CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

CBO

Federal Debt and 

Interest Costs

DECEMBER 2010

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Debt Held by the Public

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Pub. No. 4184
The Congress of the United States O Congressional Budget Office

A

STUDY

CBO

Federal Debt and Interest Costs

December 2010
CBO

Notes

Unless otherwise indicated, the years referred to in this report are federal fiscal years 

(which run from October 1 to September 30).

Numbers in the text and tables may not add up to totals because of rounding.

Budget projections reported in this study come from Congressional Budget Office, 

The Budget and Economic Outlook: An Update (August 2010), but may differ slightly 

because they incorporate actual results for fiscal year 2010.
Preface

CBO

Recently, the federal government has been recording the largest budget deficits, as a 

share of gross domestic product (GDP), since the end of World War II. As a result of those 

deficits, the amount of federal debt held by the public has soared—surpassing $9 trillion at 

the end of fiscal year 2010 and equal to 62 percent of GDP. The interest the government pays 

on that debt is currently low by historical standards as a percentage of GDP but is expected to 

grow rapidly over the next several years as interest rates rise. In response to a request from the 

Chairman and Ranking Member of the Senate Budget Committee, this study provides background material on federal debt and interest costs.

Jared Brewster and Amber Marcellino of the Congressional Budget Office’s (CBO’s) 

Budget Analysis Division wrote the study under the supervision of Theresa Gullo and 

Jeffrey Holland. Jared Brewster wrote the Summary and Chapters 1 and 2; Amber Marcellino 

and Jared Brewster wrote Chapter 3. Jonathan Huntley and Avi Lerner of CBO also contributed to the study. Staff of the Office of Management and Budget provided valuable assistance. 

(The assistance of external participants implies no responsibility for the final product, which 

rests solely with the authors and CBO.)

Sherry Snyder edited the manuscript, Kate Kelly proofread it, Jeanine Rees prepared the study 

for publication, and Maureen Costantino designed the cover. Monte Ruffin oversaw the 

printing of the study, Linda Schimmel handled the print distribution, and Simone Thomas 

prepared the electronic version for CBO’s Web site (www.cbo.gov).

Douglas W. Elmendorf

Director

December 2010

Contents

CBO

Summary vii

1 Debt Held by the Public 1

Trends in Debt Held by the Public 1

Types and Amounts of Treasury Debt Held by the Public 3

Reasons for Borrowing Other Than Budget Deficits 10

Ownership of Federal Debt Held by the Public 13

U.S. Debt Compared with That of Other Countries 14

2 Other Measures of Federal Debt 17

Debt Held by the Public Net of Financial Assets 18

Gross Federal Debt 20

Debt Subject to Limit 21

3 Interest Payments and Receipts 25

Historical and Projected Net Interest Outlays 25

Gross Interest on Treasury Debt Securities 27

Interest Received by Trust Funds 27

Other Interest 28

Other Investment Income 33

Appendix: Public Debt Outstanding at the End of the Fiscal Year 35
CONTENTS FEDERAL DEBT AND INTEREST COSTS VI

CBO

Tables

1-1. Schedule of Treasury Auctions of Marketable Debt 7

1-2. Deficits and Means of Financing, 2000 to 2010 11

1-3. Holders of Public Debt at the End of Fiscal Years 2005 and 2010 13

2-1. CBO’s Projections of Debt Held by the Public Net of 

Financial Assets, 2010 to 2020 19

2-2. CBO’s Projections of Federal Debt, 2010 to 2020 21

2-3. CBO’s Projections of Trust Fund Balances, 2010 to 2020 22

3-1. CBO’s Baseline Projections of Federal Interest Outlays, 2010 to 2020 28

3-2. Alternative Scenarios for Net Interest Outlays, 2011 to 2020 29

3-3. Other Interest, 2006 to 2010 30

A-1. Marketable Public Debt Outstanding at the End of the Fiscal Year, 1990 to 2010 36

A-2. Nonmarketable Public Debt Outstanding at the End of the 

Fiscal Year, 1990 to 2010 37

Figures

S-1. Debt Held by the Public, 1940 to 2020 viii

S-2. Net Interest Outlays, 1940 to 2020 x

1-1. Debt Held by the Public, 1790 to 2020 4

1-2. Components of Debt Held by the Public at the End of Fiscal Year 2010 5

1-3. Percentage of Marketable Debt Outstanding, by Type of Security, 1990 to 2010 6

1-4. Average Remaining Maturity of Marketable Public Debt, 2000 to 2010 8

1-5. Quarterly Change in Outstanding Treasury Securities, 2005 to 2010 9

1-6. Debt of Selected Countries at the End of Calendar Year 2009 15

3-1. Net Interest, 1970 to 2020 26

3-2. Interest Rates on Three-Month Treasury Bills and Ten-Year 

Treasury Notes, 1970 to 2020 27

Box

1-1. Accounting for Debt and Guarantees Issued by Fannie Mae and 

Freddie Mac 2
CBO

Summary

The past few years have seen a sharp rise in the debt 

of the federal government. At the end of fiscal year 2008, 

debt held by the public amounted to $5.8 trillion—equal 

to 40 percent of the nation’s annual economic output 

(gross domestic product, or GDP), a little above the 

40-year average of 35 percent.1

 Since then, debt held by 

the public has shot upward, surpassing $9 trillion by the 

end of fiscal year 2010—equal to 62 percent of GDP, 

the highest percentage since shortly after World War II 

(see Summary Figure 1). The surge in debt stems partly 

from lower tax revenues and higher federal spending 

related to the recent severe recession and turmoil in 

financial markets. However, the growing debt also reflects 

an imbalance between spending and revenues that 

predated those economic developments.

At the same time, a sharp drop in interest rates has held 

down the amount of interest that the government pays on 

that debt. In 2010, net interest outlays totaled $197 billion, or 1.4 percent of GDP—a smaller share of GDP 

than they accounted for during most of the past decade. 

The Congressional Budget Office (CBO) projects that, 

under current law, debt held by the public will exceed 

$16 trillion by 2020, reaching nearly 70 percent of GDP. 

CBO also projects that interest rates will go up. The 

combination of rising debt and rising interest rates is 

projected to cause net interest payments to balloon to 

nearly $800 billion, or 3.4 percent of GDP, by 2020.

Many other outcomes are possible, however. If, for example, the tax reductions enacted earlier in the decade were 

continued, the alternative minimum tax was indexed for 

inflation, and future annual appropriations remained the 

same share of GDP that they were in 2010, debt held by 

the public would total nearly 100 percent of GDP by 

2020. Interest costs would be correspondingly higher.

This CBO study describes historical trends in borrowing 

by the federal government and the interest the government pays on that borrowing. The study takes an indepth look at the most commonly used measure of the 

government’s debt—debt held by the public—and also 

discusses several other measures of the debt, such as debt 

held by the public net of financial assets, gross federal 

debt, and debt subject to limit. In addition, the study 

examines the government’s net interest costs and the 

types of transactions that generate interest payments and 

collections.

Debt Held by the Public

To finance the government’s activities, the Treasury issues 

numerous types of securities that vary in their maturity, 

how they are sold, and how their payments are structured. Marketable securities—bills, notes, bonds, and 

inflation-protected securities—are auctioned at regular 

intervals during the year and accounted for nearly 95 percent of outstanding debt held by the public at the end of 

2010. Nearly two-thirds of that marketable debt was in 

Treasury notes, which have an original maturity of 2 to 

10 years.

A small percentage of debt held by the public is in the 

form of nonmarketable securities, which cannot be resold 

by the original purchasers. Those securities include 

savings bonds, securities issued to state and local 

governments, and securities used for investments of 

the government’s Thrift Savings Plan (a retirement 

savings program for civil service employees and members 

of the uniformed services). 

The government’s net borrowing for each year (that is, 

the new cash it must raise, over and above the amount 

required to pay off maturing securities) is determined 

1. Debt held by the public consists mostly of securities that the 

Department of the Treasury issues to raise cash to fund the activities of the government, including the securities sold to pay off 

maturing securities; it also includes a small amount of securities 

issued by other agencies, mainly the Tennessee Valley Authority. 
VIII FEDERAL DEBT AND INTEREST COSTS

CBO

Summary Figure 1.

Debt Held by the Public, 1940 to 2020

(Trillions of dollars) (Percentage of GDP)

Sources: Congressional Budget Office; historical data are based on information from the Office of Management and Budget.

Note: GDP = gross domestic product.

largely by the size of the federal deficit. However, a number of other factors—collectively labeled “other means of 

financing” and not directly included in budget totals—

also affect the amount of debt that the government issues. 

Those factors include changes in the government’s cash 

balances and the cash flows of federal credit programs 

(mostly programs that provide loans and loan 

guarantees). 

Many investors consider federal debt to be an attractive 

investment, in part because it is essentially free of any risk 

of default. At the end of 2010, domestic entities owned 

about 53 percent of the outstanding public debt, and foreign entities owned about 47 percent. Central banks and 

private entities in China, Japan, and the United Kingdom 

are the largest foreign investors.

Other Measures of Federal Debt

In addition to debt held by the public, a number of other 

measures of federal debt are used for various purposes. 

Debt held by the public net of financial assets is a measure that reflects the fact that the government affects 

financial markets not only by borrowing but also by 

acquiring financial assets. Those assets affect the government’s financial condition: If sold, the proceeds could be 

used to pay down a portion of the federal debt; if retained 

by the government, they will generate inflows from 

interest, dividends, and repayments of principal that will 

reduce the government’s future borrowing needs.

Debt held by the public net of financial assets is calculated by subtracting from debt held by the public the 

value of assets the government has acquired through its 

various activities in the credit markets (such as loans 

made by federal programs) and through its efforts to 

address the recent financial crisis (such as preferred stock 

in financial institutions), as well as its cash balances. At 

the end of 2010, debt net of financial assets totaled 

$8.0 trillion—$1.0 trillion less than debt held by the 

public and 55 percent of GDP (compared with 62 percent of GDP when financial assets are not taken into 

account). Debt held by the public net of financial assets 

provides a more comprehensive picture of the government’s financial condition and its overall impact on credit 

markets than debt held by the public, but calculating it is 

not straightforward because neither the universe of such 

assets nor the method for valuing them is well defined. 

Assessing the government’s overall financial condition 

requires accounting not only for debt that the government has already incurred (and financial assets it has 

acquired) but also for commitments the government has 

made for the future. Debt held by the public, with or 

without an adjustment for the government’s financial 

assets, does not account for such future obligations. One 

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SUMMARY FEDERAL DEBT AND INTEREST COSTS IX

CBO

useful barometer of the future fiscal situation is projections of changes in debt held by the public relative to 

GDP; that measure indicates whether the government’s 

participation in credit markets is expected to grow faster 

or slower than economic output. Another useful gauge is 

the fiscal gap, which measures the immediate change in 

spending or revenues that would be necessary to keep the 

projected debt-to-GDP ratio the same at the end of a 

given period as at the beginning of the period. The fiscal 

gap quantifies the projected long-term shortfall of revenues relative to outlays in present-value terms—that is, as 

a single number that describes a flow of future revenues 

or outlays in terms of an equivalent lump sum received or 

spent today. These forward-looking measures are not 

addressed in this study but are used extensively in other 

CBO publications.2

Gross debt, which comprises federal debt held by the 

public plus Treasury securities held by federal trust funds 

and other government accounts, is sometimes used to 

evaluate the government’s overall fiscal situation. At the 

end of 2010, gross federal debt totaled $13.5 trillion—

the $9.0 trillion in debt held by the public plus $4.5 trillion in debt held by government accounts. More than 

half of the latter amount is held by the Social Security 

trust funds. Because those trust funds and other government accounts are part of the federal government, 

transactions between them and the Treasury are intragovernmental; that is, the government securities in those 

funds are an asset to the individual programs but a liability to the rest of the government. The resources needed to 

redeem the government securities in the trust funds and 

other accounts in some future year must be generated 

from taxes, income from other government sources, or 

borrowing by the government in that year. 

Gross debt is not a good indicator of the government’s 

fiscal condition, however (nor is debt subject to limit, the 

amount of federal debt that is subject to the overall limit 

set in law and is roughly equal to gross debt). The value 

of Treasury securities held by trust funds and other 

government accounts measures only some of the commitments the government has made for the future, and it 

includes some amounts that may not represent future 

obligations at all. Moreover, because those securities 

represent internal transactions of the government, they 

have no direct effect on credit markets.

Interest Payments and Receipts

The government pays and collects interest in various 

ways. Its net interest outlays are equal to the interest it 

pays minus the interest it receives. Net interest outlays are 

dominated by the interest paid to holders of the debt that 

the Treasury issues to the public. Although the Treasury 

also issues debt to trust funds and other government 

accounts, the payment of interest to those accounts is an 

intragovernmental transaction that has no effect on net 

interest outlays or on the budget deficit.

The federal government’s interest payments depend 

primarily on interest rates and the amount of debt held 

by the public. Other factors, such as the rate of inflation 

and the maturity structure of outstanding securities, also 

affect interest costs (for example, long-term bonds 

generally carry higher interest rates than do short-term 

bills). Interest rates are determined by a combination of 

market forces and the policies of the Federal Reserve. 

Debt held by the public is determined mostly by 

cumulative budget deficits, which depend on policy 

choices about spending and revenues and on economic 

conditions and other factors.

Although the federal government has increased its net 

borrowing by more than $3 trillion in the past two years, 

net interest costs dropped from $253 billion in 2008 to 

$197 billion in 2010 because of remarkably low interest 

rates (see Summary Figure 2). The amounts of net 

interest shown in the budget include interest paid on all 

Treasury securities ($413 billion in 2010), minus the 

portion of that interest that is received by trust funds 

($186 billion in 2010) and the net amount of other 

interest received by the government ($30 billion in 

2010). The last category consists primarily of net receipts 

to the Treasury from the financing accounts for federal 

loan programs (those accounts are not included in the 

federal budget).

In CBO’s most recent projections, which assume that 

current laws remain the same, annual deficits decline 

from the $1.3 trillion recorded in 2010, but the cumulative deficit from 2011 through 2020 exceeds $6.2 trillion. 

Borrowing to finance that deficit—in combination with 

an expected rise in interest rates—would lead to a 

fourfold increase in net interest payments over the next 

10 years, from $197 billion in 2010 to $778 billion in 

2020. As a percentage of GDP, net interest outlays would 

more than double during that period, rising from 1.4 percent to 3.4 percent. 

2. See, for example, Congressional Budget Office, The Long-Term 

Budget Outlook (June 2010, revised August 2010).
X FEDERAL DEBT AND INTEREST COSTS

CBO

Summary Figure 2.

Net Interest Outlays, 1940 to 2020

(Billions of dollars) (Percentage of GDP)

Sources: Congressional Budget Office; historical data are based on information from the Office of Management and Budget.

