Who Owns American Debt?

default
167
INTERACTIONS
source: Congressional Budget Office

The most talked about issue this election, and over the past four years, has been the United States’ debt. ‘Are we in a debt crisis?’ ‘Will China foreclose on America?’ ‘America is drowning in debt’, are just a few of the headlines often brought up during the conversation surrounding America’s debt. The question remains, who owns American debt?

Simply put, ‘the debt’ is the amount of money the United States government must borrow to cover expenditures when it does not collect enough revenue. Everything the government does, from fueling aircraft carriers, to federal entitlement programs like social security and Medicare, to paying the salaries of elected officials make up these expenditures.

The debt, issued by the U.S. Treasury, is usually calculated by finding the aggregate disparity between America’s Gross Domestic Product and annual debt obligations. Current US debt is clocked at about $16 trillion dollars, whereas this years projected GDP is estimated at $15.6 trillion.

 

credit: Government Accountability Office

 

The government borrows from various global entities including domestic investors, enabling the US to technically owe some of its debt to itself. As of the end of 2011, foreign ownership of U.S. debt has increased almost 10 percent, from 37 percent in 2001 to 46 percent. The other, domestic, 54 percent is made up of: private investors, 32 percent, state and local governments, 6 percent, and the Federal Reserve, 16 percent.

When looking at foreign debt obligations specifically, it is true that China is the largest foreign owner of US debt, but Japan is a very close second and could overtake China in the coming years. A treasury department report calculated using data through August 2012, found that China holds nearly $1.2 trillion in Treasury securities whereas Japan holds about $1.1 trillion. This constitutes roughly 40 percent of all foreign Treasury securities. The third largest holder of these securities is a coalition of oil exporters, which includes Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates, Algeria, Gabon, Libya, and Nigeria. These countries combined hold $260 billion in U.S. Treasury securities, less than 5 percent of the total.

 

credit: Government Accountability Office

 

While looking at China and Japan’s massive fiscal investment, the typical inclination is to be suspicious. The Government Accountability Office notes several reasons why any country would buy so much American debt.

 “Treasury securities are attractive to investors because they are backed by the full faith and credit of the United States government, are offered in a wide range of maturities, and are exempt from state and local taxes… A key reason investors purchase Treasury securities is because they are liquid—that is, investors can easily trade the security because there are many people interested in buying and selling at any given time… In 2011 daily trading volume in Treasury securities averaged more than $550 billion, compared to approximately $900 billion in total trading in U.S. bond markets. Trading volume of Treasury securities remained robust during the financial crisis in 2008 and 2009 when investors were generally uncertain about the financial condition and solvency of financial entities. Treasury securities were viewed as a ‘safe haven’ investment.”

Over the last decade, the trend regarding US debt ownership has been a dramatic increase in foreign investment while domestic investment by individuals and local governments has decreased.

Domestic entities like private U.S. citizens, banks, and pension funds compose the second-largest percentage of debt ownership, at 32 percent. The Federal Reserve is next in line at 16 percent.

The Federal Reserve purchases a large amount of US debt in order to implement monetary policies that are intended to stimulate growth or stabilize the economy. These ‘open market operations’ consist of buying or selling Treasury securities in order to raise or lower the interest rates at which banks lend to one another and, transitively, the rates charged to consumers.

The staggering amount of US debt has not come without consequences. During the August 2011 debt ceiling debacle, the US lost its AAA credit rating when Standard and Poor’s downgraded it to AA+.

If the US doesn’t slow or reverse the accumulation of debt sometime in the near future, even greater economic repercussions might result. The common threat of China cashing in and taking over is absurdly unlikely, but other negative consequences still loom.

Read More On:
The Independent Voter Network is dedicated to providing political analysis, unfiltered news, and rational commentary in an effort to elevate the level of our public discourse.


