The US model of public debt management

Mariia Mygal

In a time of war, the issue of public debt management is extremely sensitive for Ukraine. In the news, we hear more and more about a new loan from the IMF, a loan from the EU or other international organizations. And everyone understands that an increase in public debt is hardly a positive development for the country. At the same time, without external assistance, it would be difficult for Ukraine to cope with the challenges of the war – reduced tax and customs revenues, lower economic activity and an increase in the budget deficit. 

The Ministry of Finance of Ukraine pursues an effective policy of attracting grants and concessional loans to keep the budget under control and address solvency issues. Indeed, the analysis of public debt management in France showed that despite the high level of debt relative to GDP, the country is developing steadily and even growing economically. 

The next country in our study is the United States of America. This year, the US national debt exceeded $30 trillion for the first time. This figure seems too high and dangerous for the state, but the level of well-being of citizens is high, and the country itself is now considered a superpower. 

What is the phenomenon of the US public debt?

The current state of the US national debt

The US national debt is the money that the federal government of the United States of America owes to its creditors. These creditors include individuals, corporations, state/local/foreign governments, and other organizations outside the US government. The government raises funds by issuing three types of treasury securities: 

Domestic government bonds (T-bills) – government securities that are placed exclusively on the domestic stock market. They are considered the least risky publicly available investment option in the world; 

Treasury bills and bonds. The higher the demand for these securities, the lower the interest rate the Treasury is forced to pay to buyers. Very low rates today indicate a fairly high demand;

Treasury securities with inflation protection. The interest rate is constant, but the principal is adjusted based on the inflation index. 

The US budget deficit and public debt have been on an upward trend, but the process accelerated after measures to combat the effects of the pandemic. The percentage of debt maturing within the next 12 months increased from 27% in 2019 to 35% in 2020, and the budget deficit at the end of fiscal year 2021 amounted to $2.78 trillion. 

This month, the US national debt exceeded $31 trillion for the first time, a record high in the history of the United States. At the same time, the United States is one of the world’s leading countries in terms of GDP. The ratio of public debt to GDP in 2021 was only 137.2%. In terms of this indicator, the United States is not even among the top twenty countries in the world.

Given its high GDP, the United States guarantees the stability of deposits in its economy, and the country is quite attractive to creditors. Investors, other states and funds are confident that their funds will be returned with interest, and therefore actively invest in the country’s economy. The U.S. public debt management model confirms the thesis that a high level of public debt does not impede the country’s development if it is managed effectively.

Peculiarities of the US public debt management model

The main institution in the management of the US public debt is the Treasury. Its activities are designed to generate high demand for securities from investors. This goal is achieved through effective bond management that balances external risks and interest costs. How does the U.S. Treasury respond to the challenges it faces – uncertainty about borrowing needs, future interest rates, the debt ceiling, and changes in the financial market?

Changes in policy and economic conditions are difficult to predict, but they can have a significant impact on cash flow. The Treasury reacts to external events (recession, war, emergencies, natural disasters) by issuing securities quickly and on favorable terms. In this way, the US prevents the need for additional loans. 

The U.S. Treasury also combines the issuance of long-term and short-term securities. Long-term securities have higher interest rates but provide greater certainty in budget planning. 

In the US, there is such a thing as a “debt limit” – a legal restriction on the total amount of debt. The uncertainty of this limit can cause problems with its management. And such delays due to the expectation of an increase in the debt limit have occurred in 10 of the last 11 fiscal years in the United States. To stay within the limit, the Treasury suspends investments or temporarily disinvested securities. However, if these methods are exhausted and there are still insufficient funds to meet financial obligations, the Treasury is forced to postpone these payments.

Any structural changes in the financial markets have an impact on the US public debt management system. For example, the COVID-19 pandemic led to severe financial market disruptions in March 2020, which prompted a swift response from the Federal Reserve. Such shocks pose risks to the liquidity and efficiency of the Treasury. Disruptions in the financial market model could reduce investor demand for Treasury securities and negatively affect its ability to borrow money at the lowest possible price for a long time.


So, today, public debt is a global practice for most countries. If the money received is used properly, it can significantly improve the welfare of the country’s citizens in the long run. The example of the United States shows that the main thing is the ability of the state to manage and service the debt. 

The peculiarity of the US public debt management model is the effectiveness of the Treasury’s response to external risks and challenges. A proper response in such situations prevents the US from needing additional loans. 

Despite the record levels of public debt, the US also shows a corresponding increase in production in the country. If used correctly, public debt is the impetus that can lead a country out of a difficult situation, but if these funds fall into the wrong hands, the debt becomes a heavy burden not only for the present but also for future generations. 

How public debt is managed in Japan, where it is almost twice as high as the country’s GDP, is discussed in the next article.

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