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Federal Debt Held by the Public vs. Gross Debt e Federal Debt Held by the Public ($9 Trillion Outstanding, 62% of GDP in 2010) - Value of all federal securities sold to the public that are still outstanding. - Represents the cumulative effect of past federal borrowing on today’s economy and on the current federal budget. - Net interest payments represent a burden on current taxpayers. e Gross Debt ($14 Trillion Outstanding, 94% of GDP in 2010) - Public debt + intragovernmental debt (related to entities including the Social Security Trust Fund and federal employee / veterans’ pension fund) + net liability of GSEs (related to likes of Fannie Mae and Freddie Mac). - Represents a claim on both current and future resources. e We Focus on Public Debt Levels - Public debt is the base for calculating net interest payments. - Gross debt level could be misleading (to take an extreme example, simply eliminating all trust funds without changing promised benefits for the associated programs would dramatically reduce gross debt from 94% of GDP to 62% of GDP without improving long- term fiscal outlook at all*). - In the future, when intragovernmental debt + net liability of GSEs begin demanding repayments, it is likely financed via material increases in public debt levels. Note: *for more details, see James R. Horney, “Recommendation That President’s Fiscal Commission Focus on Gross Debt is KP Misguided,” 5/27/10. Data source: White House OMB, CBO. (@ 4 www.kpcb.com USA Inc. | Appendix 455 Public Debt = Gross Debt — Intra-Governmental Holdings — Net Liabilities of Government-Sponsored Enterprises (GSEs) 1960 2010 Real Gross Debt Real Gross Debt Outstanding = Outstanding = $2.0 Trillion $13.5 Trillion Net Liabilities of GSEs* Public Debt $9.0T Public Debt $1.7T Other Intragovernmental Other > Holdings Intragovernmental Holdings Social Security 9% Trust Fund 6% Debt Held By the Public F ' A Debt Held By oad <a 62% the Public Meh FUR 85% Note: Data are inflation adjusted.* Net liabilities of GSEs assumes 50% loss ratio on $250B delinquent loans held by Fannie KP Mae / Freddie Mac. Data source: Dept. of Treasury, White House Office of Management and Budget. (@ EB) www.kpcb.com USA Inc. | Appendix 456 HOUSE_OVERSIGHT_021069