Note: GDP = gross domestic product.

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CHAPTER

CBO

1

Debt Held by the Public

When the federal government’s spending exceeds 

its revenues, which has been the case in all but 4 of the 

past 40 years, the Department of the Treasury must raise 

cash to finance the resulting budget deficit. It does so by 

selling securities in the capital markets. Debt held by the 

public consists almost entirely of those securities, including those sold to pay off securities as they mature.

Recently, the federal government has been recording the 

largest budget deficits, as a share of the economy, since 

the end of World War II. As a result of those deficits, the 

amount of federal debt held by the public has surged. At 

the end of 2008, that debt amounted to $5.8 trillion—

equal to 40 percent of the nation’s annual economic output (as measured by gross domestic product, or GDP), 

above the average over the previous 40 years of 35 percent. Since then, large budget deficits and increased borrowing to fund programs that address the recent financial 

crisis have caused debt held by the public to shoot 

upward, surpassing $9 trillion by the end of fiscal year 

2010—equal to 62 percent of GDP, the highest percentage since shortly after World War II (see Figure 1-1 on 

page 4). The sharp rise in debt stems partly from lower 

tax revenues and higher federal spending related to the 

recent severe recession and turmoil in financial markets. 

However, the growing debt also reflects an imbalance 

between spending and revenues that predated those 

economic developments.

To finance the government’s activities, the Treasury issues 

numerous types of securities that vary in their maturity, 

how they are sold, and how their interest payments are 

structured. Those differences directly affect the interest 

rates on those securities, which are a key determinant of 

the amount of interest the government pays on its outstanding debt. 

The size of the federal deficit largely determines the 

government’s net borrowing for each year (that is, the 

new cash it must raise, above the amount required to pay 

off maturing securities). However, several other factors—

collectively labeled “other means of financing” and not 

directly included in budget totals—also affect the amount 

of debt that the government issues each year. Those factors include changes in the government’s cash balances 

and the cash flows of federal credit programs, mostly 

programs that provide loans and loan guarantees. Also, a 

small amount of debt held by the public (less than 1 percent) is issued by agencies other than the Treasury (such 

as the Tennessee Valley Authority). Debt issued by Fannie 

Mae and Freddie Mac—the two government-sponsored 

enterprises now under federal conservatorship—is not 

included in debt held by the public (see Box 1-1). 

Publicly issued Treasury securities are held by various 

buyers in the United States, including the Federal 

Reserve, private investors, and state and local 

governments. Those securities also are acquired by 

foreign investors, including foreign central banks and 

individuals. 

Compared with a similar measure of debt held by the 

public, the amount of debt in the United States is substantially lower than that in Japan and Italy and close to 

that in Hungary and Portugal. 

Trends in Debt Held by the Public

During World War II, the federal government borrowed 

heavily to finance the war effort and, as a result, debt 

reached 109 percent of GDP in 1946. For the next quarter century, however, debt hardly grew—inching up, by 

an average of about $2 billion a year, from $242 billion in 

1946 to $283 billion in 1970. During that period, on 

balance, the government neither paid off the debt 
2 FEDERAL DEBT AND INTEREST COSTS

CBO

Continued

incurred from the war nor added much to it. With the 

economy growing, debt dropped steadily as a share of 

GDP, reaching 28 percent in 1970 (see Figure 1-1).

The era of slow growth of debt ended in the 1970s. 

Federal budgets were unbalanced for the entire decade, 

and debt held by the public more than doubled in dollar 

terms between 1970 and 1980. But rapid inflation 

swelled GDP, and the debt as a percentage of GDP 

actually decreased somewhat during the decade, falling to 

26 percent by 1980.

Between 1980 and 1993, debt held by the public 

expanded more rapidly than the economy, rising from 

26 percent of GDP to 49 percent. However, policies 

adopted during the 1990s to tackle budget deficits, and 

the surge in tax revenues associated with robust economic 

growth seen throughout most of the decade, led to budget surpluses between 1998 and 2001. Those surpluses 

decreased debt held by the public by more than $450 billion between the end of 1997 and the end of 2001 and 

lowered debt as a share of GDP to 33 percent by the end 

of 2001, a level not seen since the early 1980s. Those 

surpluses were short-lived, though, as budget deficits 

between 2002 and 2007 boosted debt held by the public 

by more than $1.7 trillion, but economic growth kept 

debt as a percentage of GDP fairly steady in that period, 

around 37 percent. 

In 2008, the United States experienced the most severe 

financial crisis since the Great Depression. The following 

year, revenues dropped sharply and outlays increased 

Box 1-1.

Accounting for Debt and Guarantees Issued by Fannie Mae and 

Freddie Mac

In September 2008, the Director of the Federal 

Housing Finance Agency placed into conservatorship 

two large government-sponsored enterprises, Fannie 

Mae and Freddie Mac.1

 At the same time, the Secretary of the Treasury took a major ownership interest 

in both entities in the form of preferred stock. In the 

judgment of the Congressional Budget Office 

(CBO), those actions make Fannie Mae and Freddie 

Mac part of the government and imply that their 

operations should be reflected in the federal budget.2

Fannie Mae and Freddie Mac were chartered by the 

Congress four decades ago as private companies with 

a public mission to provide liquidity and stability to 

the secondary market for residential mortgages (the 

market in which those mortgages are bought and 

sold). In carrying out their charters, the two entities 

purchase mortgage loans made by lenders and package them into mortgage-backed securities (MBSs) 

that carry guarantees that principal and interest on 

the underlying mortgages will be paid in full; those 

securities are then sold to investors. The two entities 

also invest directly in mortgages and MBSs, which 

they hold in their portfolios. To fund those holdings, 

they issue debt and sell it in the international capital 

markets. As of September 2010, Fannie Mae and 

Freddie Mac held or guaranteed about $4.4 trillion in 

MBSs; they also had issued $1.6 trillion in debt.

Despite having a unique legal status and a long history linking them closely to the federal government, 

Fannie Mae and Freddie Mac had been considered 

private firms owned by their shareholders. Now, however, the federal government controls both entities 

and is operating them to fulfill the public purpose of 

supporting the housing and mortgage markets.3

1. Conservatorship is the legal process by which an entity (in 

this case, the government) establishes control and oversight 

of a company to put it in a sound and solvent condition.

2. See Congressional Budget Office, CBO’s Budgetary Treatment 

of Fannie Mae and Freddie Mac, Background Paper (January 

2010).

3. For more information about the various ways in which the 

federal government helps the housing market, see Congressional Budget Office, An Overview of Federal Support for 

Housing, Issue Brief (November 2009).
CHAPTER ONE FEDERAL DEBT AND INTEREST COSTS 3

CBO

substantially, pushing the deficit to $1.4 trillion, equal to 

10 percent of GDP (the highest level since 1945). The 

budget deficit in 2010 reached nearly $1.3 trillion (or 

9 percent of GDP) because of continued low revenues 

and elevated spending. Overall, in the three years 

between 2008 and 2010, the Treasury added nearly 

$4 trillion to its borrowing, increasing debt held by the 

public as a percentage of GDP from 36 percent at the end 

of 2007 to 40 percent at the end of 2008 and to 62 percent at the end of 2010.

Types and Amounts of Treasury Debt 

Held by the Public

The Treasury issues two broad types of securities to the 

public: marketable and nonmarketable. Marketable 

issues—bills, notes, bonds, and inflation-protected securities—are auctioned at regular intervals during the year 

and can be resold on the secondary market (where previously issued Treasury securities can be bought and 

resold). Such securities accounted for $8.5 trillion, or 

94 percent, of debt held by the public at the end of 2010. 

Nonmarketable issues, such as savings bonds, are not sold 

at auction and cannot be traded in the secondary market. 

Those issues accounted for $526 billion, or 6 percent, 

of debt held by the public at the end of 2010 (see 

Figure 1-2). 

Marketable Securities 

Marketable securities comprise bills (original maturity of 

1 year or less), notes (original maturity of 2 to 10 years), 

bonds (original maturity of longer than 10 years), and 

Treasury inflation-protected securities, or TIPS (original 

maturity of 5, 10, or 30 years). Bills are offered on a

Box 1-1. Continued

Accounting for Debt and Guarantees Issued by Fannie Mae and 

Freddie Mac

Moreover, both entities rely on federal backing to 

maintain their low-cost access to financial markets. 

Although they are not legally government agencies 

and their employees are not civil servants, CBO 

believes it is appropriate and useful to policymakers 

to include Fannie Mae’s and Freddie Mac’s financial 

transactions with other federal activities in the 

budget.4

That budgetary treatment raises the question of how 

the conservatorship of Fannie Mae and Freddie Mac 

should be reflected in measures of the government’s 

financial position. Neither CBO nor the Administration currently incorporates debt or MBSs issued by 

Fannie Mae and Freddie Mac in estimates of federal 

debt held by the public, nor does CBO currently 

include the value of the preferred shares held by the 

Department of the Treasury in its estimate of the 

value of financial assets owned by the government. 

In taking over Fannie Mae and Freddie Mac, the government obtained both assets and liabilities. The 

assets consist mostly of the mortgages and MBSs held 

in the entities’ portfolios and the claim to the revenue 

stream generated by guarantee fees. The liabilities 

consist mostly of debt issued by Fannie Mae and 

Freddie Mac and the obligation to honor their guarantees. In CBO’s judgment, the liabilities are larger, 

on balance, than the assets because of elevated losses 

from defaults. Consequently, the two entities do not 

represent a net asset to the government but a net liability—that is, their impact on the government’s 

financial position is a negative one. CBO estimated 

the amount of that negative impact when the entities 

were taken into conservatorship, but it has not 

updated that estimate nor included such an amount 

in debt held by the public or any other measures of 

debt referenced in this study. 

4. The Administration’s Office of Management and Budget 

(OMB) makes the ultimate decision about whether the activities of Fannie Mae and Freddie Mac will be included in the 

federal budget. Although OMB’s budget documents have not 

included those activities in the budget totals, they have provided financial information about the two entities for several 

years; see, for example, Budget of the United States Government, Fiscal Year 2011: Appendix, pp. 1373–1375.
4 FEDERAL DEBT AND INTEREST COSTS

CBO

Figure 1-1.

Debt Held by the Public, 1790 to 2020

(Percentage of gross domestic product)

Sources: Congressional Budget Office based on data on federal debt from the Department of the Treasury and the Board of Governors of the 

Federal Reserve System. Estimates of gross domestic product come from the U.S. Census Bureau; Thomas Berry, Revised Annual 

Estimates of American Gross National Product (Richmond, Va.: Bostwick Press, 1978); Robert E. Gallman, “Economic Growth and 

Structural Change in the Long Nineteenth Century,” in Gallman and Stanley L. Engerman, eds., The Cambridge Economic History of 

the United States, vol. 2, The Long Nineteenth Century (Cambridge, England: Cambridge University Press, 2000), pp. 1–55; Nathan 

S. Balke and Robert J. Gordon, “The Estimation of Prewar Gross National Product: Methodology and New Evidence,” Journal of 

Political Economy, vol. 97, no. 1 (February 1989), pp. 38–92; and the Department of Commerce, Bureau of Economic Analysis.

discount basis—that is, the purchaser generally pays less 

than the face value for a security and receives the face 

value at maturity; the difference between the purchase 

price and the value at maturity is the amount of interest 

earned on the security. In contrast, notes and bonds are 

referred to as “coupon” securities; the purchaser receives 

semiannual interest payments (the coupon) based on a 

fixed rate and receives the principal at maturity. TIPS 

provide purchasers with an inflation adjustment to the 

principal and a semiannual interest payment.1

 The interest rate on TIPS is a fixed rate determined at auction, but 

the interest payments vary because the rate is applied to 

the inflation-adjusted principal. TIPS mitigate the risk to 

investors that inflation will turn out to be higher than 

expected and tend to attract a somewhat different type of 

investor than those interested in other types of Treasury 

securities. 

Over the past two decades, Treasury notes have generally 

accounted for the majority of outstanding marketable 

securities; the current share of 62 percent is the highest 

since 1997 (see Figure 1-3; also see Table A-1 in the 

appendix for amounts outstanding for each type of 

security for the past 20 years). Bills have generally 

accounted for between 20 percent and 30 percent of marketable debt; the current share is at the lower end of that 

range. Bonds now account for 10 percent of outstanding 

marketable debt, about half of their share in the 1990s 

and early 2000s. The share in the form of TIPS increased 

over the 10 years from their inception to 2007; that share 

peaked at 10 percent of outstanding marketable securities 

but has fallen over the past three years. 

In choosing the mix of maturities to offer, the Treasury 

must weigh several considerations. Short-term securities 

generally have lower interest costs, but they also incur the 

cost of more frequent refinancing, and they expose the 

government to the risk of having to pay higher interest 

rates when it refinances those issues. Conversely, longterm securities involve higher rates, on average, but 

provide more certainty about future costs of interest payments and reduce the frequency of refinancing. The 

1790 1810 1830 1850 1870 1890 1910 1930 1950 1970 1990 2010

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1. The inflation adjustment to principal is based on the nonseasonally adjusted consumer price index for all urban consumers 

(CPI-U). The adjustment to the value of outstanding TIPS is 

made on a daily basis but is not paid until maturity. For more 

information, see Treasury Direct, “TIPS: Rates and Terms,” 

www.treasurydirect.gov/indiv/research/indepth/tips/

res_tips_rates.htm. 
CHAPTER ONE FEDERAL DEBT AND INTEREST COSTS 5

CBO

Figure 1-2.

Components of Debt Held by the Public at the End of Fiscal Year 2010

Source: Congressional Budget Office based on data from the Department of the Treasury.

Note: TIPS = Treasury inflation-protected securities.

a. The $9,018 billion includes $24 billion in debt issued by agencies other than the Treasury, such as the Tennessee Valley Authority, which is 

not shown separately in this figure. 

b. The current value of marketable securities reflects an adjustment for premiums and discounts that CBO has included in the total for 

Treasury bills.

c. Other nonmarketable securities include foreign and domestic series zero-coupon bonds (current value), foreign series bills, claims funds 

and asset forfeitures funds, tax and loss bonds issued by the Mortgage Guaranty Insurance Corporation, U.S. notes and silver certificates, 

and various other small securities.

preferences of investors are a further consideration in setting the maturity structure; offerings that best meet the 

needs of investors will lower the Treasury’s overall cost of 

borrowing.

Auctions. The Treasury sells securities on a regular basis 

through “single-price” auctions, in which successful 

bidders buy securities at the highest accepted discount 

rate (for bills) or yield (for notes and bonds). Bidding can 

be either competitive or noncompetitive. Most competitive bidding is done by large financial institutions for 

their own accounts or on behalf of customers in the 

secondary (resale) market. Investors make a competitive 

bid by specifying the price they are willing to pay for a 

particular security at auction, but such bids are not 

guaranteed to be accepted. 

