for the government. However, moderate levels of debt can also promote economic growth by funding investments in infrastructure, education, and research.

In 2025, the federal debt passed the $36 trillion mark. This was an increase of over $14 trillion since December 2018. As of January 2025, the national debt is $36.22 trillion.

The Treasury’s Responsibilities

The U.S. Treasury handles federal 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 the following:

  • 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 forgers
  • Managing federal accounts and the national public debt

The Role of Congress

Until World War I, the executive branch needed congressional approval 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.

However, with the Second Liberty Bond Act of 1917, the U.S. Treasury was granted borrowing authority up to a debt limit that would act as a ceiling on the total amount it could borrow without congressional approval.

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

264%

The nation with the highest debt-to-GDP ratio is Japan at 264%.

What Is the Debt Ceiling?

This change gave rise to the debt ceiling or debt limit, a ceiling on how much the U.S. Treasury can borrow 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.

Once 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, then-President Donald Trump signed a bill to suspend the debt ceiling through July 31, 2021.

The drama around the debt ceiling would unfold again just a few years later. In early August 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. A month later, the Treasury notified Congress that cash and extraordinary measures likely would be exhausted during October 2021, and urged it to increase or suspend the debt limit or the entire U.S. economy, not just those directly affected by a stoppage in federal government payments, would face a crisis. The debt ceiling was raised again in December 2021 under then-President Joe Biden by $2.5 trillion to $31.4 trillion.

Just two years later, the nation was again on the brink of going past the deadline set by the Treasury for running out of emergency measures to avoid a debt default should the debt ceiling not be raised. With mere days remaining before it would occur, the White House and Congress cut a deal that suspended the debt ceiling until Jan. 1, 2025—notably after the 2024 presidential election, which Trump won.

Who Owns U.S. Debt?

U.S. government debt is sold as securities to both domestic and foreign investors, as well as corporations and other governments: Treasury bills (T-bills), notes, bonds, and U.S. Savings Bonds. There are 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 nonmarketable principal amount of securities outstanding (i.e., not including interest).

What Happens If the U.S. Defaults on Its Debt?

Given the recent history of last-minute negotiations to stave off the Treasury breaking past congressionally imposed debt ceilings and into technical default on the U.S. debt, it’s worth reviewing what the effects would be.

Without beating around the bush, it would be a self-imposed catastrophe that would be hard to compare in the annals of disastrous fiscal mismanagement. A U.S. default would be unprecedented, with consequences severe and far-reaching for each American, as well as the national and global economy.

Should the government fail to make interest or principal payments on its debt, it would shake the foundations of the global financial system, which relies on U.S. Treasury securities as a risk-free benchmark. Take that away, and we would be in an economic world that hasn’t been seen in many decades.

The immediate effects of a default would likely include the following:

  1. Market turmoil: Stock markets could plummet, and interest rates could spike across various types of loans.
  2. Credit rating downgrade: The U.S. credit rating would likely be downgraded, increasing borrowing costs for the government, businesses, and consumers.
  3. Global economic ripple effects: As the world’s largest economy and issuer of the primary reserve currency, a U.S. default could trigger a global financial crisis.

However, even before an actual default, if the U.S. reaches its debt ceiling and can’t borrow more, the government would face difficult choices about which obligations to meet. As then-Treasury Secretary Janet Yellen noted during one of the debt ceiling dramas, “Failure to pay Social Security or other benefits on time would have obvious political ramifications. … Every Social Security beneficiary, every family receiving a Child Tax Credit, every military family waiting for a paycheck or small business owners receiving a federal loan … [would be] at risk.”

For these reasons, Congress has always acted to raise or suspend the debt ceiling before a default occurs. So, the full consequences of a U.S. debt default remain theoretical. However, even the threat of default can cause market uncertainty and economic stress, though some think the artificiality of the default—it’s not as if the U.S. would really exhaust its ability to pay its debts—would make it less harmful than typically thought. Nevertheless, no one thinks it’s worth testing this theory.

What Is the Current U.S. National Debt?

As of Jan. 30, 2025, the U.S. national debt is $36.22 trillion.

If Households Have to Pay Off Their Debts, Why Is the U.S. Government Different?

The idea that a government should manage its finances like a household is an example of the composition fallacy: assuming that what’s true for a part is true for the whole. While households must eventually pay all their bills or face bankruptcy, the same doesn’t apply to the U.S. government for several reasons. Unlike households, the government has the power to print money and set monetary policy through the Federal Reserve. It can also raise taxes or adjust spending to manage its debt.

In addition, the government has an indefinite life span and can continually refinance its debt, often at favorable rates because of its creditworthiness. Lastly, U.S. government debt plays a crucial role in the broader economy that household debt doesn’t.

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 to raise revenue for many expenses that governments incur, such as infrastructure costs, military spending, and salaries for government employees.

How Can I Buy U.S. Government Debt?

The best way to buy Treasury securities is directly from the Treasury’s website, TreasuryDirect.gov. Treasury securities are also available for purchase through most banks and brokers.

The Bottom Line

The debt is a U.S. government liability, and the Bureau of the Fiscal Service (formerly the Bureau of Public Debt) handles 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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