Learn More About IVN

Leave a Comment
  1. Gerry Feldman The election-driven government is inherently fiscally irresponsible, because giving people whatever they want keeps politicians in power. The federal government should hand off social welfare to the states, quit policing the world, and replace all taxes with a consumption-tax-and-rebate system. (The rebate would be a $50 bonus on your weekly paycheck to offset the first $2600 of consumption tax. This helps out low-income families and incentivizes people to get a job, thereby boosting GDP.)
  2. James Poll https://www.youtube.com/watch?v=WK6SS4ETHWQ Another argument. This takes unfunded liability and add it to the equation. Serious serious issue.
  3. James Poll https://www.youtube.com/watch?v=R0LOXUEsBlI This does a great job at shrinking the national debt down to a size we can related to. It examines it from the level of one average American household. It really helped me wrap my brain around the debt issue.
  4. James Poll Nice look at the founding fathers and some world history. Put's our situation in context. We need to balance our national checkbook and live within our means. https://www.youtube.com/watch?v=j7M-7LkvcVw
  5. Andy Tiede Elect Gov. Gary Johnson for President. It's as simple as that.
  6. Paul Grajciar Large oil companies did this to smaller countries once. The result was nationalization of those countries oil reserves, OPEC and $4-8 a gallon for gas. Just the sheep coming back to roost!
  7. Debbie LeBlanc First - STOP BORROWING!
  8. November 7th Alliance @Edward Theilmann- Agreed! Neither party will do what needs to be done-- cut spending AND raise taxes, while sponsoring infrastructure rebuilds, keeping up with social obligations and ending military engagements... That's why we need to get OTHER parties in office. Start on the local and state level-- work up to Congressional races and the presidency. https://www.facebook.com/November7thAlliance
  9. Gil Sery Can someone please explain to me how the U.S. is going to chastize China for being a currency manipulator and/or for trade issues, when they are the ones who hold a lot of the U.S. debt. Isn't that like the child punishing the parent?
  10. Cassidy Noblejas Bartolomei Thanks, Kevin!
34 comments
Gerry Feldman
Gerry Feldman

The election-driven government is inherently fiscally irresponsible, because giving people whatever they want keeps politicians in power. The federal government should hand off social welfare to the states, quit policing the world, and replace all taxes with a consumption-tax-and-rebate system. (The rebate would be a $50 bonus on your weekly paycheck to offset the first $2600 of consumption tax. This helps out low-income families and incentivizes people to get a job, thereby boosting GDP.)

James Poll
James Poll

https://www.youtube.com/watch?v=R0LOXUEsBlI

This does a great job at shrinking the national debt down to a size we can related to. It examines it from the level of one average American household. It really helped me wrap my brain around the debt issue.

Andy Tiede
Andy Tiede

Elect Gov. Gary Johnson for President. It's as simple as that.

Paul Grajciar
Paul Grajciar

Large oil companies did this to smaller countries once. The result was nationalization of those countries oil reserves, OPEC and $4-8 a gallon for gas.

Just the sheep coming back to roost!

November 7th Alliance
November 7th Alliance

@Edward Theilmann- Agreed! Neither party will do what needs to be done-- cut spending AND raise taxes, while sponsoring infrastructure rebuilds, keeping up with social obligations and ending military engagements...

That's why we need to get OTHER parties in office. Start on the local and state level-- work up to Congressional races and the presidency.

https://www.facebook.com/November7thAlliance

Gil Sery
Gil Sery

Can someone please explain to me how the U.S. is going to chastize China for being a currency manipulator and/or for trade issues, when they are the ones who hold a lot of the U.S. debt. Isn't that like the child punishing the parent?

Catherine Lemek
Catherine Lemek

Return as much responsibility to the local communities, where it belongs in the first place. Education and educators, Police stations and police, Fire stations and emergency responders used to be the responsibility of the community and were supported through property taxes, state sales taxes and bond issues. Hold the government accountable for border defense and national security as opposed to allowing them to install welcome mats and support national high jacking. The federal government can raise funds during war through war bonds and people who disagree with the war may vote their disapproval by not purchasing them. Increase import taxes which will not only raise revenue but will assist in the imbalance of trade which has driven manufacturing in the US to near extinction.