Noncompetitive bids are made by investors through the 

Treasury or through certain banks, brokers, or dealers. 

Noncompetitive buyers specify an amount to purchase 

before an auction but are not allowed to specify a yield; 

instead, their bid is guaranteed to be fulfilled at the highest accepted yield. Those buyers are assured of receiving 

the full amount of their order up to the current maximum of $5 million.

Borrowing Schedule. Treasury securities are issued on a 

regular schedule, and the amount to be auctioned is 

determined by the federal government’s borrowing needs. 

The auction schedule and the mix of maturities are also 

designed to enhance the liquidity of Treasury issues so 

that investors can buy or sell them quickly and in large 

amounts without affecting the price of the securities. 

Treasury issues that are relatively liquid are more valuable 

to most investors, who are therefore willing to pay more 

for them.

With the rapid increase in the deficit over the past few 

years, the auction schedule has been expanded. In particular, the Treasury has increased the number of auctions, 

Debt Held by the Publica

($9,018 billion)

Nonmarketable

($526 billion)

State and Local

Government

Series

($193 billion)

Savings

Bonds

($189 billion)

Thrift 

Savings 

Plan

($124 billion)

Otherc

($20 billion)

Marketableb

($8,468 billion)

Notes

($5,253 billion)

Bonds

($846 billion)

Bills

($1,776 billion)

TIPS

($594 billion)
6 FEDERAL DEBT AND INTEREST COSTS

CBO

Figure 1-3.

Percentage of Marketable Debt Outstanding, by Type of Security, 1990 to 2010

(Percent)

Source: Congressional Budget Office based on data from the Department of the Treasury.

a. Treasury inflation-protected securities (TIPS) were first issued in 1997.

raised the dollar amount of individual issuances, and 

reintroduced a variety of previously retired maturities (see 

Table 1-1 for the Treasury’s recent auction schedule). 

Most of the recent borrowing has been done in securities 

with a maturity of greater than a year, which has allowed 

the Treasury to lock in historically low rates on those 

securities.

Bills. The Treasury offers bills in 1-month, 3-month, and 

6-month maturities on a weekly basis. It also offers a 

1-year bill every four weeks; that issue, which had not 

been offered since 2001, was reintroduced in 2008. The 

Treasury also offers cash management bills (CMBs) to 

fund the government’s short-term cash needs; CMBs 

have no uniform maturity date and are offered as needed. 

At the end of fiscal year 2010, the outstanding face value 

of Treasury bills totaled roughly $1.8 trillion, representing about 21 percent of all marketable Treasury debt. 

Notes. The Treasury’s portfolio of notes has changed significantly over the past decade. At the beginning of 2000, 

following a string of annual surpluses, notes were offered 

only in maturities of 2, 5, and 10 years. In 2003, after 

two years of deficits, the 3-year note was reintroduced; 

in 2008, with debt continuing to grow, the Treasury reintroduced the 7-year note. Notes are currently offered 

monthly in maturities of 2, 3, 5, and 7 years, and quarterly in a maturity of 10 years. In the months between the 

quarterly auctions, the 10-year notes are sold in a 

“reopening.”2

 At the end of 2010, the outstanding value 

of notes was roughly $5.3 trillion, accounting for about 

62 percent of all marketable debt.

Bonds. The Treasury temporarily stopped issuing bonds 

in 2001 in light of the improvement in the budget 

balance over the previous few years. That hiatus was 

short-lived, however, and in 2006 the Treasury 

announced that it would again offer 30-year bonds. Such 

bonds are now issued quarterly, with interim reopenings 

on a monthly basis. At the end of 2010, $846 billion in 

bonds was outstanding, representing about 10 percent of 

all marketable debt. 

Treasury Inflation-Protected Securities. In 1997, the Treasury added TIPS to its auction schedule, beginning withmaturities of 10 and 30 years. It discontinued issuing 

30-year TIPS in 2001, began issuing TIPS with maturities of 5 and 20 years in 2004, but reverted to issuing 

30-year TIPS in lieu of the 20-year security in 2010. 

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

0

10

20

30

40

50

60

70

TIPSa Bonds

Bills

Notes

2. In a reopening, the Treasury issues an additional amount of a 

previously issued security. The reopened security has the same 

maturity date and interest rate as the original security but has a 

different issue date and, usually, a different purchase price.
CHAPTER ONE FEDERAL DEBT AND INTEREST COSTS 7

CBO

Table 1-1. 

Schedule of Treasury Auctions of Marketable Debt

Source: Congressional Budget Office based on data from the Department of the Treasury.

Note: In a reopening, the Treasury issues an additional amount of a previously issued security. The reopened security has the same maturity 

date and interest rate as the original security but has a different issue date and, usually, a different purchase price.

a. The average amount issued in September 2010.

b. Interim reopenings were $21 billion each.

c. Interim reopenings were $13 billion each.

d. Interim reopening was $10 billion.

e. Interim reopenings were $10 billion each.

f. Interim reopening was $7 billion. 

Outstanding TIPS totaled $594 billion at the end of 

2010, or about 7 percent of all marketable debt.

Maturity. The average remaining maturity of outstanding 

marketable securities has fluctuated over the past decade, 

from a high of almost 6 years at the end of 2000 to a low 

of close to 4 years in 2008 (Figure 1-4). Increased 

borrowing in notes and bonds raised the average maturity 

of outstanding debt to nearly 5 years at the end of 2010.

Seasonality. Federal borrowing has a pronounced 

seasonal pattern and is typically highest in the second 

quarter of the fiscal year (January through March) and 

lowest in the third quarter (April through June), coinciding with the April deadline for filing individual income 

tax returns. That pattern is sometimes obscured by 

changes in fiscal policy and fluctuations in economic 

conditions; it can also be affected if the Congress fails to 

approve a higher debt ceiling sufficiently in advance to 

avoid disrupting Treasury auctions. (The debt ceiling is 

described in Chapter 2.)

Seasonal fluctuations in borrowing are more pronounced 

for Treasury bills than they are for notes and bonds (see 

Figure 1-5). Because bills are issued more frequently and 

have shorter maturities, the Treasury can quickly adjust 

the size of such auctions in response to fluctuations in the 

government’s funding requirements. Net issuance of bills 

Timing of Auctions

One month (28 days) 52 Weekly 34 a

Three months (91 days) 52 Weekly 29 a

Six months (182 days) 52 Weekly 29 a

One year (364 days) 13 Every four weeks 25

Cash management Variable As needed Variable

Two years 12 Monthly 37

Three years 12 Monthly 33

Five years 12 Monthly 36

Seven years 12 Monthly 30

Ten years 12 Quarterly, with interim reopenings 25 b

12 Quarterly, with interim reopenings 17 c

Treasury Inflation-Protected

Five years 2 Annually, with an interim reopening 11 d

Ten years 6 Semiannually, with interim reopenings 12 e

Thirty years 2 Annually, with an interim reopening 8 f

Type of Issue and Maturity

Bills

Notes

Bonds (Thirty years)

Securities

(Billions of dollars)

Size of Recent Auctions

Issues per Year
8 FEDERAL DEBT AND INTEREST COSTS

CBO

Figure 1-4.

Average Remaining Maturity of Marketable Public Debt, 2000 to 2010

(Years)

Source: Congressional Budget Office based on data from the Department of the Treasury.

(the amount of new issuances minus the amount of 

maturing bills) varies greatly from quarter to quarter. 

Including cash management bills, the net quarterly issuance of bills during the past five years has ranged from a 

net paydown of almost $200 billion to a net issuance of 

roughly $430 billion. 

Nonmarketable Securities 

Nonmarketable securities are nontransferable debt instruments that are not traded in secondary markets. Savings 

bonds and securities issued to the federal government’s 

Thrift Savings Plan (TSP) and to state and local governments account for most of the outstanding nonmarketable securities; foreign and domestic zero-coupon bonds 

and other issues account for a much smaller portion.3

Unlike the issuance of marketable securities, which is 

directly tied to the size of the federal deficit, the issuance 

of nonmarketable securities depends on the demand for 

them by investors. From 2000 to 2001, for example, the 

government experienced a budget surplus, yet nonmarketable debt grew from $374 billion to $386 billion. 

Outstanding nonmarketable debt totaled $526 billion at 

the end of 2010 (see Figure 1-2 on page 5; also see 

Table A-2 in the appendix for amounts outstanding for 

each type of security for the past 20 years).

Savings Bonds. Savings bonds originated in 1935 but 

became popular during World War II as a means of 

helping to finance the war effort. Formerly purchased out 

of a sense of patriotism, savings bonds are now generally 

purchased as gifts or through payroll deductions by individual investors; they come in several series with varying 

characteristics.4

 The amount of outstanding savings 

bonds totaled almost $190 billion at the end of 2010. 

EE/E Bonds. EE bonds are currently offered as coupon 

securities (if purchased electronically) and on a discount 

basis (if a paper version is purchased). Bonds sold as a 

coupon security accumulate interest in monthly installments and can earn interest for up to 30 years. Those sold 

as a discount security are purchased at half of their face 

value and are paid in full at maturity. The face value of 

outstanding EE bonds (and E bonds, their predecessors) 

totaled about $122 billion at the end of 2010.

Other Types of Savings Bonds. The Treasury also issues 

inflation-indexed savings bonds, known as the I series; 

about $41 billion in I bonds was outstanding at the end 

of 2010. The HH/H series, which was discontinued in 

2004, makes coupon payments to bond holders every six 

months; the face value of outstanding HH/H bonds 

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0

4.0

4.5

5.0

5.5

6.0

3. Zero-coupon bonds do not provide coupon payments over the life 

of the security. Instead, they are sold at a discount to face value, 

and the full face value is paid at maturity. 

4. For additional details on savings bonds, see Treasury Direct, 

“Products in Depth,” http://treasurydirect.gov/indiv/research/

indepth/indepth.htm.
CHAPTER ONE FEDERAL DEBT AND INTEREST COSTS 9

CBO

Figure 1-5.

Quarterly Change in Outstanding Treasury Securities, 2005 to 2010

(Billions of dollars)

Source: Congressional Budget Office based on data from the Department of the Treasury.

-300

-200

-100

0

100

200

300

400

500

-300

-200

-100

0

100

200

300

400

500

Bills

-300

-200

-100

0

100

200

300

400

500

Notes and Bonds

Treasury Inflation-Protected Securities

2005 2006 2007 2008 2009 2010

2005 2006 2007 2008 2009 2010

2005 2006 2007 2008 2009 2010
10 FEDERAL DEBT AND INTEREST COSTS

CBO

totaled $9 billion at the end of 2010. Individual investors 

also hold savings bonds that have matured but have not 

been redeemed; those securities do not accrue any additional interest. The outstanding amount of such bonds 

was about $16 billion at the end of 2010 (savings bonds 

that have matured are not included in the amounts listed 

for the various types of savings bonds). 

State and Local Government Series. The Treasury offers 

state and local government series (SLGS) securities as part 

of its regulation of the tax-exemption privilege accorded 

to such governments. States and municipalities may issue 

tax-exempt bonds, which typically carry interest rates 

below those of taxable instruments, such as marketable 

Treasury securities or corporate bonds. In the absence of 

rules to the contrary, issuers of those tax-exempt bonds 

would have an incentive to borrow at tax-exempt rates 

and reinvest the funds at higher, taxable rates, thereby 

making a profit. To bar that practice, known as tax arbitrage, federal law allows state and local governments to 

borrow only for legitimate public purposes (to build 

infrastructure, for example). However, funds that are borrowed for such purposes might sit idle for some time 

(before construction of infrastructure begins, say), so 

issuers are allowed to invest the funds in SLGS securities 

for that period without violating the ban on arbitrage. 

SLGS securities carry an interest rate of one basis point 

(one one-hundredth of a percentage point) below a Treasury security with a similar maturity. The Treasury also 

offers state and local governments the opportunity to 

place their funds in demand deposit accounts with the 

Treasury; interest accrues on those deposits each day, with 

the rate keyed to the yield in the most recent auction of 

the 3-month Treasury bill.5

Because of increased financial strain at the state and local 

level in recent years, demand for SLGS securities has 

declined substantially. In 2007, the face value of outstanding SLGS securities reached a peak of nearly 

$300 billion. By the end of 2010, their value had fallen to 

just over $190 billion, a 35 percent decrease since 2007.

Thrift Savings Plan. The TSP is a retirement savings 

program for civil service employees and members of the 

uniformed services. The TSP is designed to be similar to 

401(k) plans found in the private sector by providing 

federal employees with opportunities to invest in funds 

that track different sorts of financial assets, including 

domestic and foreign equities, fixed-income securities, 

and U.S. government securities. Those government 

securities are nonmarketable Treasury securities issued 

specifically to the TSP. They have short maturities but 

earn a long-term interest rate equal to the weighted average market yield on outstanding marketable Treasury 

securities with 4 or more years to maturity. In total, the 

value of those securities was $124 billion at the end 

of 2010.

Zero-Coupon Bonds and Other Nonmarketable 

Securities. The government issued zero-coupon bonds 

with a face value of $30 billion to the Resolution Funding Corporation, a government-sponsored enterprise, as 

part of a plan to resolve the savings and loan crisis of the 

1980s. The outstanding value of that issuance at the end 

of 2010 was $11 billion. The government also issued 

$14 billion in zero-coupon bonds to Argentina and Venezuela in the late 1980s to help ease their debt burden; less 

than $2 billion remained outstanding at the end of 2010. 

(The Treasury issued more than $30 billion in such 

bonds to Mexico; those bonds have already been paid 

off.) In addition, the federal government has numerous 

other small accounts with nonmarketable securities that 

totaled $7 billion in 2010. The total value of zerocoupon bonds and other nonmarketable securities was 

$20 billion at the end of 2010.

Reasons for Borrowing Other Than 

Budget Deficits

The amount the Treasury borrows or redeems is determined primarily by the budget deficit or surplus in a 

given year. However, other factors, collectively referred to 

as “other means of financing,” also affect the government’s need to borrow from the public. Before the recent 

financial crisis, those other factors had a relatively small 

effect on total borrowing—ranging, between 2000 and 

2007, from a reduction of about $40 billion to an 

increase of roughly $60 billion. The effects on borrowing 

arose mostly from changes in the Treasury’s cash balances 

and from the differences between the cash flows associated with federal credit programs and the costs of those 

programs on a present-value basis, which is how they are 

recorded in the budget.6

 However, borrowing for reasons 

other than budget deficits rose sharply in 2008 and 2009 

5. Demand deposits may be withdrawn at any time without advance 

notice.

