Written by: Anthony Hall


I am a big enough person to acknowledge when I do not understand something. I pride myself on my openness and my ability to be honest with myself about what my limitations are; so, when my friend asked a question “what does it mean when people say that the United States is in debt? Who do we owe money to and why not just print more money and pay off our debt?” I had to come to grips with the harsh reality that I did not know. Of course, I told him that Japan and China owns our debt and that’s who we own money to; both countries purchase U.S. Treasury Bonds. However, as I began committing myself to researching the topic, I discovered that the United States debt is much more complicated than I first thought. In this paper, I will answer the questions: what does it mean for the United States to be in debt? Who does the United States owe? And I will explain why the United States cannot simply print more money.

What is the difference between debt and deficit

The deficit is the annual difference between government spending and government revenue. Every year, the government takes in revenue in the form of taxes and other income, and spends money on various programs, such as national defense, Social Security, and healthcare. If the government spends more than it takes in, then it runs a deficit. If the government takes in more than it spends, it runs a surplus. “The U.S. government has run a deficit since 1970 in all but four years (1998–2001). In 2019, the deficit was projected to total $896 billion, or 4.2 percent of gross domestic product (GDP)” (Peter G. Peterson Foundation, 2019). The debt is the total amount of money the U.S. government owes. It represents the accumulation of past deficits, minus surpluses. Debt is like the balance on your credit card statement, which shows the total amount you have accrued over time. At the end of fiscal year 2019, the Congressional Budget Office estimated that debt held by the public will equal $16.6 trillion, or 78 percent of GDP. However, in 2019 the federal government’s gross debt exceeded $20 trillion for the first time.

What is meant by The Public?

Debt held by the public is all debt that the federal government owes to those outside of the federal government. It includes debt held by individuals, businesses, banks, insurance companies, state and local governments, pension funds, mutual funds, foreign governments, foreign businesses and the U.S. Federal Reserve Bank. However, it does not include intragovernmental debt.

As of May1, 2020, publicly held debt is $19.05 trillion, up from $5.1 trillion a little over a decade ago. CBO projects that this will rise to about $25.5 trillion by 2027. As a share of the economy, debt held by the public is currently 79.2 percent of GDP and 37 percent of the debt held by the public was owned by foreigners – “the highest since World War II — and is projected to reach 91 percent of GDP by 2027” (Committee for a Responsible Federal Budget, 2017).

What is Intragovernmental Debt?

Intragovernmental debt is debt that one part of the government owes to another part. In almost all cases, it is debt held in government trust funds, such as the Social Security trust funds. When you hear people say “Social Security is running out of money,” they mean that the Federal Government borrowed money from the social security trust fund which places social security in danger; party affiliation usually dictates how a person views social security running out of money. Since these debts represent assets to the part of the federal government that owns it i.e., Social Security, but a liability to the part of the government that issues them, the Treasury Department, many people feel that they have no net effect on the government’s overall finances. As of today, intragovernmental debt totals $5.9 trillion, up from $3.9 trillion a little over a decade ago; “it is projected to fall to $5.2 trillion by the end of the decade, as some major trust funds will soon be forced to begin selling off the debt they hold in order to continue covering their expenses” (Committee for a Responsible Federal Budget, 2017).

Federal Trust Funds

A federal trust fund is an accounting mechanism used by the federal government to track earmarked receipts (money designated for a specific purpose or program) and corresponding expenditures. The largest and best-known trust funds finance Social Security, portions of Medicare, highways and mass transit, and pensions for government employees. Simply put: a federal trust fund is simply an accounting mechanism used to track inflows and outflows for specific programs.

The federal government uses trust fund accounting to link receipts designated by law for a specific purpose with the expenditure of those receipts. Receipts can come from the public (taxes, premiums from program beneficiaries, and other fees) as well as intragovernmental transfers from other federal accounts, including Treasury interest payments.