Edward Theilmann
Edward Theilmann

Dump the democrats and republicans and elect people with the backbone to do what is necessary.We need to manufacture cheap goods like China does and reverse the trade deficit.We also need to end all this cops of the world crap,stop all corporate welfare,and tax the daylights out of the rich and if they don't like it too bad

Carlos Perez
Carlos Perez

Bring all the troops home ,and forgot to be the world police..!

Joel Regen
Joel Regen

nuke the fed, irs, DHS, TSA, etc, cut all income/profit/corporate taxes, use fair tax at 10% and cut all federal spending that is not constitutional - basically balance the f'ing budget

Johnny Ritchie
Johnny Ritchie

The tax break for the super wealthy should have been ended immediately when we went to War in 2001-2002. The Wars have added greatly to the Debt. Tax Havens in the Caymans Islands does not pay for WARS.

Matthew Houston
Matthew Houston

If we'd followed through on our obligations with ... Iraq in the 80's, Afghanistan in the 80's, Iran in per-revolutionary time, New Orleans pre-Katrina, and Russia as it followed our demands.... We might have avoided much cost and retained more value.

Matthew Houston
Matthew Houston

We need to stop changing course so often and invest in education and infrastructure. Some examples of the cost of temporary/cursory commitments? Saddam Hussein, the Ayatollahs, hurricane Katrina, the collapse of Russian economy and the Taliban

Judy Ferro
Judy Ferro

Actually, we learned that when we pulled out of Korea and then Viet nam. Yup, we learn that in every war. We could have war bond drives like WWII and keep more of that debt at home. I still have WWII bonds--worth more as souvenirs than as bonds.

Charles Keagle
Charles Keagle

Americans "OWN" This Debt. It's Brought To Us Via Bribed Politicans And Politicians Who Seek To Destroy America.

Dixie L Williams
Dixie L Williams

Van Akins- 2008 it was 10.5 trillion now its 16 plus trillion obama promised to cut the debt in half , what does that tell you.

Van Akins
Van Akins

what was it in 2008 ? or should i say 2009 after the wars was figured in, this is why we don't need to play WORLD POLICE !

Joel
Joel

I think the American people are woefully ignorant of how badly they are getting screwed by the international banking cartel (banksters) via the federal reserve. I think we have been misinformed (and disinformed) for decades on the true nature of money and commerce and finance. I think people need to wake up. Start here: http://www.peakprosperity.com/crashcourse

Jane Susskind
Jane Susskind

I don't know why there isn't more of a sense of urgency in fixing the debt crisis. $16 trillion dollars is a huge deficit, and yet we still see government spending in excessive levels. American people are also at fault, expecting to receive the same benefits from a government in debt and not willing to pay more taxes to solve the problem.

Lucas Eaves
Lucas Eaves

I think that as long as the US remain a huge market that China needs to sell its stuff to, we are fine. But how long is that going to last?

KeninSD
KeninSD

Jane, what we actually have is a revenue crisis brought on by the prolonged recession. In the short term, the fix for a stalled economy is to increase fed spending to spur other economic actors to join in once the economy is growing again. Coupled to higher revenues from a growing economy, the government can get spending down and decrease the national debt.

Craig D. Schlesinger
Craig D. Schlesinger

Unfortunately, we cannot simply tax our way out of the fiscal and monetary crisis. It's going to take some serious spending cuts across the board. That means embracing the third rail of American politics - military and entitlement spending. Check out Economist Antony Davies explaining in this great video from LearnLiberty.org:

http://youtu.be/FC5Gkox-1QY

KeninSD
KeninSD

Cassidy, technically, a lowering of any debt rating results in an increase in the cost of borrowing through a higher interest rate. However, in the this case, it was more of a political statement about the irresponsible manner in which last year's rethuglican manufactured debt ceiling crisis was prolonged to nearly cause a default by the US government.

US Treasury notes are being offered at historically low rates, so the loss of a AAA rating has had no real effect on US Treasury borrowing..