If Jim, a random citizen, owes TD Bank $300,000 for his house mortgage, is this added to the U.S. national debt?

Question

According to Wikipedia: National debt consists of two components. The first is

Debt held by the public, such as Treasury securities held by investors outside the federal government, including those held by individuals, corporations, the Federal Reserve System, and foreign, state and local governments.

So is this saying that if a random person owes a random company money, it is calculated into national debt? I don't quite understand the wording and I though that the national debt was debt owed by the government.

Answer 1

If Jim, a random citizen, owes TD Bank $300,000 for his house mortgage, is this added to the U.S. national debt?

TL;DR: No.

Let's look at what Wikipedia identifies as the second component:

Debt held by government accounts or intragovernmental debt, are non-marketable Treasury securities held in accounts of programs administered by the federal government, such as the Social Security Trust Fund. Debt held by government accounts represents the cumulative surpluses, including interest earnings, of various government programs that have been invested in Treasury securities.

The distinction they are making is that some of the debt is held by agents outside the federal government and some is held inside the federal government. The federal government owes itself money.

While the phrasing in that section is ambiguous if read alone, they had already said

The national debt of the United States is the public debt carried by the federal government of the United States, which is measured as the face value of the currently outstanding Treasury securities that have been issued by the Treasury and other federal government agencies. The terms national deficit and national surplus usually refer to the federal government budget balance from year to year, not the cumulative amount of debt. A deficit year increases the debt, while a surplus year decreases the debt as more money is received than spent.

So both components are "debt carried by the federal government" in the form of "Treasury securities". Random people cannot issue treasury securities, as that is the name of debt issued by the federal government's Treasury department.

Answer 2

The word "debt" can be confusing. While, for most things, having, owning, and holding it mean roughly the same thing, having debt is the opposite of owning or holding debt. A person who has debt owes money to someone else. Someone who owns or holds debt is owed money. The wikipedia article is saying that some of the national debt is owed to the public, and some of it is owed to parts of the government.

Answer 3

Seems like a lot of people are over-complicating things.

"National debt" is just shorthand for "total national/federal government debt." It is not a measurement of the indebtedness of the whole nation, including private citizens, state and local governments.

"Debt HELD by the public..." - Note, "held by," not "owed by." This means the amount of debt that the government owes to the public, in general, whether that be private entities like banks or corporations, or individual citizens.

The other debt is money owed to the government, itself ("Borrowing from Peter to pay Paul."), or to non-federal government entities. When the massive Baby Boomer generation was at their earning peak, and with the huge FICA tax hike implemented under Reagan to make Social Security solvent, there were massive surpluses being run in that program, because the number of retirees and the needs required to support them were fairly modest compared to the Boomers in their earning sweet spot. So Reagan handed out huge tax cuts, and borrowed the money from the Social Security Trust fund. The money was removed from Social Security and replaced by bonds (aka "IOUs"). That is inter-governmental debt (or maybe "intra").

If government accounting were honest, we would have seen huge surpluses being recorded in Social Security, and we would have seen even more massive debt being run up by Reagan, Bush, and Bush on the operations side. Instead, we see the sleight of hand where they look at aggregate receipts and payments. During the 2000 elections, there was much talk about the "trust fund." This was related to the amount of borrowing from the SS surplus to debt-fund the supply-side tax cuts.

Answer 4

Your assumption that "...the national debt was debt owed by the government." is correct. John Q Random's mortgage debt is not part of the 'national' debt.

The Wiki entry is a bit vague, "Debt held by the public, such as Treasury securities..." might be better stated as "Government issued bonds and securities available for purchase by non-governmental entities and individual investors."

Though now I wonder if "national debt" refers only to the federal debt, or the combined borrowing of fed, states, counties, and municipalities. Hmmm...

Answer 5

I think Brythan's answer is technically incorrect. I will lay out some assumptions and explain my rationale.

I assume that the loan is not a HUD, VA, or USDA loan, and that it does not have mortgage insurance (80% loan to value) for simplification purposes. Along with the loan price (by far the most important factor), it conforms to GSA seller-servicer guidance and further falls under what is considered a "Qualified Mortgage". These assumptions are meant to conform to the bulk of mortgages sold in the US.

It is very doubtful that this loan has not been bought by the GSEs.

The private sector...controls $3.9 trillion in mortgages or 38.8% of the total loans outstanding. [2017]

The vast number of the loans that the private sector originates are jumbos which this loan is not. Jumbos are defined as those above the lending limits of FHFA of $453,100. While possibly the GSEs did not purchase this loan, it's really not probable. In my estimation less than a 1% chance, and those are usually situations where a banking executive or board member holds the note. There would be no compelling reason given the capital requirements that a bank would ever hold a GSA compliant loan on it's books.

So what happens when FNMA, FRE, or GNMA purchase a loan? They either hold it in portfolio (held for investment, HFI) or sell it (held for sale, HFS). In addition, for loans sold, the GSAs are the guarantor of those loans. (More about this later). However, both portfolios are at least in part financed through loan sales. And the largest purchaser of those loans (but not sole) is the U.S. Federal Reserve.

And how does the Federal Reserve get the money for those purchases? They sell Treasury Securities (or they can print money). As Brythan indicated, that would add to the debt, offset by the mortgage asset on the balance sheet of the Fed.

In addition, the GSAs is the loan guarantor backed by the full faith and credit of the US Treasury. This is not an academic exercise. The US taxpayer is fully on the hook for the performance of the loans the GSEs purchased if they are sold to the Fed or some other third party. While this debt remains an unknown quantifiable until such time as a default may arise, it is an obligation to the taxpayer.

While it's impossible to state whether or not from your example that what I have outlined is the case, the plurality if not the majority of the loans you have described would fit this scenario.