6. Present value is defined as a single number that expresses a flow of 

current and future income (or payments) in terms of an equivalent 

lump sum received (or paid) today.
CHAPTER ONE FEDERAL DEBT AND INTEREST COSTS 11

CBO

Table 1-2. 

Deficits and Means of Financing, 2000 to 2010

(Billions of dollars)

Source: Congressional Budget Office based on data from the Department of the Treasury and the Office of Management and Budget.

a. Negative numbers represent increases in cash balances.

b. Includes primarily cash flows for student loan programs, the Troubled Asset Relief Program, and purchases of mortgage-backed 

securities.

c. Negative numbers represent additional borrowing.

as a result of policies enacted during the financial crisis; 

specifically, additional borrowing by the Treasury totaled 

more than $300 billion each year for programs such as 

the Troubled Asset Relief Program (TARP) and the 

Supplementary Financing Program (SFP), which are 

discussed below. In 2010, the amount of borrowing for 

reasons other than the budget deficit totaled $180 billion, 

mainly to fund lending to students (see Table 1-2).

Credit Programs. The federal budget does not record 

the cash flows of federal credit programs; instead, it 

recognizes the net subsidy costs associated with such 

activities.7

 Subsidy costs are the expected lifetime cost to 

the government of a loan, loan guarantee, or asset purchase and are recorded in the budget when the transaction occurs. That treatment results in a disconnect 

between the budget and the Treasury’s borrowing, 

because the Treasury’s borrowing needs are determined by 

the cash flows of the transactions. For loans made directly 

by the government, for example, the amount the 

government must borrow is generally greater than the 

cost recorded in the budget; for a loan program with a 

10 percent subsidy rate, the government might disburse 

$1,000 in cash for a loan and then receive cash repayments later, but the budget would record a $100 cost in 

the year of disbursement and nothing in future years 

(unless the estimated subsidy rate turned out to be 

incorrect). 

To reconcile those transactions, the government uses 

“credit financing accounts,” which are not part of the 

budget. Those accounts are credited with the program’s 

subsidy payments (that is, the subsidy amounts shown in 

the budget) and record all the cash flows associated with 

the program. If the financing accounts need up-front 

cash (for example, to cover disbursements on direct 

loans), those funds are borrowed from the Treasury, 

which in turn borrows them from the public.

Before the recent financial crisis, net cash flows through 

the financing accounts were relatively small and driven 

mainly by student loan programs. In 2009, net cash 

disbursements from the financing accounts increased 

substantially, exceeding $400 billion, mainly because of 

the TARP and the Treasury’s purchases of mortgagebacked securities (MBSs).8

 Net cash disbursements in 

2010 dropped to just over $150 billion, mostly for 

student loans (partially offset by repayments and 

dividends from recipients of TARP funds). 

As of November 2010, three programs accounted for the 

vast majority of the outstanding debt used to finance 

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Surplus or Deficit (-) 236 128 -158 -378 -413 -318 -248 -161 -459 -1,413 -1,294

4 8 -17 26 -1 1 -16 -23 -296 96 -35

-17 -46 -46 -21 32 21 28 -22 -13 -425 -145

___ ___ ___ ___ ___ ___ ___ ___ ___ ____ ____

Subtotal -14 -38 -63 5 31 22 11 -45 -309 -329 -180

from the Public 223 90 -221 -373 -382 -297 -237 -206 -768 -1,742 -1,474 c

Other means of financing

Changes to the Treasury's

cash balancea

Otherb

Net Treasury Borrowing 

7. In this study, the term “credit programs” generally refers to direct 

loans and loan guarantees and to some purchases of financial 

assets (such as the acquisition of preferred stock by the TARP).

8. Mortgage-backed securities are issued by financial institutions to 

investors. The payments of interest and principal on the MBSs are 

backed by the payments on a package of mortgages. 
12 FEDERAL DEBT AND INTEREST COSTS

CBO

government credit programs: student loans, the TARP, 

and purchases of MBSs by the Treasury. 

Student Loans. The student loan program is the largest 

direct loan program administered by the federal government. Until recently, the Department of Education 

provided direct loans to students and also guaranteed 

loans made to students by lenders in the private sector. In 

March 2010, the Health Care and Education Reconciliation Act of 2010 (Public Law 111-152) eliminated the 

program that provided federal guarantees for student 

loans, replacing future guarantees with direct loans made 

by the federal government.

The Treasury’s net borrowing needs for student loans 

are driven by the up-front disbursements and periodic 

repayments that are recorded in the financing accounts. 

The Congressional Budget Office (CBO) estimates that 

in 2011—the first full year in which direct loans are the 

only type being made—the Treasury’s net disbursements 

(total disbursements minus collections from existing 

loans) will exceed the subsidy cost recorded in the budget 

by $112 billion. More broadly, the shift to direct loans 

will increase the Treasury’s borrowing needs in the next 

several years as the loans are disbursed, but it will decrease 

net borrowing in later years as borrowers repay the interest and principal. Part of the additional borrowing also 

stems from defaults on outstanding guaranteed loans. 

CBO estimates that those guarantees will cost roughly 

$10 billion annually over the next 10 years.

Troubled Asset Relief Program. The Emergency Economic Stabilization Act of 2008 (Division A of 

P.L. 110-343) created a program, known as the TARP, to 

promote stability in financial markets by purchasing or 

guaranteeing up to $700 billion in “troubled assets.”9

 The 

Treasury made large cash outlays to fund investments in 

financial institutions and certain other firms, and the 

estimated subsidy costs of those transactions were 

recorded in the budget. Therefore, the Treasury’s net borrowing needs at the outset of the program were significantly greater than the costs recorded in the budget. As of 

November 18, 2010, the Treasury had disbursed 

$389 billion to TARP participants, and $166 billion of 

that funding remained outstanding. Future dividend and 

interest payments to the Treasury and the proceeds from 

the sale of its investments in preferred stock are expected 

to reduce the Treasury’s borrowing needs over the next 

several years. (CBO now estimates that the net cost of the 

program will be about $25 billion.)

Purchases of Mortgage-Backed Securities. In September 

2008, the Treasury announced that it would purchase 

MBSs from private holders to promote stability in the 

mortgage market and lessen upward pressure on mortgage rates. The Treasury needed to borrow to finance the 

initial purchases of such securities, and it will receive cash 

payments of interest and principal while holding those 

securities; at the time of the purchase, however, the budget reflected only the estimated net earnings (which were 

subsequently updated and now total about $14 billion on 

a present-value basis) over the life of the program. In 

2008 and 2009, the Treasury made net disbursements of 

$5 billion and $171 billion, respectively, for the MBS 

program. In 2010, net inflows related to MBS purchases 

yielded more than $3 billion in cash to the Treasury. 

CBO projects annual cash inflows of about $9 billion per 

year through 2020. 

Supplementary Financing Program 

The SFP was established in September 2008 to help the 

Federal Reserve conduct monetary policy and stabilize 

the financial system during the financial crisis.10 The 

Treasury auctioned CMBs as part of its normal operations and placed the cash raised into an account at the 

Federal Reserve. That account held more than $550 billion in cash at its peak in November 2008, but the balance had dropped to about $200 billion by the end of 

2010. The deposits that built up the SFP account added 

to the Treasury’s borrowing requirements at the time, but 

the decline in the balance has reduced those requirements 

more recently; none of those cash flows affected the budget deficit. CBO anticipates that the SFP will be phased 

out in 2011. 9. The Dodd-Frank Wall Street Reform Act of 2010 (P.L. 111-203) 

reduced the Treasury’s authority under the TARP to $475 billion. 

For more information on the TARP, see Congressional Budget 

Office, Report on the Troubled Asset Relief Program—November 

2010 (November 2010).

10. For more information, see Federal Reserve Bank of New York, 

“Statement Regarding Supplementary Financing Program,” 

www.ny.frb.org/markets/statement_091708.html.
CHAPTER ONE FEDERAL DEBT AND INTEREST COSTS 13

CBO

Table 1-3. 

Holders of Public Debt at the End of Fiscal Years 2005 and 2010

Source: Congressional Budget Office based on Board of Governors of the Federal Reserve System, Flow of Funds Accounts of the United 

States: Flows and Outstandings, December 9, 2010 (for domestic holders and total foreign holders), and Treasury International 

Capital Survey, November 16, 2010 (for individual foreign countries).

a. Data for foreign countries include holdings by individuals, businesses, and government entities. Data for individual foreign countries were 

estimated by the Federal Reserve on the basis of its survey of holdings. 

b. Includes Algeria, Bahrain, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Oman, Qatar, Saudi Arabia, the United Arab 

Emirates, and Venezuela.

Other Factors Affecting the Treasury’s Borrowing

A few government agencies other than the Treasury issue 

their own debt; the Tennessee Valley Authority accounts 

for almost all of the $24 billion in non-Treasury debt 

included in debt held by the public at the end of 2010.11

Agencies’ borrowing affects the Treasury’s borrowing 

needs; all other things being equal, if agencies can borrow 

on their own behalf, then the Treasury does not need to 

do so. Other factors that the Treasury weighs when deciding how much to borrow include reductions (or 

increases) in its cash balances, changes in the amount of 

checks outstanding, and changes in accrued interest costs 

that are included in budget outlays but have not yet 

been paid.12

Ownership of Federal Debt 

Held by the Public 

Investors consider federal debt to be an attractive investment because they view it as being essentially free of any 

risk of default. Treasury securities also are valued for their 

liquidity—they can be bought and sold quickly and in 

large quantities without affecting their price. Domestic 

investors owned about $4.8 trillion of debt held by the 

public outstanding at the end of 2010, and foreign 

investors owned about $4.3 trillion (see Table 1-3). 

Individuals 501 10.9 1,083 12.0

Federal Reserve 736 16.0 812 9.0

311 6.8 775 8.6

Mutual funds 238 5.2 603 6.7

448 9.8 509 5.6

Other 367 8.0 977 10.8 _____ ____ _____ ____

2,602 56.7 4,759 52.8

Foreign Holdersa

China 306 6.7 884 9.8

Japan 673 14.7 865 9.6

United Kingdom 96 2.1 459 5.1

66 1.4 231 2.6

Brazil 28 0.6 165 1.8

Other 822 17.9 1,656 18.4 _____ ____ _____ ____

1,990 43.3 4,259 47.2

Total 4,592 100.0 9,018 100.0

Domestic Holders

State and local governments 

Subtotal 

Subtotal 

2005

Pension and retirement funds

Oil exportersb

Percentage

of Total

Billions of 

Dollars

Percentage

of Total

 Billions of 

Dollars

2010

11. Fannie Mae and Freddie Mac, both of which are in federal conservatorship, also are permitted to issue debt independently of the 

Treasury.

12. Unlike most other costs in the budget, interest costs are recorded 

as outlays when they accrue, not when they are paid.
14 FEDERAL DEBT AND INTEREST COSTS

CBO

Domestic Ownership. Domestic holdings of U.S. public 

debt have increased substantially in the past five years, 

from about $2.6 trillion in 2005 to $4.8 trillion in 2010. 

Individuals, including personal trusts and estates, own 

almost $1.1 trillion in Treasury securities, about 12 percent of the total.

A significant amount of federal debt is held by the 

Federal Reserve—the nation’s central bank and an independent entity within the government that is responsible 

for conducting monetary policy, among other activities. 

The Federal Reserve typically has implemented monetary 

policy by buying and selling securities issued by the Treasury in the open market (or by borrowing or lending with 

such securities as collateral).13 When the Federal Reserve 

wants to lower interest rates, it purchases Treasury securities (or lends funds with Treasury securities as collateral), 

which raises the amount of funds available to banks for 

lending. Conversely, when the Federal Reserve wants to 

raise interest rates, it sells some of its holdings of securities (or borrows funds with such securities as collateral). 

At the end of 2010, the Federal Reserve held $812 billion 

in outstanding Treasury securities, accounting for about 

9 percent of debt held by the public. In 2005, it held 

$736 billion—a slightly smaller amount than in 2010 but 

a substantially higher percentage of the total (16 percent).

Other major holders of debt include pension and 

retirement funds, mutual funds, and state and local governments. Mutual funds’ holdings have grown the most 

rapidly of that group over the past five years, more than 

doubling from $238 billion in 2005 to $603 billion in 

2010. Pension funds also boosted their holdings of Treasury securities, from $311 billion to $775 billion over the 

same period. State and local governments increased their 

holdings from $448 billion to $509 billion.

Foreign Ownership. Foreign holdings of U.S. debt also 

have increased substantially in the past five years, from 

about $2.0 trillion in 2005 to $4.3 trillion in 2010. As a 

percentage of debt held by the public, foreign holdings 

have edged up, from about 43 percent to about 47 percent, during that period. Overall, the central banks and 

private entities in China, Japan, and the United Kingdom 

are the largest foreign investors, holding more than 

$2.2 trillion in Treasury securities, or nearly 25 percent of 

outstanding debt held by the public. Investors in China 

now hold significantly more debt than in earlier years, 

and the share of debt held by entities in Japan has 

declined noticeably. (Information about foreign holders 

of Treasury debt should be viewed as approximate. In 

many cases, it is impossible to accurately determine the 

home country of a foreign holder of U.S. securities 

because intermediaries may be involved in the custody, 

management, purchase, or sale of the securities.) 

U.S. Debt Compared with That of 

Other Countries

Currently, no measure of debt for other countries completely mirrors U.S. debt held by the public. However, a 

calculation by the Organisation for Economic Cooperation and Development (OECD) of general government debt net of financial liabilities, although not a 

perfect equivalent to U.S. debt held by the public, historically has been similar to that measure.14 Among the 

33 OECD member countries, the 10 countries with the 

largest debt as a percentage of GDP had debt at the end 

of calendar year 2009 that ranged from about 40 percent 

of GDP for Iceland to more than 100 percent for Japan 

(see Figure 1-6). By comparison, the U.S. debt, as 

reported by the OECD, was 60 percent of GDP at the 

end of calendar year 2009—similar to that found in 

Hungary and Portugal.15

At the end of 2000, the U.S. debt—as calculated by the 

OECD—was equal to 35 percent of GDP, about 

25 percentage points lower than in 2009. The increase in 

U.S. debt relative to GDP between 2000 and 2009 is 

larger than the growth seen in the United Kingdom 

(17 percentage points of GDP), France (16 percentage 

points), or Germany (14 percentage points) but smaller 

than increases in Japan (48 percentage points) and Portugal (30 percentage points).

13. For information on other duties of the Federal Reserve, see Box 1 

in Congressional Budget Office, The Budgetary Impact and Subsidy 

Costs of the Federal Reserve’s Actions During the Financial Crisis

(May 2010). That study also discusses the other methods the Federal Reserve has used to conduct monetary policy during the 

recent financial crisis and severe recession.

