History

• The United States first faced the problem of a huge national debt in 1790, immediately after the Revolutionary War. The new federal government owed $50 million and the states owed another $25 million, which was assumed by the federal government. These sums were paid down by 1835. The Civil War (1861-65) witnessed an increase in debt to more than a billion dollars. The debt jumped again as a result of World War I (1917-18) and World War II (1941-45), reaching $260 billion. In recent times, the debt has increased from $366 billion to over $12 trillion in 2009.
  
  

Misconceptions

• Public debt does not refer to only the national debt, nor is this money all owed to citizens of the United States. One aspect of public debt is municipal bonds. A municipal bond is a debt security, much like a U.S. savings bond, that is issued by a state, city, town or county to pay for capital construction projects. These bonds help pay for new highways, schools, police stations, fire stations and other public buildings. About 33 percent of the public debt is actually held by the government itself, another 30 percent is held by foreign governments. The remainder is split between states and local governments, pension funds, mutual funds, holders of U.S. savings bonds and banks.
  
  

Benefits

• Public debt allows localities to invest in capital projects and local improvements they could not otherwise afford. Most towns or counties could not, for example, afford to pay for a new school or fire department upfront. Additionally, public debt is a powerful tool for the government to stabilize the economy. The federal government borrows in times of recession to spur economic growth and recovery.
  
  

Size

• The Bureau of the Public Debt is responsible for borrowing money for the U.S. government and tracking the size of the national debt. The bureau's figure for the national debt is updated daily on its website. In June 2010, the national debt stood at more than $13 trillion and growing, making up more than 88 percent of the country's current gross domestic product (GDP).
  
  

Concerns

• The increase in the size of the national debt in recent decades has led to some concern about the ability of the United States to meet future financial obligations. As the debt increases, more of the federal budget will be consumed in making interest payments on the debt, leaving less for other important government programs.