U.S. Debt Shrinks for First Time in 6 Years

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The U.S. will reduce the massive federal debt for the first time since 2007. But can we keep it up?

Between higher taxes and sequestration budget cuts, it’s nice to know we’re finally making a (tiny) dent in the federal debt.

The U.S. Treasury expects the debt will shrink by $35 billion in the second quarter of the year. That’s the first debt reduction since 2007, before the recession hit.

Three months ago, the government figured it would have to borrow an additional $103 billion for the period, Bloomberg says.

What changed? Economic growth from housing and jobs, and more tax revenue, according to the government.

The federal deficit — the amount of government spending not covered by revenue each year — has also been improving for a while. It fell from 10.4 percent of gross domestic product in 2009 to 6.7 percent in 2012 and may be down to 3.7 percent by 2015, Bloomberg says.

Getting it to 0 percent would mean a balanced budget, and moving further in that direction would allow us to consistently pay down the massive federal debt.

However, we’re not there yet. The federal debt is still approaching $17 trillion, and this quarter’s net improvement may have been a fluke. The Treasury expects to borrow $223 billion for the third quarter, which begins July 1. We’re still on course to hit the debt ceiling, and that will mean more fighting in Congress over what should be cut next.

Stacy Johnson

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