14. For more information on general government debt net of financial 

liabilities, see Organisation for Economic Co-operation and 

Development, “EO Sources—Notes to statistical annex tables 

25–33: Fiscal balances and public indebtedness,” Annex Table 33, 

www.oecd.org/document/25/0,3343,en_2649_34109_

33702745_1_1_1_1,00.html.

15. U.S. debt held by the public was 53 percent of GDP at the end of 

fiscal year 2009. Using the OECD’s measure of debt—general 

government debt net of financial liabilities—that share was 

60 percent at the end of calendar year 2009. 
CHAPTER ONE FEDERAL DEBT AND INTEREST COSTS 15

CBO

Figure 1-6.

Debt of Selected Countries at the End of Calendar Year 2009

(Percentage of gross domestic product)

Source: Congressional Budget Office based on data from the Organisation for Economic Co-operation and Development.

Iceland

United Kingdom

Germany

France

Portugal

Hungary

United States

Belgium

Greece

Italy

Japan

0 20 40 60 80 100 120

CHAPTER

CBO

2

Other Measures of Federal Debt

A number of other measures of federal debt are 

used for various purposes. Two important purposes are to 

assess the impact of borrowing by the federal government 

on financial markets and to assess the government’s overall financial condition.

Regarding the first purpose, assessing the impact of the 

government’s borrowing on financial markets is necessary 

for determining how the government is affecting the 

availability of funds for other borrowers. One measure of 

federal borrowing—debt held by the public—provides a 

straightforward assessment of that borrowing and captures most of the impact on the availability of funds for 

other borrowers; it is roughly equivalent to the sum of all 

previous annual budget deficits minus surpluses (see 

Chapter 1). All else being equal, an increase in the government’s borrowing reduces the funds available for 

others, putting upward pressure on interest rates and 

reducing private investment. 

Another measure—debt held by the public net of financial assets—is a more complicated measure; it reflects the 

fact that when the government lends money or acquires 

financial assets, such as debt and equity securities issued 

by private firms, those funds flow into investment activities. Therefore, that measure subtracts from debt held by 

the public the value of assets the government has acquired 

through its various lending activities and through efforts 

to address the recent financial crisis. Debt held by the 

public net of financial assets provides a more comprehensive picture of the government’s financial condition and 

its overall impact on credit markets than does debt held 

by the public. Calculating that measure is not straightforward, however, because neither the universe of such 

assets nor the method for valuing them is well defined.

Another important purpose for which measures of debt 

are helpful is to assess the government’s overall financial 

condition, taking into account not only debt that the 

government has already incurred (and the assets it has 

purchased) but also commitments the government 

has made for the future. Debt held by the public, with or 

without an adjustment for the government’s financial 

assets, does not account for future obligations. Assessing 

the government’s future financial status requires additional information. Measures that have been used for that 

purpose include gross federal debt and debt subject to 

limit; however, two other measures—projected changes 

in debt held by the public as a share of gross domestic 

product and the fiscal gap—provide a clearer picture of 

the government’s future obligations.

Gross debt equals federal debt held by the public plus 

Treasury securities held by federal trust funds and other 

government accounts. That measure is not a good indicator of the government’s future obligations because the 

value of Treasury securities held by trust funds and other 

government accounts measures only some of the commitments the government has made for the future, and it 

includes some amounts that may not represent future 

commitments at all. Moreover, those securities represent 

internal transactions of the government and thus have no 

direct effect on credit markets. 

Debt subject to limit is the amount of gross federal debt 

subject to the ceiling on the issuance of debt established 

by law. It differs in only small ways from gross federal 

debt. It too includes internal transactions of the government that have no direct effect on credit markets and is 

not a meaningful measure of the government’s future 

commitments. 

Measures that explicitly account for the government’s 

future fiscal condition are better indicators of that condition than are either gross debt or debt subject to limit. 

One useful barometer is projections of changes in debt 

held by the public relative to gross domestic product; 

such projections indicate whether the government’s 
18 FEDERAL DEBT AND INTEREST COSTS

CBO

participation in credit markets is expected to grow faster 

or slower than economic output. Another useful gauge is 

the fiscal gap, which measures the immediate change in 

spending or revenues that would be necessary to make the 

projected debt-to-GDP ratio the same at the end of a 

given period as at the beginning of the period. The fiscal 

gap quantifies the projected long-term shortfall of revenues relative to outlays in present-value terms—that is, as 

a single number that describes a set of future flows in 

terms of an equivalent lump sum received or spent today. 

Those two measures are not addressed in this report but 

are used extensively in other Congressional Budget Office 

publications.1

Debt Held by the Public Net of 

Financial Assets 

Until a few years ago, financial assets held by the 

government were relatively small and largely composed of 

the Treasury’s cash balances, loans made by various 

federal credit programs, and private equities owned by 

the National Railroad Retirement Investment Trust. During the past five years, however, the volume of direct 

loans made to students—which represent an asset to the 

government in the form of future payments of principal 

and interest—has more than doubled, and it is projected 

to expand greatly in the next decade. In addition, the 

government’s holdings of financial assets grew substantially during the recent financial crisis.

The assets the government has acquired affect its financial 

position, and the effect can be viewed in several ways. If 

those assets are sold, the proceeds can be used to pay 

down a portion of the federal debt. If, instead, the government retains those assets, they will generate inflows 

from interest, dividends, and repayments of principal that 

will reduce the government’s future need to borrow. 

Because federal asset holdings have increased relative to 

debt held by the public, debt held by the public net of 

financial assets has taken on increased importance as a 

measure of the government’s financial position. In total, 

at the end of 2010, the government held financial assets 

with an estimated value of more than $1 trillion.2

 Subtracting that amount from the $9.0 trillion in debt held 

by the public results in debt held by the public net of 

financial assets of about $8.0 trillion. Debt held by the 

public is currently equal to about 62 percent of GDP, and 

debt net of financial assets amounts to about 55 percent 

of GDP. A difference of 5 to 8 percentage points between 

the two measures persists through 2020 in CBO’s most 

recent baseline projections (see Table 2-1).

Cash

One of the largest financial assets that the Treasury 

currently holds is cash. The Treasury’s cash flows fluctuate during the year according to the timing of tax collections and spending; as a result, the Treasury maintains 

deposits of varying amounts at the Federal Reserve and in 

banks throughout the country. Between 2000 and 2007, 

the Treasury ended the fiscal year with an average balance 

of about $50 billion. However, balances have been much 

higher over the past three years because, since September 

2008, the Treasury has deposited additional funds with 

the Federal Reserve to help it conduct monetary policy 

and stabilize the financial system. The balance for the 

Treasury’s deposits through that program—known as the 

Supplementary Financing Program—reached a high of 

more than $550 billion in November 2008. As of the end 

of 2010, the SFP had a balance of $200 billion and the 

Treasury’s total operating cash balance was $310 billion. 

CBO expects that the SFP will be eliminated by the end 

of 2011.

Credit Programs 

The value of loans, guarantees, and asset purchases of 

federal credit programs at the end of 2010 totaled 

$712 billion. That amount represents the present value of 

the expected future cash flows from those assets and obligations. For loan guarantees—such as those made by the 

Federal Housing Administration—the present value is 

based on expected income from fees to be received net of 

payouts to cover losses from defaults. The value of direct 

loans and asset purchases totaled $745 billion at the end 

of 2010; that amount was partially offset by net liabilities 

of $32 billion from guaranteed loan programs.

1. See, for example, Congressional Budget Office, The Long-Term 

Budget Outlook (June 2010, revised August 2010).

2. That total does not include assets held by the Federal Reserve. 

Because of its need for flexibility and independence in setting 

monetary policy, the Federal Reserve is not part of the executive 

branch but is considered an independent entity within the government; its receipts and expenditures are not included directly in the 

federal budget, although it remits its excess earnings to the 

Treasury.
CHAPTER TWO FEDERAL DEBT AND INTEREST COSTS 19

CBO

Table 2-1. 

CBO’s Projections of Debt Held by the Public Net of 

Financial Assets, 2010 to 2020

Sources: Congressional Budget Office; Department of the Treasury.

a. Includes other cash and monetary assets (mostly related to transactions with the International Monetary Fund) offset by liabilities such 

as interest accrued but not yet paid to the public.

Most of the government’s direct loans are made by the 

Department of Education to students pursuing postsecondary education. At the end of 2010, based on data 

reported by the Department of the Treasury, the estimated value of student loans outstanding was $341 billion. CBO projects that, with the recent expansion of 

that program in the Health Care and Education Reconciliation Act of 2010 (P.L. 111-152), those assets will 

grow to nearly $1.4 trillion by the end of 2020. 

To help promote stability in the mortgage market and 

lessen upward pressure on mortgage rates, from September 2008 to December 2009 the Treasury purchased 

mortgage-backed securities issued by Fannie Mae and 

Freddie Mac in the open market. Those securities, which 

have various maturity dates, generate payments of interest 

and principal. CBO assumes that the Treasury will hold 

those securities until they mature. Overall, the Treasury 

purchased more than $200 billion in such securities; the 

present value of the remaining holdings was $173 billion 

at the end of 2010.

As part of its activities related to the recent financial 

crisis, the Treasury also acquired numerous assets through 

the Troubled Asset Relief Program. Such assets were 

valued by the Treasury (using a present-value calculation 

that includes an adjustment for market risk) at $122 billion at the end of 2010. The assets were obtained through 

three kinds of transactions: 

 Capital purchases and other support for financial 

institutions; 

 Financial assistance to automakers and related 

businesses; and

 Investment partnerships designed to increase liquidity 

in the securitization markets. 

Actual

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Debt Held by the Public 9,018 9,958 10,742 11,373 11,902 12,495 13,165 13,837 14,497 15,232 16,024

Financial Assets (Net of liabilities)

Treasury's operating cash balance 310 40 40 40 40 40 40 40 40 40 40

Credit programs

Department of Education programs 341 453 564 670 769 868 964 1,060 1,159 1,263 1,374

Mortgage-backed securities 173 164 156 148 141 134 127 121 115 109 103

Troubled Asset Relief Program 122 97 82 67 52 37 22 7 0 0 0

Other 77 95 118 134 144 153 156 160 168 177 185 ___ ___ ___ ____ ____ ____ ____ ____ ____ ____ ____

Subtotal, credit programs 712 809 921 1,019 1,106 1,192 1,269 1,347 1,442 1,549 1,663

National Railroad Retirement Investment Trust 21 19 18 17 15 14 13 12 10 9 8

Othera -29 -29 -29 -29 -29 -29 -29 -29 -29 -29 -29 _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____

Total 1,014 840 950 1,046 1,132 1,217 1,293 1,370 1,463 1,569 1,681

Debt Held by the Public Net of Financial Assets 8,003 9,119 9,793 10,327 10,770 11,279 11,873 12,467 13,034 13,663 14,343

Debt Held by the Public 62.2 65.7 68.1 68.1 67.0 67.1 67.5 67.8 68.1 68.6 69.2

Debt Held by the Public Net of Financial Assets 55.2 60.2 62.1 61.8 60.6 60.5 60.9 61.1 61.2 61.5 61.9

In Billions of Dollars

As a Percentage of Gross Domestic Product
20 FEDERAL DEBT AND INTEREST COSTS

CBO

The three largest sets of assets outstanding are preferred 

stock and warrants obtained in the Capital Purchase 

Program, securities of the American International Group, 

and securities of the automotive industry.3 The Treasury 

expects that a large share of those assets will eventually 

be repurchased by the issuers or sold to other market 

participants. 

The outstanding value of assets related to other credit 

activities is projected to increase from $77 billion in 2010 

to $185 billion in 2020. Those totals include other direct 

loan programs (such as those for rural areas and small 

businesses) and guaranteed loan programs (such as those 

for housing).

Gross Federal Debt

In addition to selling securities to the public, the Treasury 

issues securities to various accounts of the federal government. Gross federal debt consists of the debt held by the 

public plus debt issued to such government accounts. 

Trust funds hold about 90 percent of the debt issued to 

government accounts. Although trust funds are designated as such by law, there is no substantive difference 

between them and other types of funds. Those other 

types include special funds (such as the fund the Department of Defense uses to finance its health care program 

for military retirees), revolving funds (such as the Federal 

Employees’ Group Life Insurance fund), and public 

enterprise funds (such as the Postal Service fund). All of 

the major trust funds in the budget and many other government funds invest in special, nonmarketable Treasury 

securities known as the government account series.

At the end of 2010, gross federal debt totaled 

$13.5 trillion—about $9.0 trillion in debt held by the 

public and $4.5 trillion in debt held by government 

accounts. CBO projects that, under current law, gross 

federal debt will increase in every year of the 2011–2020 

period, reaching $23.1 trillion in 2020 (see Table 2-2). 

That increase stems primarily from the projected growth 

in debt held by the public, which is projected to exceed 

$15.2 trillion by the end of that year. 

The largest balances among the government accounts are 

in the two Social Security trust funds—the Old-Age and 

Survivors Insurance and Disability Insurance trust funds. 

By the end of 2010, those trust funds had accrued close 

to $2.6 trillion; in CBO’s projections, that combined 

balance rises to $3.8 trillion by the end of 2020 

(see Table 2-3). In addition, the retirement funds for 

federal civilian and military employees held a combined 

$1.1 trillion in government account securities at the end 

of 2010; those balances will increase to slightly more than 

$2 trillion over the next 10 years, CBO projects. By the 

end of 2020, the total balance of all trust funds will climb 

to more than $6 trillion, and the total held by all government accounts will reach $7 trillion.

Because the trust funds are part of the federal government, transactions between them and the Treasury are 

intragovernmental and have no net effect on federal borrowing from the public or on the total budget. Different 

sorts of transactions occur: Any surplus cash flow during 

the year from the activities of a program with a trust fund 

is retained by the Treasury, and the trust fund is credited 

with a corresponding amount of nonmarketable Treasury 

securities. The Treasury then uses the cash to finance the 

government’s ongoing activities. When a trust fund’s 

expenses exceed its cash income, the agency administering the trust fund redeems its Treasury securities for cash 

as needed; the Treasury must obtain that cash from tax 

revenues or other sources of income or by borrowing 

from the public. In addition, most securities in the government account series earn interest at rates similar to 

those on publicly issued debt, and the Treasury issues 

additional debt to the trust funds in the amount of the 

interest payments. However, the issuance of the securities, 

the payments of interest, and any other transactions 

between the Treasury and the trust funds have no net 

effect on the budget.

Federal trust funds, then, are essentially an accounting 

mechanism. The balances in the trust funds (in the form 

of government securities) are assets to the individual programs (such as Social Security) but liabilities to the rest of 

the government. The resources to redeem government 

securities in the trust funds and thereby pay for benefits 

or other spending in some future year must be generated 

from taxes, income from other government sources, or 

borrowing from the public in that year. Trust funds have 

an important legal meaning in that their balances are a 

measure of the amounts that the government has the legal 

authority to spend for certain purposes under current 

3. For more information on the TARP, see Chapter 1 of this report 

and Congressional Budget Office, Report on the Troubled Asset 

Relief Program—November 2010 (November 2010).
CHAPTER TWO FEDERAL DEBT AND INTEREST COSTS 21

CBO

Table 2-2. 

