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Tuesday, January 22, 2013

The Federal Balance Sheet

 The Financial Report of the US Government for Fiscal Year 2012 provides some very useful background on the meaning of the federal debt.
Image Credit: US Treasury Department

Chart 4 is a summary of what the Government owns in assets and what it owes in liabilities. As of September 30, 2012, the Government held about $2.7 trillion in assets, comprised mostly of net property, plant, and equipment ($855.0 billion) and a combined total of $1,009.1 billion in net loans receivable (e.g., student loans) and direct loans and investments associated with the Troubled Asset Relief Program (TARP) and the GSEs (which relate to the Government’s economic recovery efforts). In recent years, with the ongoing wind-down of these programs, the balances of many of these investments have declined primarily through repayments and sales. Beyond these assets, other significant resources are available to the Government, including stewardship assets, such as natural resources, and the Government’s power to tax and set monetary policy.
The $18.8 trillion in total liabilities is comprised mostly of: (1) $11.3 trillion in Federal debt securities held by the public and accrued interest and (2) $6.3 trillion in Federal employee and veteran benefits payable. The Government also reports about $4.9 trillion of intragovernmental debt outstanding, which arises when one part of the Government borrows from another. For example, Government funds (e.g., Social Security and Medicare trust funds) are typically required to invest excess annual receipts in Federal debt securities issued by the Treasury Department, thus creating liabilities of the Treasury and assets of the trust funds. These respective amounts are included in individual Treasury Department and investing agency financial statements, but offset each other when the Governmentwide consolidated financial statements are prepared. The sum of debt held by the public and intragovernmental debt equals gross Federal debt, which, with some adjustments, is subject to a statutory ceiling (i.e., the debt limit), which was most recently raised by $1.2 trillion to $16.394 trillion in January 2012 pursuant to the Budget Control Act (BCA) of 2011.
As of September 30, 2012, the Government’s total debt outstanding subject to the debt limit was $16.027 trillion, $367 billion below the current limit. As budget deficits continue to occur, the Government will have to borrow more from the public. Instances where the debt held by the public increases faster than the economy for extended periods can pose additional challenges.