Introduction to Finance

federal statutory debt limits
 
that restrict the maximum amount of 
national debt that can be outstanding. This national debt limit is commonly referred to as the 
“national debt ceiling.” However, it has been necessary to increase the limit several times in 
recent years due to continuing large annual federal government budget defi cits.
Annual interest expense on the national debt increased from $362.0 billion in fi scal 2000 
to $402.4 billion in fi scal 2015 even though market interest rates have been very low in recent 
years. Over 70 percent of the national debt is currently held by the public with the remainder 
being intragovernmental holdings.
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In Chapter 8 we will identify and discuss those who are 
the major holders of the Treasury securities used to fi nance the national debt.
U.S. citizens and fi nancial institutions hold or own a large portion of the U.S. national debt 
that is outstanding. Part of our debt is due to our role as a creditor nation from 1918 until 1985. 
Until World War I, the United States depended heavily on foreign investment, and it was not 
until 1985 that liabilities to foreign creditors again exceeded claims against foreign creditors. 
Our return to being a debtor nation was due in large measure to relatively high domestic interest 
rates, relative political stability in the world arena, and the development of an extremely unfa-
vorable balance of trade. The nation’s excess of imports relative to exports has continued to be 
very large since 1964. To the extent that foreign claims resulting from a surplus of imports are 
invested in federal obligations, foreign ownership of the federal debt increases.
It is notable that public borrowing is a relatively modern development. During the Middle 
Ages, governments borrowed from wealthy merchants and others on an individual basis. Often 
crown jewels were off ered as collateral for such advances. Large public borrowing by govern-
ments, as by businesses, became possible only when monetary systems were refi ned, and 
effi
cient fi nancial institutions developed that could facilitate the transfer of monetary savings.