When a federal trust fund receives more receipts in a year than it needs to cover the designated expenses, it accumulates a positive balance. The Treasury uses the surplus cash receipts for spending on other programs and other general purposes, which effectively reduces the amount of debt that it needs to issue to the public to fund the government.  The reason why it is important to understand the system is because this is how our country ends up in debt. If Social Security has a surplus and another trust fund is running a deficit, and we pull too much from Social Security, then Social Security will end up running a deficit. To add insult to injury, if we did not fix the original problem that led the other trust fund to run a deficit, we are going to have two trust funds in the subsequent year with a potential problem instead of one. It is like you take your car payment money to pay for your rent because you are short; however, if you do not figure out how to fix your cash flow problem, in the subsequent month you need to pull from your car payment again. Eventually you will run into a financial brick wall. Some would say that the United States is on the verge of hitting a brick wall.

“Three trust funds are expected to be depleted within the next 14 years: Social Security’s Old-Age and Survivors Insurance Trust Fund, Medicare’s Hospital Insurance Trust Fund, and the Highway Trust Fund. However, it is important to note that those estimates do not consider the impact of COVID-19; given the effect on the economy in recent months, the trust funds may face depletion even sooner” (Peter P. Petersons Foundation, 2020).

Why Can’t the United States Print More Money?

First of all, the federal government doesn’t create money; that’s one of the jobs of the Federal Reserve, the nation’s central bank. The Fed tries to influence the supply of money in the economy to promote noninflationary growth. Unless there is an increase in economic activity commensurate with the amount of money that is created, printing money to pay off the debt would make inflation worse. This would be, as the saying goes, “too much money chasing too few goods.” Printing money would cause inflation.

Why is Inflation Bad?

“Inflation is the increase in the prices of goods and services over time. Inflation cannot be measured by an increase in the cost of one product or service, or even several products or services. Rather, inflation is a general increase in the overall price level of the goods and services in the economy” (Federal Reserve, N.A.). Federal Reserve policymakers evaluate changes in inflation by monitoring several different price indexes. A price index measures changes in the price of a group of goods and services. The Fed considers several price indexes because different indexes track different products and services; indexes are calculated differently. Therefore, various indexes can send diverse signals about inflation.

Inflation is bad because it devalues your cash. For example, if you have $1,000 in your checking account today, you can by 10 shirts at $100. However, after inflation, you may only be able to by 5 shirts for the same amount of money because those same shirts are now $200.  The quality of the shirts didn’t change; however, the quality of your money did. You can’t buy as much with your money. Deflation is another issue.


In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0%. Inflation reduces the value of currency over time, but sudden deflation increases it. Let’s say you have $1,000 in your checking account and you can purchase 10 shirts for $100. After deflation sets in, you can buy 20 of those shirts because the cost is now $50.00 a shirt. “Price declines limited to commodities, real estate or the stock market are not uncommon and would not seriously disrupt the economy. They have happened many times and will happen again. By contrast, a widespread price deflation associated with a collapse of aggregate demand is dangerous and could contribute to a downward spiral of output and employment as it did in the early 1930s” (Perry, 1998).

By no means is this a comprehensive view of the United States debt. However, this paper is meant to answer the basic questions that many of us have; sometimes when watching or listening to the news, we hear terms that do not make a great deal of sense to us. I hope this paper helps define some of those terms. I know I learned a great deal writing it.





Budget Basics: Federal Trust Funds. (2020). Pgpf.Org. https://www.pgpf.org/budget-basics/budget-explainer-what-are-federal-trust-funds

Debt vs. Deficits: What’s the Difference? (2019). Pgpf.Org. https://www.pgpf.org/blog/2016/10/debt-vs-deficits-whats-the-difference

Q&A: Gross Debt Versus Debt Held by the Public. (2017, September 27). Committee for a Responsible Federal Budget. http://www.crfb.org/papers/qa-gross-debt-versus-debt-held-public

The Fed – What is inflation and how does the Federal Reserve evaluate changes in the rate of inflation? (n.d.). Board of Governors of the Federal Reserve System. https://www.federalreserve.gov/faqs/economy_14419.htm

Why can’t the government just print more money to get out of debt? (n.d.). AARP. https://www.aarp.org/politics-society/government-elections/national-debt-guide/faqs/why-cant-government-print-more-money/