Government debt (also known as public debt, national debt) is the debt owed by a central government. (In the U.S. and other federal states, "government debt" may also refer to the debt of a state or provincial government, municipal or local government.) By contrast, the annual "government deficit" refers to the difference between government receipts and spending in a single year, that is, the increase of debt over a particular year.
Government debt is one method of financing government operations, but it is not the only method. Governments can also create money to monetizetheir debts, thereby removing the need to pay interest. But this practice simply reduces government interest costs rather than truly canceling government debt.
Governments usually borrow by issuing securities, government bonds and bills. Less creditworthy countries sometimes borrow directly from asupranational organization (e.g. the World Bank) or international financial institutions.
As the government draws its income from much of the population, government debt is an indirect debt of the taxpayers. Government debt can be categorized as internal debt (owed to lenders within the country) and external debt (owed to foreign lenders). Sovereign debt usually refers to government debt that has been issued in a foreign currency. Another common division of government debt is by duration until repayment is due. Short term debt is generally considered to be for one year or less, long term is for more than ten years. Medium term debt falls between these two boundaries. A broader definition of government debt may consider all government liabilities, including future pension payments and payments for goods and services the government has contracted but not yet paid.
The Treasury Department reported Tuesday that the national debt had topped $16 trillion.
Fully two-thirds of the national debt is owed to the U.S. government, American investors and future retirees, through the Social Security Trust Fund and pension plans for civil service workers and military personnel. China holds less than 8 percent of the money our government has borrowed over the years.
Just under $5 trillion of the national debt is owed to the Social Security Trust Fund and federal pension systems. A little more than $11 trillion is owed to foreign and domestic investors and the Federal Reserve, which buys up treasuries in order to drag down interest rates through quantitative easing.
China has actually decreased its holdings of U.S. debt over the past year, dropping from $1.31 trillion in June 2011 to $1.16 trillion a year later, according to the Treasury Department. Japan holds nearly as much, at $1.12 trillion. Those countries are by far the biggest foreign holders, but dozens of other nations, including Brazil, Russia, Taiwan, Switzerland and the United Kingdom hold trillions more.
Inside the U.S., private investors hold nearly $1 trillion in federal debt, while mutual funds, insurance companies and state and local governments hold nearly double that amount.
But Obama has been unable to slow the rapidly mounting debt. The nation owed $10.6 trillion on Jan. 20, 2009, when he was sworn in, and has added another $5.4 trillion since – more than Bush piled up in two terms.