CBO’s Projections of Federal Debt, 2010 to 2020

(Billions of dollars)

Source: Congressional Budget Office.

a. Differs from gross federal debt primarily because most debt issued by agencies other than the Treasury and the Federal Financing Bank is 

excluded from the debt limit. The current limit is $14,294 billion.

law, but they have little relevance in an economic or 

budgetary sense. 

More than 200 trust funds exist in the federal budget, but 

the bulk of holdings of government securities is concentrated in just a few funds. Most of the difference between 

gross federal debt and debt held by the public is that the 

former includes balances held by the Social Security trust 

funds. Those balances reflect a decision by policymakers 

to set the payroll tax dedicated to Social Security over the 

past few decades such that the program’s revenues would 

be greater than the program’s outlays in anticipation of 

rising benefit costs as the baby-boom generation retires. 

The debt held by those trust funds measures the amount 

by which Social Security revenues have exceeded outlays 

in the past, but it does not measure the program’s future 

financial burden. Even with the securities held by the 

trust funds and with a dedicated future stream of revenues, by 2039 those resources will be insufficient to pay 

the full benefits that will accrue under current law, CBO 

projects. At the same time, the balances in the Social 

Security trust funds have significant legal implications: 

By law, total Social Security benefits cannot exceed 

amounts available in the trust funds, and the benefits 

projected to be paid will be smaller in 2039 and beyond 

than the benefits specified in law.4

Beyond Social Security, the amount of government debt 

held by trust funds and other government accounts bears 

even less of a relationship to the government’s future 

financial burdens: For example, the Medicare program 

holds little government debt relative to its expected future 

costs.

Debt Subject to Limit

The Congress has traditionally placed a limit on the 

amount of debt the Treasury can issue. Before World 

War I, the Congress generally had to approve each separate debt issue. Since the passage of the Second Liberty 

Bond Act in 1917, the limit has gradually evolved into an 

overall dollar ceiling on debt. The modern concept of 

debt subject to limit was created in 1941, when the 

Actual

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Debt Held by the Public at the 

Beginning of the Fiscal Year 7,545 9,018 9,958 10,742 11,373 11,902 12,495 13,165 13,837 14,497 15,232

Changes to Debt Held by the Public

Deficit 1,294 1,066 665 525 438 507 585 579 562 634 685

179 -126 118 107 90 86 86 93 99 101 107 ____ ____ ___ ___ ___ ___ ___ ___ ___ ___ ___

Debt Held by the Public at the

End of the Fiscal Year 9,018 9,958 10,742 11,373 11,902 12,495 13,165 13,837 14,497 15,232 16,024

Debt Held by Government Accounts 4,509 4,638 4,803 5,002 5,236 5,510 5,796 6,095 6,413 6,740 7,062 ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ _____

Gross Federal Debt 13,527 14,596 15,545 16,376 17,138 18,005 18,961 19,932 20,911 21,972 23,086

Debt Subject to Limita 13,511 14,581 15,530 16,361 17,123 17,992 18,948 19,919 20,898 21,960 23,073

Memorandum:

Debt Held by the Public as a 

Percentage of Gross Domestic Product 62.2 65.7 68.1 68.1 67.0 67.1 67.5 67.8 68.1 68.6 69.2

Other means of financing

4. See Congressional Budget Office, Social Security Policy Options

(July 2010).
22 FEDERAL DEBT AND INTEREST COSTS

CBO

Table 2-3. 

CBO’s Projections of Trust Fund Balances, 2010 to 2020

(Billions of dollars)

Source: Congressional Budget Office.

a. Includes the Civil Service Retirement and Disability Fund and the Employees and Retired Employees Health Benefits Fund.

b. Primarily the federal employees’ life insurance fund, Superfund, and various insurance trust funds for veterans.

c. The Railroad Retirement and Survivors’ Improvement Act of 2001 established an entity, the National Railroad Retirement Investment 

Trust, that is allowed to invest in securities not issued by the Treasury, such as stocks and corporate bonds. The trust holds a small amount 

of Treasury securities, included in the “Other” category.

Congress placed a limit on the total amount of federal 

debt that could be outstanding at any given time. Since 

then, the Congress has passed numerous increases to the 

debt limit—commonly known as the “debt ceiling”—

some of which have been temporary and many of which 

have been permanent. 

What the Debt Limit Covers

Debt subject to limit includes virtually all of gross federal 

debt. It excludes debt issued by other federal agencies that 

the Treasury does not control and that generally lack the 

full faith and credit of the U.S. government (such as securities issued by the Tennessee Valley Authority). It also 

excludes debt issued by Fannie Mae, Freddie Mac, and 

the Federal Financing Bank (FFB)—an arm of the Treasury created in 1973 and authorized to issue up to 

$15 billion of its own debt. (Debt issued by Fannie Mae 

and Freddie Mac is also not included in other standard 

measures of federal debt; see Box 1-1 in Chapter 1).

Options for the Treasury When 

Debt Approaches the Limit

CBO estimates that the debt ceiling, which was raised to 

$14.294 trillion in February 2010, will be reached in the 

next several months. At that point, barring Congressional 

action to raise the ceiling, the Treasury would have to 

stop issuing additional debt for a period of time and, 

instead, use alternative strategies for managing its cash 

and debt to continue to fund government activities. 

Because the government will be running a significant deficit in 2011, such strategies will allow the government to 

continue operating for only a limited time without 

further borrowing. 

Suspending Sales of Nonmarketable Securities. One of 

the first actions the Treasury has often taken when the 

debt limit was about to be reached has been to suspend 

the sale of securities in the state and local government 

series.5

 That action does not immediately clear any room 

under the debt ceiling and has virtually no impact on 

the markets for public debt because securities in the state 

and local government series are not sold or traded in 

secondary markets. However, suspending sales of those 

securities removes some uncertainty about the future path 

of debt because the timing and amounts of issuances to 

state and local governments is difficult to predict.

Actual

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Social Security 2,586 2,675 2,675 2,787 2,916 3,055 3,200 3,344 3,490 3,629 3,757

Civilian Retirementa 797 816 835 855 876 897 920 944 970 997 1,026

Military Retirement 282 330 382 439 501 569 644 725 813 909 1,012

Medicare 350 314 294 278 269 268 264 265 273 278 279

Unemployment Insurance 19 24 27 29 31 41 50 61 75 95 114

Highway and Airport 37 30 18 7 -3 -13 -22 -30 -37 -45 -52

Otherb 86 87 88 90 91 93 96 99 102 105 108 _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____

Total 4,157 4,276 4,320 4,485 4,680 4,912 5,152 5,408 5,685 5,968 6,244

Memorandum:

Railroad Retirement (Non-Treasury holdings)c 21 20 19 18 17 16 15 13 12 11 9

5. For more information on state and local government securities, 

see Chapter 1.
CHAPTER TWO FEDERAL DEBT AND INTEREST COSTS 23

CBO

Trimming or Delaying Auctions of Marketable Securities. 

In the weeks leading up to a point at which the debt 

would reach the limit, the Treasury may pare back auction amounts for marketable securities or postpone one 

or more auctions. Although the delay of a small number 

of auctions in the past has not led to significant increases 

in the cost of borrowing, continuous delays could 

adversely affect the willingness of credit markets to absorb 

the issuance of debt.

Suspending Issuance of Maturing Cash Management 

Bills in the Supplementary Financing Program. The Treasury currently has $200 billion outstanding in cash management bills allocated to the SFP. If total borrowing 

approached the debt limit, the Treasury could decide not 

to refinance those bills when they mature. That option 

would give the Treasury up to an additional $200 billion 

in borrowing room. 

Suspending Flows and Redeeming Securities in 

Government Accounts. When the debt limit is close to 

being reached, the Treasury has the option to delay the 

addition of deposits to certain accounts and to redeem 

securities in three funds: the Thrift Savings Plan’s 

G Fund, the Civil Service Retirement and Disability 

Fund (CSRDF), and the Exchange Stabilization Fund 

(ESF).6

 Because the G Fund is invested in 1-day securities, the Secretary of the Treasury is able, at any time, to 

disinvest up to the full balance of the fund (that is, to 

withdraw or reduce the balance); that balance was 

$124 billion at the end of 2010. The CSRDF has special 

rules regarding balances and how they can be disinvested; 

the amount that can be redeemed early cannot exceed the 

amount of benefit payments expected during the period 

until a new debt ceiling is enacted. The Treasury also can 

suspend investment of all additional receipts to the fund 

if they will cause a breach of the debt limit. The ESF 

currently holds $20 billion in Treasury securities, which 

the Treasury can decide not to reinvest when they mature. 

After the debt limit has been raised, the Treasury must 

restore any losses of interest (as well as principal) to the 

G Fund and CSRDF but has no such obligation to 

the ESF.

Swapping Debt with the Federal Financing Bank. Debt 

issued by the FFB, which cannot exceed $15 billion, is 

not subject to the debt limit.7

 The Treasury can swap 

securities that are counted toward the debt limit for securities issued by the FFB, thus decreasing the debt subject 

to limit, and has used that option in the past. About 

$10 billion in outstanding FFB securities are currently 

held by the CSRDF; issuing an additional $5 billion in 

FFB securities to that fund in exchange for Treasury securities would currently give the Treasury about $5 billion 

of additional room for borrowing from the public.

Consequences of Having a Limit on Debt

By itself, setting a limit on the debt is an ineffective 

means of controlling deficits because the decisions that 

necessitate borrowing are made through other legislative 

actions. By the time an increase in the debt ceiling comes 

up for approval, it is too late to avoid paying the government’s pending bills without incurring serious negative 

consequences. However, because increases in the debt 

limit have been essential, the process of considering such 

increases tends to bring debt levels to the forefront of 

policy debate. 

6. The TSP is a retirement program for federal employees similar to 

a private-sector 401(k) plan; the G Fund is one component of the 

TSP and is solely invested in Treasury securities. The CSRDF is 

the trust fund for federal employees’ retirement plans. The ESF is 

a fund controlled by the Treasury for the purpose of stabilizing 

exchange rates.

7. For more information on the Federal Financing Bank, see 

Chapter 3. 

CHAPTER

CBO

3

Interest Payments and Receipts

The government pays and collects interest in various 

ways; its net interest outlays are equal to interest paid 

minus interest received. Net interest outlays are dominated by the interest paid to holders of the debt that the 

Department of the Treasury issues to the public. The 

Treasury also issues debt to trust funds and other federal 

government accounts, but the payment of interest to 

those accounts is an intragovernmental transaction that 

has no effect on net interest and no effect on the budget 

deficit. Other federal accounts also pay and receive 

interest for a variety of reasons.

Historical and Projected Net 

Interest Outlays

The federal government’s net interest payments depend 

primarily on interest rates and the amount of debt held 

by the public. Other factors, such as the rate of inflation 

and the maturity structure of outstanding securities, also 

affect interest costs (for example, long-term bonds generally carry higher interest rates than do short-term bills). 

Interest rates are determined by a combination of market 

forces and the policies of the Federal Reserve. Debt held 

by the public is mostly determined by cumulative budget 

deficits, which reflect policy choices about spending and 

revenues, economic conditions, and other factors. The 

maturity structure of the debt is determined by the borrowing policy implemented by the Treasury, which issues 

a variety of short- and long-term debt securities (as 

described in Chapter 1). 

Historical Trends in Net Interest Outlays

Net interest outlays as a percentage of gross domestic 

product have fluctuated over the past 40 years, from a low 

of 1.3 percent to a high of 3.3 percent (see Figure 3-1). 

Through most of the 1970s, net interest totaled no more 

than 1.5 percent of GDP. At the end of that decade, however, the growing amount of debt relative to the size of 

the economy and higher real (inflation-adjusted) interest 

rates began to boost interest costs; by 1985, net interest 

outlays as a percentage of GDP were twice as large as they 

had been in the mid-1970s. For the following decade, net 

interest payments remained at about 3 percent of GDP, 

but narrower budget deficits (and then surpluses) and 

lower interest rates for many securities pushed that figure 

down in the late 1990s. Net interest outlays continued to 

decline as a percentage of GDP in the early 2000s, 

returning to a level similar to that in the early 1970s.

Although debt held by the public has surged in the past 

few years to its highest level relative to GDP since the 

early 1950s, net interest outlays have remained low relative to GDP because interest rates on Treasury securities 

have fallen to remarkably low levels (see Figure 3-2). 

Rates on 3-month Treasury bills plummeted from an 

average of almost 5 percent in 2007 to an average of just 

over 0.1 percent in 2010. Similarly, rates on 10-year 

Treasury notes and 30-year bonds have dropped from an 

average of close to 5 percent in 2007 to an average of 

about 3 percent and 4 percent, respectively, in 2010. As a 

result, despite the dramatic increase in debt held by the 

public—from 36 percent of GDP at the end of 2007 

to 62 percent at the end of 2010—net interest outlays 

as a percentage of GDP fell from 1.7 percent in 2007 

to 1.3 percent in 2009 and rose only marginally, to 

1.4 percent, in 2010.

CBO’s Baseline Projections

Under the Congressional Budget Office’s August 2010 

baseline budget projections, which reflect the assumption 

that current laws and policies affecting the budget will 

remain unchanged, growing debt and rising interest rates 

are projected to substantially boost the cost of interest on 

the government’s debt.1

 In those projections, debt held by 

1. See Congressional Budget Office, The Budget and Economic 

Outlook: An Update (August 2010).
26 FEDERAL DEBT AND INTEREST COSTS

CBO

Figure 3-1.

Net Interest, 1970 to 2020

(Percentage of gross domestic product)

Source: Congressional Budget Office; historical data are based on information from the Office of Management and Budget.

the public increases to almost 70 percent in 2020. Moreover, interest rates climb from their current levels to levels 

similar to those in the late 1990s. The rate on 3-month 

Treasury bills is forecast to increase from an average of 

about 0.2 percent in 2010 to 5.0 percent in 2016 and 

then to stay at that rate through 2020. The rate on 

10-year Treasury notes is projected to rise from an average 

of 3.4 percent in 2010 to 5.9 percent in 2016 and to 

remain there through the end of the decade. 

Given those projections, spending on net interest would 

rise from $197 billion in 2010 to $778 billion in 2020 

(see Table 3-1). Relative to GDP, net interest outlays 

would increase to 3.4 percent in 2020, more than double 

the percentage in 2010 and the highest percentage since 

1991 (see Figure 3-1).

