The Federal Debt and the Meaning of Words

Apr 6, 2011

In one of my posts last week we met two amazing yet confusing numbers from the Website, “The Debt to the Penny and Who Holds It.

Today those numbers are:

Debt Held by the Public: $ 9,649,972,136,434.37
Total Public Debt Outstanding: 14,262,144,462,897.94

My question is: Can you tell from the above descriptions what the difference is between these two mind-numbingly huge numbers? (BTW, each is more than $50 billion higher than it was in my last post. But heck, it’s been seven days, and a government’s gotta eat.)

The difference is this: “Debt Held by the Public” is money borrowed from lenders outside the U.S. government, like you, me, corporations investing excess cash, other governments (like China and Japan), etc. This debt is in the form of savings bonds, treasury notes, T-bills, and other instruments. “Total Public Debt Outstanding” includes this Debt Held by the Public, plus borrowings from other government entities to meet general federal operating needs. There are lots of sources of this $4.6 trillion in intragovernmental borrowings. The best known and largest comes from the Social Security trust fund, which over the past 75 years has taken in significantly more in contributions than it has paid out in benefits. The reverse will be true soon, as the Baby Boomers start to retire in great numbers and as people live longer lives.

Both numbers are important. The Debt Held by the Public is the number that drives how much more we can borrow, and at what interest rate. The Total Public Debt Outstanding number is less relevant to the workings of the capital markets, but eventually the federal government is going to have to repay to the rightful end-recipients the money it has, at least for the time being, borrowed from itself. The $14.2 trillion number is the one you hear quoted most often by politicians and others, probably because it’s the larger and more frightening number. But I suspect the speakers are just as clueless as everyone else about the real differences.

The thought I want to leave you with is about words. Here are two numbers that differ by trillions of dollars. Isn’t that a big enough difference that the distinction between the two should be clear? When you see the terms “Debt Held by the Public” and “Total Public Debt Outstanding,” does the distinction jump right out at you? It doesn’t for me. The U.S. Treasury deserves a pat on the back for actually publishing these numbers, but the issue is too important for them to be this sloppy with the English language.

“Painting with Numbers” is my effort to get people talking about financial statements and other numbers in ways that we can all understand. I welcome your interest and your feedback.

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