Chapter 4. Debt

Link: U.S. National Debt Clock

What Is the National Debt?

The national debt is the amount of money our country owes. Yes, even the government sometimes spends money it does not actually have. The current U.S. debt is the highest national debt in the world.


The Start of U.S. Debt

The U.S. borrowed money before it was officially a country. In order to pay for the Revolutionary War, we borrowed money from France and the Netherlands.


The Treasury Department

Created in 1789, the Department of the Treasury performs four basic functions. It:

  • Formulates and recommends economic, financial, tax and fiscal policies
  • Prints all paper currency and coins in circulation through the Bureau of Engraving and Printing and the United States Mint
  • Enforces federal finance and tax laws and collects all federal taxes through the Internal Revenue Service (IRS)
  • Manages U.S. government debt instruments


National Debt and Budget Deficits

It takes a lot of money to keep the U.S. government running, and much of it is borrowed money. The federal government has a budget deficit whenever it spends more money than it brings in through taxes—in other words, when expenditures are higher than revenues. Deficits must be financed by borrowing money. Interest must be paid on borrowed money, which adds to the deficit. As budget deficits add up year after year, they create the national debt. When the federal government takes in more money than it spends in a year, it is said to have a budget surplus.


Treasury Securities

In order to operate with an annual budget deficit, the Treasury Department has to issue treasury bills, treasury notes and treasury bonds—essentially IOUs—to make up the difference. By issuing these types of securities, the government can get the cash that it needs to provide government services. Most types of Treasury securities are called “marketable” securities because they can be bought and sold in the secondary market after they are purchased from the Treasury.


The National Debt Clock

In most years, the government spends more money than it takes in. The yearly difference in those amounts (spending minus revenues) is the deficit. If you add up all the annual deficits plus the occasional annual surplus, you get the nation’s total debt as seen in the U.S. National Debt box on the U.S. Debt Clock. You will also see other important figures as you view the U.S. Debt Clock. Discuss some of your observations with your class.


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