Alternative Scenarios

Future interest rates and deficits are uncertain and will be 

affected by legislative actions, economic developments, 

and other factors. To illustrate how changes in those variables would affect interest costs, CBO has estimated 

those costs under different assumptions regarding interest 

rates and future deficits.2

Higher Interest Rates. Interest rates on government securities that were higher than CBO projects would raise 

interest outlays on new borrowing and on debt that must 

be refinanced. If interest rates for all newly issued 

Treasury securities were 1 percentage point higher in each 

year than the rates in the August baseline, net interest 

payments would be higher in each year of the projection 

period, CBO estimates, by amounts rising from $13 billion in 2011 to $185 billion in 2020. From 2011 through 

2020, interest costs would be higher by more than $1 trillion (see Table 3-2). (Lower interest rates would have the 

opposite effect.) 

That increase in interest payments would stem from two 

sources: the cost of applying higher rates to the debt projected in the baseline (the direct effect) and the interest 

paid on the additional sums borrowed to pay those higher 

rates. The $13 billion in additional outlays in 2011 

would stem mostly from the direct effect on rates. Of that 

amount, more than $8 billion would be attributable to 

short-term securities and $4 billion to medium- and 

long-term securities (including savings bonds and state 

and local government securities).3

 In later years, the 

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Actual Projected

Average Net Interest, 1970–2009

2. The alternative scenarios do not take into account any changes in 

GDP, inflation, or other economic factors; as a result, revenues 

and noninterest outlays are unchanged. The interest-rate scenario 

also does not reflect the effect of higher interest rates on interestsensitive programs, such as student loans. 

3. Changes in interest rates have the greatest impact on shorter-term 

securities in the first year because those securities will be refinanced much more often in that year than will medium- and 

long-term securities. Within a given year, all bills outstanding will 

have to be refinanced at least once. 
CHAPTER THREE FEDERAL DEBT AND INTEREST COSTS 27

CBO

Figure 3-2.

Interest Rates on Three-Month Treasury Bills and 

Ten-Year Treasury Notes, 1970 to 2020

(Percent)

Source: Congressional Budget Office; historical data are based on information from the Federal Reserve.

effect of a change in rates would become much more pronounced for medium- and long-term securities. Added 

interest for those securities would amount to $605 billion 

over the period, compared with $220 billion for shortterm securities. The larger deficits generated by the 

higher interest payments would require the Treasury to 

borrow additional funds. That extra borrowing would 

result in further increases in the annual cost of servicing 

the debt, which would grow to $50 billion in 2020 and 

would total $185 billion over the 10-year period.

Additional Borrowing. If budget deficits were higher than 

CBO projects, net interest payments also would be 

higher. (Lower deficits would have the opposite effect.) 

To illustrate the effect of higher deficits (and therefore 

higher debt) on interest costs, CBO estimated the impact 

of two different increases in the government’s borrowing.

First, CBO examined a $100 billion increase in borrowing in 2011. That borrowing also would boost interest 

outlays in the same year by $1 billion, excluding any 

potential effects on interest rates. The effect of that additional borrowing would increase interest outlays by a 

cumulative total of $43 billion from 2011 through 2020. 

(Costs in later years would stem from the compounding 

effect of increasing the debt in 2011.) 

Second, the agency calculated the effect on interest 

payments of borrowing that was $100 billion greater in 

each year of the projection period (excluding additional 

interest costs). That borrowing would lead to additional 

interest outlays of $272 billion over the 10-year period, 

if interest rates were not affected.

Gross Interest on Treasury 

Debt Securities

In 2010, interest paid by the Treasury on all of its debt 

issuances totaled $413 billion (see Table 3-1). Nearly 

half of that total represents payments to other entities 

(such as trust funds) within the federal government; the 

remainder is paid to owners of Treasury debt issued to the 

public. CBO projects that, under current law, gross 

interest will exceed $1.1 trillion by 2020; the majority of 

that growth stems from increased interest paid on debt 

held by the public, which is projected to almost quadruple under current law during the coming decade.

Interest Received by Trust Funds

Federal trust funds and other government accounts hold 

about $4.5 trillion in Treasury securities; more than 

90 percent of that total is held by trust funds. Similar 

in composition to debt held by the public, the securities 

held by trust funds and other government accounts 

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

0

2

4

6

8

10

12

14

16

Actual Projected

Three-Month Treasury Bills

Ten-Year Treasury Notes
28 FEDERAL DEBT AND INTEREST COSTS

CBO

Table 3-1. 

CBO’s Baseline Projections of Federal Interest Outlays, 2010 to 2020

(Billions of dollars)

Source: Congressional Budget Office.

Note: * = between -$500 million and zero.

a. Gross interest is the total interest paid by the Treasury; it does not include interest costs on debt issued by agencies other than the 

Treasury (primarily the Tennessee Valley Authority).

b. Mainly the Civil Service Retirement, Military Retirement, Medicare, and Unemployment Insurance trust funds.

c. Primarily interest from the financing accounts for federal credit programs.

d. Earnings on private investments by the National Railroad Retirement Investment Trust.

consist of bills, notes, bonds, inflation-protected securities, and zero-coupon bonds. However, the interest paid 

on those securities has no net budgetary impact because it 

is credited to accounts elsewhere in the budget. 

In 2010, trust funds were credited with $186 billion of 

such intragovernmental interest, CBO estimates, mostly 

for the Social Security trust funds and the Civil Service 

Retirement and Disability Fund (see Table 3-1). Over the 

2011–2020 projection period, CBO estimates, the trust 

funds’ interest receipts will total about $2 trillion. 

Other Interest 

Although federal net interest outlays are dominated by 

interest on the Treasury’s borrowing from the public, the 

government also pays and receives interest from other 

transactions. The federal budget includes about 

50 accounts that reflect those interest payments and 

collections. Collections of interest are shown in the 

budget as negative outlays—that is, as offsets to spending. Some of those 50 accounts have no net effect on the 

budget because they are intragovernmental and reflect 

payments or receipts from other federal budget accounts.

Overall, the government receives more interest in the 

category of “other interest” than it pays out, primarily 

because of interest received from nonbudgetary financing 

accounts, which track the cash flows of credit programs. 

Net receipts to accounts in that category have risen from 

more than $7 billion in 2006 to $15 billion in 2009 and 

to more than $28 billion in 2010 (see Table 3-3). CBO 

projects that those receipts will continue to climb, surpassing $100 billion by 2019. Most of the projected 

increase stems from larger payments of interest from 

credit financing accounts, particularly payments from the 

financing accounts for the federal student loan program. 

Interest Paid to and Collected from the 

Credit Financing Accounts

Under the Federal Credit Reform Act of 1990, the budget shows the subsidy costs of the government’s direct 

loans and loan guarantees rather than the cash flows 

associated with those activities. The subsidy is the discounted present value of all future cash flows: generally, 

disbursements and repayments net of default losses in the 

case of direct loans; and fees, payments for defaults, and 

recoveries in the case of loan guarantees.

Actual 2011- 2011-

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2015 2020

413 438 463 543 637 739 835 915 995 1,070 1,149 2,820 7,783

-119 -116 -114 -116 -122 -130 -140 -152 -163 -175 -186 -598 -1,415

-67 -67 -55 -59 -52 -54 -55 -55 -61 -65 -70 -287 -593 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ _____

-186 -183 -169 -174 -174 -184 -195 -206 -224 -240 -256 -884 -2,007

-28 -30 -35 -42 -52 -63 -74 -85 -95 -104 -114 -221 -693

-2 * * * -1 -1 -1 -1 -1 * * -2 -5 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ _____ _____

Total, Net Interest 197 225 259 326 410 492 564 623 676 726 778 1,712 5,079

Total

Other Investment Incomed

Gross Interest on Treasury Debt Securitiesa

Interest Received by Trust Funds

Social Security

Other trust fundsb

Subtotal

Other Interestc
CHAPTER THREE FEDERAL DEBT AND INTEREST COSTS 29

CBO

Table 3-2. 

Alternative Scenarios for Net Interest Outlays, 2011 to 2020

(Billions of dollars)

Source: Congressional Budget Office.

Note: * = between zero and $500 million.

a. Costs on the amount of new borrowing and refinancing of maturing securities.

b. Includes savings bonds and securities issued to state and local governments.

c. Additional borrowing needed to cover additional interest costs.

To track those cash flows and reconcile them with subsidy 

costs that are recorded in the budget, the Treasury created 

credit financing accounts (see Chapter 1). Although the 

cash flows for those accounts are not included in the budget totals, they influence the Treasury’s borrowing 

requirements. 

How the Accounts Work. For a direct loan made by the 

government, a financing account receives a subsidy payment from the budget account for that loan program 

(recorded in the budget as an outlay) and borrows from 

the Treasury the rest of the funds needed to make the 

loan. Some or all of that borrowing by the financing 

account is repaid to the Treasury over time as the direct 

loan made by the government is repaid. Meanwhile, the 

financing account pays interest to the Treasury on any 

outstanding balance. Those interest receipts are recorded 

in the budget as negative outlays.

Therefore, direct loans result in three interest flows: 

 Borrowers pay interest on their loans, which is 

credited to the financing account; 

 The financing account, in turn, pays interest to the 

Treasury on the money it borrowed to make the loans; 

and 

 The Treasury pays interest on the public debt that it 

issued to provide the necessary resources for the 

financing account.

Loan guarantees operate differently from direct loans. 

With a guarantee, the government agrees to repay, in the 

event of default, loans made by nongovernmental institutions. Financing accounts for guaranteed loan programs 

usually receive cash inflows when a loan is made; the 

inflows often include guarantee fees from lenders and 

subsidy payments from the budget account for that 

Total,

2011-

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2020

August 2010 Baseline (Net interest) 225 259 326 410 492 564 623 676 726 778 5,079

Direct Effect of an Increase of 1 Percentage 

Short-term securities 8 17 18 19 21 23 25 27 30 33 220

Medium- and long-term securitiesb 4 23 40 52 61 71 79 86 91 98 605

Treasury inflation-protected securities * 1 1 2 2 3 3 3 4 4 24 __ __ __ __ __ __ ___ ___ ___ ___ ___

12 40 59 73 84 96 107 116 125 135 849

* 1 2 6 11 17 24 32 40 50 184 ___ ___ ___ ___ ___ ____ ____ ____ ____ ____ _____

Total 13 41 62 79 95 113 131 149 165 185 1,033

One-Time Increase in Borrowing 

1 2 2 4 4 5 6 6 7 7 43

Annual Increase in Borrowing of $100 Billion 1 3 7 13 21 29 37 45 54 63 272

of $100 Billion in 2011

Effect of Higher Interest Rates

Effect of Additional Borrowing

Debt Servicec

Subtotal

Point in Interest Ratesa
30 FEDERAL DEBT AND INTEREST COSTS

CBO

Table 3-3. 

Other Interest, 2006 to 2010

(Billions of dollars)

Source: Congressional Budget Office based on data from the Office of Management and Budget.

Notes: Negative numbers represent the government’s interest income; positive numbers represent its interest expenses.

* = between -$500 million and $500 million.

 MERCHF = Medicare-Eligible Retiree Health Care Fund; USPS = U.S. Postal Service.

guarantee program. Any defaults on loans that would 

require a payment from the account typically occur later. 

As a result, a financing account for a guarantee program 

generally runs a surplus with the Treasury, which credits 

the financing account with interest on that sum, generating positive outlays in the budget.

Amounts of Interest Received from the Financing 

Accounts. In 2010, the interest transactions between the 

Treasury and the financing accounts yielded net receipts 

to the Treasury of almost $23 billion, up from about 

$13 billion in 2009. (Interest flows between the Treasury 

and credit financing accounts, like other intragovernmental transfers, have no effect on borrowing by the 

Treasury.) The student loan program currently represents 

the bulk of the balances in financing accounts and, therefore, the largest volume of interest flowing to the Treasury 

(a net receipt to the Treasury of $11 billion for 2010). 

The flows of interest payments to the Treasury related to 

direct student loans will steadily increase in coming years 

because the Health Care and Education Reconciliation 

Act of 2010 (Public Law 111-152) terminated the 

Federal Family Education Loan program, which guaranteed loans to student borrowers made through private 

lenders such as banks, credit unions, and some postsecondary institutions. As new activity occurs entirely 

through direct loans rather than guaranteed loans, the 

additional borrowing that the financing account requires 

to fund the additional loans will result in higher interest 

payments from that account to the Treasury. 

Two other financing accounts that make sizable interest 

payments to the Treasury are those for the Troubled Asset 

Relief Program and for the Treasury’s purchase of 

mortgage-backed securities. Both programs were created 

in the fall of 2008 in response to the financial crisis, and 

in each case the budget recorded only the estimated subsidy provided to the program. To carry out their missions, 

however, both programs required funding that was not 

directly recorded in the budget. The TARP was established to purchase or insure troubled assets to promote 

2006 2007 2008 2009 2010

Interest Paid to and Collected from 

-5.4 -5.0 -5.7 -13.4 -22.8

Interest Receipts

Interest earned on deposits in tax and loan accounts -0.9 -1.2 -0.6 * *

Interest from unemployment loans to states * * * 0 0

-0.8 -1.0 -0.8 -0.5 -0.4

Interest Expenses

Interest paid on tax refunds 4.2 3.3 4.5 2.4 2.2

Interest paid to Resolution Funding Corporation 2.0 2.0 1.4 2.1 2.3

0.2****

Intragovernmental Interest

Interest from the Federal Financing Bank -0.4 -0.7 -0.8 -0.6 -1.0

Earnings on MERHCF investments -3.8 -4.0 -7.8 -1.1 -5.1

Earnings on USPS Retiree Health Care Fund 0 * -1.2 -1.4 -1.5

Interest from the Nuclear Waste Fund -0.5 -0.8 * -1.1 -1.2

Other -1.8 -2.6 -1.8 -1.4 -0.9 ____ _____ _____ _____ _____

Total -7.3 -10.1 -12.9 -15.0 -28.5

Credit Financing Accounts

Other

Other
CHAPTER THREE FEDERAL DEBT AND INTEREST COSTS 31

CBO

stability in financial markets. Funding from the Treasury 

was used to purchase preferred stock from financial 

institutions; to provide assistance to American International Group, General Motors, and Chrysler; and for a 

number of other purposes.4

 The MBS purchase program 

sought to increase liquidity in the secondary mortgage 

market by increasing the demand for those securities. In 

terms of the federal budget, both programs operate like 

direct loan programs: The Treasury provided funds to 

their respective financing accounts for disbursement, and 

the financing accounts now pay interest to the Treasury 

on that borrowing. The budget recorded net receipts of 

$10 billion in interest from the financing accounts for the 

TARP and MBS purchases in 2010.

Other credit financing accounts include those for the 

Rural Utilities Service, for several housing programs 

under the Department of Housing and Urban Development, and for many other, smaller credit programs. 

