Question

a) Why is there government debt?

b) What is monetized debt?

c) Consider three different measures of the debt: 1) total debt outstanding, 2) total debt minus debt held by the Federal Reserve, and 3) total debt minus debt held by the Federal Reserve minus debt held by other Federal agencies (like Social Security and Medicare). Which of these to you think is the best measure of government debt? Justify your answer.

d) Whichever debt measure you picked as best, what was the (approximate) amount of this debt as of the end of 2017?

e) How much interest did the Treasury pay in 2017?

Answer 1

a) Government Debt also known as Public Debt is term used to define amount of loans taken by a government from lenders such as banking institutions, foreign country, international monetary fund and public market. Both Federal as well as local governments in a country borrow loans for financing development works, repayment of previous debts and deficit financing. Public Debt can be categorized as short term and long term debt.

In United States, all public debts are managed by Treasury Department. Government debt is collected through issue of bonds, debentures and treasury notes. Public borrowing for short term period is good step to bridge the fiscal deficit and balance of payment. However, interest rates and other loan repayment conditions vary among different lenders.

But long term government debt though helps a government in mitigating economic crisis for a short term but injurious for the economic health of the country due to accumulated debt amount over years.

b) Monetized Debt is borrowing of money by a government by issuing debt papers such as bonds and treasury notes and Central Bank buying that government debt papers. Monetized Debt in other words, is a popular form of financing government budgets and public works by the apex bank of a country.

c) The Total Debt outstanding is sum of total debt amount taken from different sources capital market, international banks and finance companies in the country. It is total value of government securities such as treasury notes, bonds and debentures, which are issued for raising capital. In USA, there is cap on government borrowing and any loan amount which Federal Government wishes to borrow, must be approved by US Congress.

Total government debt minus debt held by Federal Government is total debt amount of the Federal Government minus monetized debt held by Federal Reserve. However, debt held by Federal Reserve is also another form of government debt.

Total Government debt minus debt held by Federal Reserve minus Debt held by other Federal Agencies (like social security and medicare) also means Gross Government debt minus debt held by other government agencies.

Among all three options, Total Debt outstanding is most appropriate measure of government debts as it reflects all debts of Federal Government plus debts taken by various government agencies.

Total government debt minus debt held by Federal Government is total debt amount of the Federal Government minus monetized debt held by Federal Reserve. However, debt held by Federal Reserve is also another form of government debt.

Total Government debt minus debt held by Federal Reserve minus Debt held by other Federal Agencies (like social security and medicare) also means Gross Government debt minus debt held by other government agencies.

Among all three options, Total Debt outstanding is most appropriate measure of government debts as it reflects all debts of Federal Government plus debts taken by various government agencies.

d) Total Debt outstanding of Federal Government in 2017 was $20.24 trillion.

e) The total interest on debt outstanding paid by Treasury in 2017 was $458,542,287,311.80.