Difference between National Debt and External Debt (2024)

FAQs

Difference between National Debt and External Debt? ›

One important difference between domestic and foreign public debt is where the interest payments go. With foreign debt, the interest is being transferred out of the country and will likely be unavailable for investment within the country. Another issue is default.

The government's borrowing within the country is known as internal debt. The government can borrow this debt from sources like banks, individuals, business firms and other internal sources. On the other hand, the government's borrowing from abroad or international is known as external debt.

Government debt is also known as public debt, national debt or sovereign debt and is money (or credit) owed by a central government to creditors within the country (domestic, or internal debt) as well as to international creditors.

The total debt is the sum of the public --or national-- debt (money owed by the government) and the private debt (money owed by companies). The money owed by the government is considered to be owed by "all the citizens."

Key Takeaways

Debt is the amount of money owed to someone else. A deficit refers to spending more money than is received over some time. Both the national debt and budget deficit are watched by investors and economists. Debt is not necessarily an indicator of a weak economy.

External debt is the portion of a country's debt that is borrowed from foreign lenders. Internal debt is the opposite, referring to the portion of a country's debt incurred within its borders.

A nation saddled with debt will have less to invest in its own future. Rising debt means fewer economic opportunities for Americans. Rising debt reduces business investment and slows economic growth. It also increases expectations of higher rates of inflation and erosion of confidence in the U.S. dollar.

Answer and Explanation:

If the U.S. was to pay off their debt ultimately, there is not much that would happen. Paying off the debt implies that the government will now focus on using the revenue collected primarily from taxes to fund its activities.

There are two kinds of national debt: intragovernmental and public. Intragovernmental is debt held by the Federal Reserve and Social Security and other government agencies. Public debt is held by the public: individual investors, institutions, foreign governments.

Why History Shows the United States Will Not Grow Out of Its Debt. The United States is approaching record levels of debt. Debt held by the public totaled 97 percent of gross domestic product (GDP) at the end of 2022 and is on track to exceed its previous all-time high, which occurred just after World II, by 2029.

Who owns the most US debt? ›

Nearly half of all US foreign-owned debt comes from five countries. All values are adjusted to 2023 dollars. As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).

Eliminating the U.S. government's debt is a Herculean task that could take decades. In addition to obvious steps, such as hiking taxes and slashing spending, the government could take a number of other approaches, some of them unorthodox and even controversial.

Most of the $6.8 trillion of intragovernmental debt is held in government trust funds. About $2.7 trillion is held in the Social Security Old Age and Survivors Insurance (OASI) trust fund in the form of special issue securities that are expected to be redeemed within the next 15 years or so.

Japan has the highest percentage of national debt in the world at 259.43% of its annual GDP.

The National Debt Explained

money from federal income tax), a budget deficit results. To pay for this deficit, the federal government borrows money by selling marketable securities such as Treasury bonds , bills , notes , floating rate notes , and Treasury inflation-protected securities (TIPS) .

At the end of September 2023, domestic creditors held 77 percent of the outstanding debt held by the public. Foreign creditors held the remaining 23 percent. The Federal Reserve typically accounts for a significant proportion of debt held by the public owned by domestic investors.

Visit the U.S. Treasury Monthly Statement of the Public Debt (MSPD) to explore and download this data. There are two major categories for federal debt: debt held by the public and intragovernmental holdings.

United States External Debt reached 25,984.6 USD bn in Dec 2023, compared with 25,649.6 USD bn in the previous quarter.

Most important, this credit-card metaphor is a totally false analogy because, unlike a consumer on a spending spree who later has to pay the piper, government's borrowing strategy directly affects economic growth. When deficit spending helps increase growth, that, in turn, makes the debt less burdensome.

India takes the top spot. The world's most populous country owed $38.3bn to the WB at the end of 2022, down by almost $1.5bn from a year earlier. India's outstanding balance is almost double that of the next biggest debtor, Indonesia, with $20.6bn.