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Most economists and budget analysts use debt held by the public -- and not gross debt -- as the most meaningful measure of the government's current fiscal position. This is a point of wide agreement among analysts, across political parties.

For instance:

CBO [the Congressional Budget Office] has, in reports issued under its past three directors, described debt held by the public as the most meaningful measure of federal debt.

• See [The Long Term Budget Outlook, December 2007], p. 12 (issued under Peter Orszag -- now OMB director) [PDF file]
• See [The Budget and Economic Outlook: Fiscal Years 2006-2015, January 2005], p. XV (issued under Douglas Holtz-Eakin -- later a top economic adviser to the McCain campaign) [PDF file]
• See [The Budget and Economic Outlook: Fiscal Years 2003-2012, January 2002], p. 11 (issued under Dan Crippen) [PDF file]

The Government Accountability Office has also expressed this opinion. See a 2004 GAO report, pp. 6-7 -- answering frequently asked questions about the federal debt [PDF file].

And, this is a (perhaps rare) point on which this Administration agrees with the prior one. For instance, in the 2003 budget, the Administration wrote, "[Debt] held by the public is a more meaningful measure of the government's effect on private financial markets" than debt subject to limit (which is a very close cousin of gross debt). (See [Budget Implications of the War] in the discussion related to the debt limit.)

Here's why:

Intra-governmental debt. Gross debt now includes about $4 trillion in "intra-governmental debt" -- the majority of which is held in the Social Security trust fund. This is debt that the federal government "owes to itself" -- and, as such, does not represent a "fiscal burden." (Perhaps one part of the federal government owes money to another part of the federal government, but, if so, this nets when you take the federal government as a whole.) Therefore, gross debt is not a way of measuring much of anything meaningful -- ie. the extent to which federal government borrowing is affecting the debt market; the federal government's ability to pay its obligations; etc.

The budget projection back in 2001 perfectly captured why "gross debt" is not a meaningful measure. In those rosy days, the Congressional Budget Office was projecting surpluses throughout their 10-year projection window. People, such as Alan Greenspan, were actively worried about what would happen if the federal government, as CBO projected at the time, paid back most of its publicly held debt (a long and unrelated story why this could be a problem). But, even as this was the case, gross debt was projected to remain relatively stable at about $5-$6 trillion throughout the period. (See [The Budget and Economic Outlook: Fiscal Years 2002-2011, January 2001], p. 17 [PDF file]) The reason is that the federal government must issue intra-governmental debt, irrespective of the government's financial position. The Social Security trust fund must be invested in federal bonds, and, so, even if the federal government is running huge surpluses, bonds must be issued -- bonds that do not represent a fiscal burden. And, in those days of surpluses, it would've been highly misleading for anyone at the time to write up a story about the debt titled "$6 trillion and counting" -- just as it is misleading to use gross debt figures today.

You might think that gross debt is a superior measure since intra-governmental debt is, in part, owed to the Social Security trust fund -- and, so, it might be thought to indirectly capture the federal government's obligations to future Social Security beneficiaries. But, this is not the way to do so. If you're interested in measuring the federal government's financial position going into the future, you have to take into account not just liabilities but also the federal government's main asset going forward -- namely, future tax revenues. There's an active debate among analysts as to how best to summarize the federal government's financial position going into the future -- but using gross debt is clearly not the right way to do so.

Financial assets. Gross debt also does not "net out" the value of financial assets held by the government -- an especially important issue given the federal government's current activities to stabilize the financial markets. As of the end of this year (assuming additional financial stabilization efforts are needed, consistent with the placeholder in our budget), the federal government would hold financial assets worth about $1.4 trillion.

For the moment, imagine that the federal government borrowed $100 to purchase stock worth $100. Gross debt would increase by $100, but the federal government's fiscal position would be no worse off, on net. Admittedly, in engaging in financial stabilization efforts, the federal government is purchasing assets that are worth less than the amount the federal government is paying for them -- and we take this into account in estimating the value of the federal government's financial assets. But, it is very clear that they are not worth zero, which is what focusing on "gross debt" would imply.

This is why the Administration believes that, in measuring the federal government's current financial position, the most meaningful measure is publicly held debt net of financial assets -- which, under our budget policies, would be $6.9 trillion, or 49 percent of GDP, at the end of 2009.

FRONTLINE's Response:

As the OMB correctly points out, there is a difference between gross debt and publicly held debt. Gross debt includes both publicly held debt (bonds and Treasury bills held by foreigners, corporations, individual citizens, investment vehicles, etc.) and intra-governmental debt such as special securities the federal government prints when one part of the government owes funds to another. The two Social Security Trust Funds hold the bulk of these securities. (For more on how this works, see this page on the Social Security Administration's Web site.)

For years surplus Social Security taxes -- what's left over after paying out Social Security benefits -- have been used to pay for other government programs. The securities are therefore an I.O.U. from the government to pay the Social Security Trust Funds in the future.

Administrations, both Republican and Democratic, like to count only publicly held debt -- approximately $6 trillion of the $10 trillion in our report's title -- when asked about the size of the nation's debt. As for the approximately $4 trillion in intra-governmental debt, OMB simply zeros this out. However, for purposes of our reporting, we believe that to do so would be to create an inaccurate description of our nation's overall debt problem.

Most economists look at the publicly held debt as the figure that has the most immediate impact on the economy. If the government issues too much public debt relative to the size of the economy as a whole, it can drive up interest rates for other types of borrowing. At some point, creditors may worry about the government's ability to pay back all its debt. (Currently, the Congressional Budget Office projects the Obama administration's proposed budget would result in deficits totaling $9.3 trillion over the next decade.)

But if the publicly held debt represents the impact of government borrowing on the current economy, then intra-governmental debt represents the future promises we have made. Due to the retirement of the baby boomers and rising health care costs, under some projections Medicare and Social Security will run out of money. If this happens, the trust funds for those programs will have to start cashing in those I.O.U.s, and to pay them the government will need to borrow more from the public. Or it could raise taxes to cover the shortfall, or it could make cuts to the programs to make them less expensive. If our future economy grows more robustly than expected, it will be easier to pay for these commitments, but the intragovernmental debt is not simply going to evaporate.

Viewers are entitled to know that the country faces both an immediate and a long-term debt challenge. If we were not as clear as we should have been about this distinction in our broadcast, we nonetheless stand by our decision to highlight what we consider to be the true dimensions of the problem by using the gross debt figure of $10 trillion -- now more than $11 trillion -- and counting.