You’ve seen the big digital clocks in Midtown Manhattan or the terrifying tickers on news sites. The numbers spin so fast they’re a blur. Right now, in early 2026, the US gross national debt is sitting at a staggering $38.43 trillion. But honestly, if you ask ten people on the street what that number actually includes, you’ll get ten different answers. Most of them will be wrong.
People tend to think of it like a giant credit card bill for the Pentagon or a mountain of IOUs to China. While those are parts of the story, they aren't the whole book. Understanding what is considered federal debt requires peeling back the onion on how the Treasury actually moves money between its own pockets and the rest of the world.
It's messy.
The Two Big Buckets of Federal Debt
Basically, when the government talks about its "gross debt," it’s mashing two very different things together. You have to separate them to understand the actual economic risk.
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1. Debt Held by the Public
This is the "real" debt in the eyes of most economists. It’s the cash the Treasury has borrowed from outside lenders to keep the lights on. If you own a $1,000 savings bond, you are a part of this. So is a massive pension fund in Ohio or the central bank of Japan.
As of early 2026, this bucket makes up about 80% of the total. It includes:
- Individual investors (regular people buying bonds).
- The Federal Reserve (which owns a massive chunk, roughly a fourth of the domestic portion).
- Foreign governments (Japan and the UK are currently the biggest holders).
- Commercial banks and insurance companies.
- State and local governments (ironically, they buy federal debt to store their own cash).
2. Intragovernmental Holdings
This is the part that confuses everyone. This is money the government owes itself. Think of it like a husband "borrowing" money from his wife’s savings account to pay the mortgage. On the family ledger, the debt exists. In the real world, the money stayed in the same house.
The biggest player here is the Social Security Trust Fund. When Social Security collects more in payroll taxes than it pays out, it’s legally required to invest that surplus in special Treasury securities. The government then spends that cash on other things, leaving an IOU in the trust fund. Currently, this "IOU" bucket accounts for about $7.3 trillion of the total.
What Actually Counts as a "Debt Instrument"?
The federal government doesn't just go to a bank and sign a loan paper. They issue "securities." These are basically different flavors of "I'll pay you back later."
- Treasury Bills (T-Bills): These are the short-term ones. They mature in a year or less. They don't pay regular interest; instead, you buy them at a discount (say, $950) and get the full face value ($1,000) later.
- Treasury Notes: The "middle child." These have terms of 2, 3, 5, 7, or 10 years. They pay interest every six months.
- Treasury Bonds: The long-haulers. These are for 20 or 30 years.
- TIPS (Treasury Inflation-Protected Securities): These are clever. The principal amount actually goes up or down based on inflation, so your purchasing power doesn't get eaten alive.
- Savings Bonds: The kind your grandma gave you for your birthday. These are non-marketable, meaning you can't sell them to someone else on an exchange; you can only cash them in with the government.
The Surprising Things NOT Included
There is a lot of "debt-adjacent" stuff that people assume is part of the federal debt, but it technically isn't.
State and Local Debt If California or your local school district goes into debt to build a bridge, that has zero to do with the federal debt. It’s a completely separate legal and financial obligation.
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Fannie Mae and Freddie Mac Even though the government basically took these over during the 2008 financial crisis, their massive mortgage-backed obligations aren't counted in the $38 trillion headline number. If they were, the "true" debt would be significantly higher.
Unfunded Liabilities This is the big scary one that keeps fiscal hawks up at night. The government has promised trillions in future Social Security and Medicare benefits that it doesn't currently have the money to pay. These are "promises," not "debt." Because no bond has been issued yet, they aren't included in the federal debt figures you see on the news.
Expert Note: If you added up all future unfunded promises, some estimates suggest the number would jump from $38 trillion to over $100 trillion. But for now, those aren't considered "debt" in a legal sense.
Why the "Debt Subject to Limit" Matters
You’ve probably heard about "debt ceiling" fights in Congress. This refers to a specific legal cap on the Debt Subject to Limit.
It’s almost the same as the Gross Debt, but it excludes a few small things, like debt issued by the Federal Financing Bank. In 2025, the limit was raised to $41.1 trillion. If the government hits that number and Congress doesn't raise it, the Treasury can't issue new bonds to pay old bills. That’s when things get dangerous.
Real World Impact: Is it All Bad?
Debt gets a bad rap.
Honestly, some debt is necessary. Without it, the government couldn't respond to emergencies like the 2020 pandemic or build massive infrastructure. However, the interest is the killer. In 2026, interest payments are projected to consume about 14% of the entire federal budget. That’s money that isn't going to schools, roads, or defense.
Actionable Steps for the Average Person
Understanding federal debt isn't just for academics; it affects your wallet. Here is how you can practically use this information:
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- Watch Interest Rates: When the federal debt grows rapidly, it can put upward pressure on interest rates. If you’re planning to buy a home or car, keep an eye on Treasury yields (specifically the 10-year Note), as they often dictate mortgage rates.
- Diversify Your Savings: If you're worried about the government's ability to manage its debt, consider "I-Bonds" or TIPS. These are designed to protect your cash from the inflation that often follows periods of massive government spending.
- Check Your Pension: If you have a government pension or rely on Social Security, remember that your "assets" are actually the government's "intragovernmental debt." Their ability to pay you depends on their ability to eventually tax or borrow enough to honor those IOUs.
- Monitor the Debt-to-GDP Ratio: Don't just look at the raw trillions. Look at the ratio. Currently, we are at roughly 124% of GDP. When this ratio stays high for too long, it can signal a slowing economy, which might be a cue to shift your investment portfolio toward more defensive assets like gold or international stocks.
The federal debt is a complex web of internal IOUs and external market obligations. It isn't just one big bill—it's the collective memory of every time the government spent more than it took in since the founding of the country. Knowing the difference between what the government owes you (Social Security) and what it owes a bank in Switzerland is the first step to making sense of the madness.