The Debt Lingo

So Much to Comprehend

Comprehension in reading a compelling story involves understanding vocabulary.  The story in the news is often about world finances.   Definitions of a few  debt-related terms make for easier understanding of reports.   Most of the terms have quite complicated full definitions, but simple views of the key words can help one see a complete picture.Debt Defined

Total United States Public Debt:  This term refers to the total amount that the United States government owes both domestically and abroad.  Keep in mind that the government does owe funds both at home and to foreign entities.  The United States Treasury reports the total debt amount in two parts; Debt Held by the Public and Intragovernmental Holdings.

Debt Held by the Public:  These are securities  or notes held by any institutions or people outside the United States government itself.  Domestic and foreign institutions and individuals make up this group of creditors.

Intragovernmental Holdings:  This term references securities or notes held in accounts administered by the United States government such as Social Security.  Workers pay into Social Security.  That money is then paid out by the government.

Federal Trade Deficit:  This term refers to the difference between net imports and net exports.

Standard and Poor’s:  One of the big three credit reporting agencies, Standard and Poor’s,  is a United States owned financial services company.  They report economic research and analysis including credit ratings and standings for countries.  The other two agencies referenced often are Moody’s Investor Service  and Fitch Rating.

International Monetary Fund:  This group looks out over the world’s global financial systems and situations.  In particular, they keep an eye on exchange rates and balances of moneys due between countries.

Debt Ceiling: The best explanation seen so far is that one can think of the debt ceiling like a limit on a personal credit card.  Congress pre-approves an amount or credit limit for the Department of Treasury to fund government services through borrowing money.

The terms are just a bit of the lingo heard in the news on financial status. A story forms when all the definitions blend together along with a few 2011 statistics.

The Total Public Debt Outstanding in the United States was $14.46 trillion as of the end of June in 2011.  The International Monetary Fund shows that as ranking 12th  when looking at other nations’ debt loads.   Gross debt has been steadily increasing which is what caused Standard and Poor's  to downgrade the U.S. credit outlook to “negative” in the spring of 2011.  Yearly increases in the gross debt  ranged from over $500 billion to $1.9 trillion in the fiscal years 2003-2010.

Keep in mind that hardly a country has escaped scrutiny on their financial position of late.  Looking over simplistically at the debt story is a problem.  Complicated formulas tell the story of the nitty- gritty of the debt.  That said, taking a peek at foreign ownership of the United States debt  is interesting.  Foreigners owned $4.5 trillion of the total amount of the U.S. debt at the beginning of 2011 which amounts to 47% of the debt owned by the public.  China, Japan, the United Kingdom, and Brazil are the largest holders of U.S. securities.  China is the largest owner of the debt, holding 26% of all U.S. securities held by foreign entities.  Just as a barometer, in 2000, that number was 6%.  Foreign ownership of debt ties to trade deficit.  The United States has a large trade deficit.  Imports far exceed exports.

What is the story behind the debt ceiling? The United States Constitution authorizes Congress to borrow money. Prior to 1917, each time the need for more money arose, Congress authorized issuance of debt in  separate allotments.  To allow for more flexibility in financing World War I, the way the money authorization occurred changed.  Instead of having to approve each amount, Congress set a “ceiling” or limitation on amounts of bonds that could be issued by the U.S. Treasury.  Much chatter occurs today on the debt ceiling and the need to raise it to meet financial obligations.  The U.S. debt ceiling was $14.294 trillion as of February, 2010.

The world economy, not just the finances of the United States,  is under the microscope via news reports daily now in 2011.   The numbers are so large for all countries that it is difficult to comprehend it all.  Understanding the terms  allows perhaps a bit of clarity in the discussions.