The Deficit vs. Public Debt

Chart of the Week for February 3-9, 2006

Yesterday, the U.S. Treasury auctioned a 30-Year Bond for the first time since August 2001. While the re-introduction of this bellweather, known in fixed income circles simply as "The Bond," has interesting implications for the bond market in general, it also serves as a reminder that the Federal government needs to borrow capital in order finance current and previous deficit spending. The above chart graphs two series of data: the bars show the fiscal year deficit or surplus and the line depicts the level of overall public debt.

Due in large part to higher than expected tax revenue during the exhuberant late 1990s and early 2000s, budget surpluses helped keep overall public indebtedness fairly stable. These surpluses and low borrowing (interest) rates prompted the Treasury to stop issuing the 30-year. However, since 2001, budget deficits as well as non-budgeted expenditures for disaster relief, military spending and Homeland Security, have accelerated the growth of overall public debt. US public debt is approximately 46% of GDP, lower than the average 62% debt to GDP ratio carried by other developed nations.

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