When economists try to measure just how much money the U.S. government owes, they look at two different numbers: “debt held by the public” and “intragovernmental holdings.”
“Debt held by the public” is exactly what it sounds like. When the federal government doesn’t have enough tax revenue to pay for all its spending, it borrows money from investors, whether they’re pension funds, mutual funds, insurance companies, banks, foreign governments, or individuals. These investors purchase Treasury bills, notes, or bonds and are paid back with interest.
On August 31, 2020, the total outstanding debt held by the public was $20.8 trillion (PDF). About $7 trillion of the net debt is owned by foreign nations. Japan ($1.2 trillion) and China ($1.07 trillion) are the largest purchasers. The rest is owned by the American public, the Federal Reserve, and state and local governments.
“Intragovernmental holdings,” on the other hand, are the debts the federal government owes to itself. They aren’t marketable securities. They can’t be redeemed by anyone except the federal government. Think of them as IOUs the government writes itself.
In August 2020, gross intragovernmental holdings stood at roughly $5.9 trillion. The most well-known form of intragovernmental holdings are the Treasury bills in the Social Security trust funds. When the Social Security trust funds earn interest, that interest is paid by the federal government through either borrowing from the public or tax revenue from taxpayers.
So why go through the trouble of splicing the numbers in the first place?
Some economists argue we should be more concerned about the “debt held by the public” because it would be far more detrimental to the U.S. economy if the federal government were to default on debt traded on open markets. Our country’s creditworthiness would be called into doubt, and Americans would find it much harder to get a loan or access other forms of credit.
That being said, we can’t just ignore intragovernmental holdings because those represent the money we need to sustain important government programs. So though each number has a slightly different emphasis, they both tell the same story: Our national debt continues to grow each year, and it will take bipartisan leadership to get it back under control.