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Fed Treasury Holdings, ‘Real Debt’ and ‘Real Debt Service’

It is not difficult to determine a dollar figure for Total U.S. Public Debt. In fact you have to round UP from the Treasury’s Debt to the Penny and Who Holds it web application which tracks that number daily. As of end of business Thursday that total was $17,472,051,696,926.14. Which is a lot of money however you slice it but doesn’t really get to the issue of ‘sustainability’. First this number includes Intragovernmental Holdings amounting to $4,993,180,664,362.07 which while are certainly full obligations of the U.S. government and backed by Full Faith and Credit or in fact obligations that are under the control of that government and are largely in held as rolling reserves for various programs that ideally will never be redeemed in full. For example over half of that $4.9 trillion is the $2.8 trillion held by the Social Security Trust Funds which, if prudent and necessary steps were taken to shore up its ‘sustainability’, might never have to be redeemed on net and indeed would need to grow over time. So it would make some sense for calculations of ‘Real Debt’ to use the remainder, which Treasury tracks under the name ‘Debt Held by the Public’. Which to my mind is too close to ‘Public Debt’. But it is what it is.

And what is it? $12,478,871,032,564.07. But even this doesn’t get us to a good measure of ‘Real Debt’ because it doesn’t address the issues of Rate, Maturity and Term. To take this to an imaginary limit, what if every penny of that $12.5 trillion was in 30 year Bonds bearing a Maturity ranging from 2039 to 2044 and carrying a Rate of 0.025%. Well whip out your Financial Caclulator and do some PV calcs and that wouldn’t really be ‘Debt’ at all. And in particular it would incur no ‘Debt Service’ in the meantime. Now take it to a different imaginary limit. Assume every penny of that $12.5 trillion was held in 6 month or 1 year notes at a Rate of 6.0% but was all held by the Federal Reserve. Well that would imply a HUGE amount of Debt Service. On the other hand the Fed rebates all profits to Treasury so the net effect would be Treasury writing a ‘check’ to the Fed that would be ‘signed over’ back to Treasury. So that too means no ‘Real Debt Service’ in practical effect.

Now we don’t exist in a world near either of those limits. But that doesn’t mean we shouldn’t net out Public Debt that is held by either Government Trust Funds or the Fed from ‘Real Debt’. And equally important we need to understand what portion of total debt service is ‘Real Debt Service’ that is payable to non-Federal entities out of actual tax collections. That is we get exactly nowhere just stating: “The U.S. has $17 trillion in Public Debt”. Instead we need to have a grasp on the questions of “Debt to Whom? At what Maturity? At what Rate?” before we can put our fingers on ‘Real Debt’ and ‘Real Debt Service’. Answering those questions would require more than a single blog post and comment thread, but I suggest we start by looking at Fed Treasury Holdings under the fold.

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