NCPA - National Center for Policy Analysis

Agency Debt vs. Treasury Debt

August 5, 2011

The huge debt of Fannie Mae, Freddie Mac, other government-sponsored enterprises, and other off-budget government agencies ("agency debt") fully relies on the credit of the United States.  This means it by definition exposes the taxpayers to losses, but it is not accounted for as government debt, says Alex J. Pollock, a resident fellow at the American Enterprise Institute.

In 1970, agency debt represented only 15 percent of Treasuries.  By 2006, this had inflated to 133 percent.  At that point, there was a lot more agency debt than Treasury debt -- more government debt off-balance sheet than on it.  To move debt off balance sheet was a preference shared by many financial actors during the bubble, but the government had been consistently doing so for almost 40 years.  At the end of 2010, agencies were 81 percent of Treasuries, still a notably high level, says Pollock.

  • In 1970, Treasury debt held by the public ("Treasury debt") was $290 billion.
  • Agency debt was small by comparison: it totaled only $44 billion.
  • But by 2006, at the height of the housing bubble, while Treasury debt was up to $4.9 trillion, agency debt had inflated to $6.5 trillion.
  • Treasury debt had increased 17 times during these years, but agency debt had multiplied 148 times.
  • At the end of 2010, Treasury debt was $9.4 trillion and agency debt was $7.5 trillion.

The expansion of agency debt not only imposes risk and realized losses on taxpayers, it also increases the cost of Treasury's direct financing by creating a huge pool of alternate government-backed securities to compete with Treasury securities, and thus increases the interest cost to taxpayers.

Source: Alex J. Pollock, "The Government's Four-Decade Financial Experiment," The American, July 13, 2011.

For text:


Browse more articles on Economic Issues