Other Interest Receipts

Most other accounts in the category of “other interest” 

record inflows to the government from interest payments 

or earnings on investments; such collections are recorded 

as negative outlays in the budget. Historically, the largest 

collection accounts have been those that record interest 

earnings on deposits in so-called tax and loan accounts at 

banks. Interest on loans to states’ unemployment funds 

are another source of such receipts.

Interest Earned on Deposits in Tax and Loan Accounts.

The federal government, like individuals and businesses, 

maintains a working balance of cash to cover current 

expenditures. Because the timing and amount of receipts 

never precisely match disbursements, the amount of 

funds at the Treasury’s disposal varies widely over short 

periods, especially around quarterly tax dates and payment dates for Social Security, Medicare, and veterans’ 

benefits. 

The Treasury generally holds its cash balances in two 

types of accounts—demand deposits (similar to noninterest-bearing checking accounts) at Federal Reserve 

Banks and tax and loan accounts at commercial banks 

located throughout the country. Those commercial banks 

qualify as special depositories to maintain tax and loan 

accounts for the Treasury; businesses can use the accounts 

to deposit taxes withheld from employees’ paychecks, 

corporate income taxes, and other recurring payments. In 

exchange for the short-term use of those funds, the participating banks pay interest to the Treasury at the greater 

of zero and the federal funds rate minus one-quarter of 

one percentage point.5

Balances in the tax and loan accounts are highly volatile. 

During 2010, overall daily closing balances ranged from a 

low of $62 million to a high of roughly $3 billion and 

averaged just under $2 billion. Interest received from 

the tax and loan accounts has declined significantly in the 

past two years: The total interest received in 2010 was 

close to zero, down from about $40 million in 2009 and 

about $600 million in 2008—the result of a significantly 

lower federal funds rate (which declined from 2.9 percent 

in 2008 to 0.3 percent in 2009 and to 0.2 percent in 

2010) and the Treasury’s decision in 2008 to limit the 

balances being held in the tax and loan depositories 

to $2 billion. 

Interest from Unemployment Loans to States. When 

states have insufficient funds in their Unemployment 

Trust Fund accounts, they may receive advances from the 

federal government to pay unemployment benefits. States 

pay no interest on those advances if they repay them 

within a fiscal year, but after that they generally are 

charged interest. However, provisions of the American 

Recovery and Reinvestment Act (P.L. 111-5) made borrowing interest-free through December 2010. As of 

October 2010, balances on the unemployment loans to 

states exceeded $40 billion, and CBO projects that interest payments on such balances will total $1 billion to 

$2 billion per year beginning in 2011 if interest forgiveness is not extended beyond 2010.

Other Interest Expenses

A few accounts in the category of “other interest” track 

interest payments to individuals or organizations outside 

the federal budget. The largest of such accounts include 

interest payments on certain tax refunds and the interest 

paid on bonds sold in the 1980s and 1990s to help 

resolve the savings and loan crisis.

Interest Paid on Tax Refunds. The Treasury pays interest 

on individual, corporate, and excise tax refunds that are 

4. For more information on the TARP, see Congressional Budget 

Office, Report on the Troubled Asset Relief Program—November 

2010 (November 2010). 

5. The federal funds rate is the interest rate that financial institutions 

charge each other for overnight loans of their monetary reserves. 
32 FEDERAL DEBT AND INTEREST COSTS

CBO

paid more than 45 days after the filing date. Interest on 

such refunds is generally dominated by interest on 

income tax returns that have been amended or audited. 

Corporate and individual taxpayers can file an amended 

return for a previous year; if a refund is due, the Internal 

Revenue Service calculates interest from the initial filing 

date. Over the 2011–2020 period, CBO estimates, such 

payments will total between $2 billion and $4 billion 

a year.

Interest Paid to the Resolution Funding Corporation.

REFCORP is a government-sponsored enterprise created 

in 1989 to provide initial funding for the Resolution 

Trust Corporation (RTC). REFCORP issued $31.2 billion in bonds to finance the RTC’s efforts to resolve the 

savings and loan crisis in the late 1980s and early 1990s. 

The interest owed on those obligations totals $2.6 billion 

annually and is paid quarterly by several entities. The 

Federal Home Loan Banks (FHLBanks) are currently 

required by statute to contribute 20 percent of their 

annual net earnings (about $500 million to $700 million 

per year) toward REFCORP’s interest payment. The 

Treasury pays the remainder of the interest due, roughly 

$2.1 billion annually, or about 80 percent of the total. 

The Federal Deposit Insurance Corporation has also 

made periodic contributions to REFCORP’s interest payments, but the amount and frequency of such payments 

are not statutorily mandated.

CBO currently projects that the FHLBanks will complete 

their required interest payments on REFCORP bonds in 

2011 and, as a result, that the Treasury will begin to make 

the full annual interest payment of $2.6 billion in 2012. 

The REFCORP bonds begin to mature in 2019, and all 

will have matured by April 2030, at which point interest 

payments will cease. 

Intragovernmental Interest

Some accounts in the “other interest” category have no 

net effect on the budget because they are intragovernmental and reflect receipts from other federal budget 

accounts. Such accounts include the Federal Financing 

Bank (FFB), the retiree health care funds for certain 

members of the military and employees of the U.S. Postal 

Service (USPS), the Nuclear Waste Fund, and some other 

federal entities. 

Interest from the Federal Financing Bank. The FFB is an 

arm of the Treasury Department that acts as a financial 

intermediary for a few federal agencies, government corporations, and government-sponsored enterprises; it was 

created in 1973 to reduce federal borrowing costs and 

improve debt management by assisting with borrowing 

by those entities. The FFB borrows directly from the 

Treasury and charges the agencies its own cost of borrowing plus one-eighth of one percentage point. Payments of 

interest from the FFB to the Treasury have been less than 

$1 billion annually in recent years but are projected to 

increase (to as much as $6 billion) because of higher loan 

activity (particularly by the Department of Energy’s 

Advanced Technology Vehicles Manufacturing program 

and the Rural Utilities Service). Those interest payments 

have no net effect on the budget; they appear as outlays in 

the FFB’s budget account and as offsetting receipts in 

“other interest.” As of September 30, 2010, the FFB portfolio totaled $60 billion.

Medicare-Eligible Retiree Health Care Fund. MERCHF 

was established by the National Defense Authorization 

Act for 2001 and began operation in 2003. The fund 

pays for the health care costs of retirees of the uniformed 

services and their dependents and survivors, once those 

individuals are eligible for Medicare. The Treasury makes 

payments into the fund to cover future benefits and also 

pays interest on the balance in the fund. Those balances 

are therefore increasing rapidly. In 2009, payments to the 

fund (excluding interest) totaled $21.3 billion, and outlays to cover health care expenses totaled $8.4 billion. 

Through 2020, CBO projects, payments to the fund will 

continue to be significantly higher than outlays. In 2020, 

those payments into the fund (other than interest) will be 

about $34 billion, compared with $16 billion in outlays. 

As a result, the interest credited to the fund will also grow 

dramatically, from $5 billion in 2010 to almost $22 billion by 2020, CBO projects.

U.S. Postal Service Retiree Health Benefits Fund. This 

fund was established in 2006 as a way of financing the 

health benefits of USPS retirees beginning in 2017. (The 

costs of health benefits for USPS retirees are currently 

paid from the annual operating funds of the Postal Service.) The USPS is required to make annual payments of 

between $5 billion and $6 billion to the fund through 

2016, and those payments are used to purchase Treasury 

securities. As of September 30, 2010, the fund had a 

balance of nearly $42 billion, and its interest earnings in 

2010 totaled $1.5 billion. CBO projects that interest 

earnings over the 2011–2020 period will total about 

$42 billion.
CHAPTER THREE FEDERAL DEBT AND INTEREST COSTS 33

CBO

Nuclear Waste Fund. This fund pays for activities related 

to the permanent disposal of high-level nuclear waste 

from commercial and defense-related sources. The 

income it receives from fees paid by commercial 

producers of nuclear power is invested in long-term 

Treasury securities. The fund’s portfolio consists primarily of zero-coupon Treasury bonds; the interest credited 

to the fund totaled about $1 billion in 2010 and, CBO 

projects, will average about $2 billion per year over the 

2011–2020 period.

Other Intragovernmental Interest Receipts. The Congress allows certain government corporations and federal 

entities to borrow from the Treasury to finance part of the 

costs of their programs. That borrowing authority is conferred through either permanent authorizing language or 

annual appropriations. The Treasury and the individual 

agencies decide on the terms of the loan, depending on 

the needs of the program being financed. The agencies’ 

borrowing includes long- and short-term debt, and interest rates vary by program.

Both the payment and the receipt of those intragovernmental interest transactions are accounted for in the federal budget, but because those amounts are offsetting, 

they do not affect the budget deficit. In particular, the 

interest payment is booked as an outlay for the participating agency, and the receipt of that payment is recorded as 

an offsetting receipt in the Treasury’s intragovernmental 

interest account. Interest on loans to the Bonneville 

Power Administration, the National Flood Insurance 

Fund, and the Helium Fund accounted for nearly 

two-thirds of the other $915 million in intragovernmental interest paid to the Treasury in 2010.

Other Investment Income

The National Railroad Retirement Investment Trust 

(NRRIT), a tax-exempt entity that is independent of the 

federal government, is charged with managing and 

investing the assets of the Railroad Retirement program. 

However, because the functions of the NRRIT are considered to be federal in nature, the earnings and losses of 

the program are accounted for in the budget in the 

general category of net interest.

The NRRIT is authorized to invest the assets of the 

Railroad Retirement fund in a diversified investment 

portfolio, like the portfolios of private-sector retirement 

plans. About 95 percent of the current portfolio is 

invested in private holdings that are actively managed 

by the NRRIT; the remaining 5 percent is invested in 

nonmarketable Treasury securities. The trust’s average 

earnings for 2004 through 2007 totaled about $3 billion 

a year, but market declines in recent years have produced 

losses from the NRRIT’s investments. In 2008 and 2009, 

the trust had losses of $6 billion and $350 million, 

respectively. At the end of 2009, the balance in the 

Railroad Retirement fund was about $23 billion, down 

from a high of nearly $33 billion in 2007. To project the 

NRRIT’s future earnings, CBO assumes a rate of return 

equal to the average projected rate on new Treasury 

issues; under that assumption, CBO projects that earnings will average about $500 million per year through 

2020 (see Table 3-1 on page 28).

CBO

Appendix: 

Public Debt Outstanding at the 

End of the Fiscal Year

The Department of the Treasury issues two broad 

types of securities to the public: marketable and nonmarketable. Marketable securities—bills, notes, bonds, 

and Treasury inflation-protected securities—are auctioned at regular intervals during the year and can be 

resold. Nonmarketable securities, such as savings bonds, 

are not sold at auction and cannot be resold. Tables A-1

and A-2 show the outstanding value of each type of debt 

at the end of fiscal years 1990 through 2010.
36 FEDERAL DEBT AND INTEREST COSTS

CBO

Table A-1. 

Marketable Public Debt Outstanding at the End of the Fiscal Year, 1990 to 2010

Source: Congressional Budget Office based on data from the Department of the Treasury. 

Note: n.a. = not applicable.

a. Reported at face value.

b. Inflation-adjusted amount.

Total

Fiscal (Billions

Year of dollars)

1990 482 23 1,218 59 377 18 n.a. n.a. 2,078

1991 565 24 1,388 58 423 18 n.a. n.a. 2,376

1992 634 24 1,566 59 462 17 n.a. n.a. 2,647

1993 658 23 1,734 60 497 17 n.a. n.a. 2,840

1994 697 23 1,868 61 512 17 n.a. n.a. 3,077

1995 742 23 1,980 61 523 16 n.a. n.a. 3,245

1996 761 22 2,099 62 543 16 n.a. n.a. 3,403

1997 702 20 2,122 62 576 17 24 1 3,425

1998 638 19 2,009 61 610 18 59 2 3,316

1999 653 20 1,829 57 644 20 92 3 3,218

2000 616 21 1,611 54 635 21 115 4 2,978

2001 735 25 1,433 49 613 21 135 5 2,915

2002 868 28 1,522 49 593 19 139 4 3,121

2003 918 27 1,799 52 577 17 166 5 3,460

2004 961 25 2,109 55 552 14 223 6 3,846

2005 910 22 2,328 57 521 13 307 8 4,066

2006 908 21 2,445 57 534 12 396 9 4,284

2007 955 22 2,456 55 561 13 457 10 4,428

2008 1,484 28 2,623 50 579 11 524 10 5,210

2009 1,986 28 3,773 54 677 10 551 8 6,988

2010 1,784 21 5,253 62 846 10 594 7 8,476 c c

of Total

Billions

of Dollars

Percentage

of Total

Treasury InflationBillsa Notes Bonds Protected Securitiesb

Billions

of Dollars

Percentage

of Total

Billions of 

Dollars

Percentage 

of Total

Billions of

Dollars

Percentage
APPENDIX FEDERAL DEBT AND INTEREST COSTS 37

CBO

Table A-2. 

Nonmarketable Public Debt Outstanding at the End of the 

Fiscal Year, 1990 to 2010

(Billions of dollars)

Source: Congressional Budget Office based on data from the Department of the Treasury. 

Note: * = between zero and $500 million.

a. CBO’s estimate of current economic value.

b. Includes mostly claims funds and asset forfeiture funds (starting in 2001), foreign series bills, tax and loss bonds issued by the Mortgage 

Guaranty Insurance Corporation, U.S. notes and silver certificates, and, in 2003, depository compensation securities.

Fiscal Savings

Year Bonds Foreign Domestic Otherb Total

1990 122 161 7 4 2 3 299

1991 134 158 9 5 3 3 311

1992 148 158 12 4 4 * 326

1993 167 149 15 6 3 1 341

1994 176 137 18 6 3 1 342

1995 181 113 21 7 4 1 327

1996 184 96 23 6 4 3 316

1997 183 112 25 6 4 1 331

1998 181 164 26 8 5 1 386

1999 180 168 29 6 5 1 390

2000 178 153 32 5 5 1 374

2001 186 146 37 4 6 6 386

2002 193 144 45 3 6 7 398

2003 202 148 51 4 7 22 434

2004 204 158 56 3 7 7 436

2005 204 225 64 3 8 10 513

2006 204 239 72 2 8 10 535

2007 197 297 81 2 9 12 598

2008 194 260 101 2 10 10 578

2009 192 216 113 2 11 7 542

2010 189 193 124 2 11 7 526

Zero-Coupon Bondsa

Government Series

State and Local Thrift 

Savings Plan


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WASHINGTON, DC 20515CONGRESSIONAL BUDGET OFFICECONGRESS OF THE UNITED STATES