The US National Debt And Perspective ….

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Often times, we hear that the US is indebted so much to foreign nations, that we’re beholding to said nations.  Typically, recently, the nation which is most often named as the US creditor is China. 

Well, it is true, China does own some US debt.  Indeed, they own the most US debt than any other nation in the world …. for now.

Foreign ownership of US debt rises; China reclaims top spot

WASHINGTON (AP) — Foreign holdings of U.S. debt rose in March as China ramped up its purchases and displaced Japan as the leading owner of U.S. Treasury securities.

The Treasury Department says overseas ownership of U.S. debt rose 2.1 percent in March to $6.18 trillion. That is below January’s record of $6.22 trillion.

China added $37.3 billion of Treasury debt, bringing its stockpile to $1.26 trillion. That’s ahead of Japan, which added just $2.5 billion, lifting its total to $1.23 trillion.

In February, Japan became the leading owner of U.S. debt for the first time since August 2008. China overtook Japan that year as the Great Recession, higher government spending and a steep drop in tax revenue pushed up U.S. government borrowing.

The U.S. deficit topped $1 trillion from 2009 through 2012.

Foreign governments, primarily through their central banks, account for two-thirds of the foreign holdings. In March, the total held by foreign governments rose 1 percent from the previous month to $4.13 trillion.

A group of oil exporting nations, which includes Saudi Arabia, Iraq, Algeria, Venezuela and Nigeria, added $500 million to bring their holdings to $297.3 billion, the third largest. Caribbean banking centers, a group that includes the Bahamas and the Cayman Islands, added $10.9 billion, lifting their holdings to $293 billion, the fourth largest.

Demand for U.S. Treasurys, widely considered one of the world’s safest investments, is likely to remain strong. While U.S. interest rates are still low, they may climb later this year if the Federal Reserve begins to raise interest rates.

Now, don’t get me wrong.  I’m not in favor of selling our debt to foreign governments.  I firmly believe there should be a law against it.  It should never be allowed for even the impression that our nation is subject to the command of another nation, especially because of our debts owed.  But, we should interject some reality, when we can, to the conversation.  The point is, we should, by law, prohibit ever being able to become as Greece is.  But, the reality is, we’re nowhere close to that situation. 

It is American institutions and the American people who are largest US debt holders.  ….. And, if we are to drill down as to who or what among American is the largest US debt holder, it would be Social Security. 

One of my biggest concerns is the interest paid towards our debt.  Currently, we enjoy historically low interest rates.  As alluded to, this is related to the interest paid towards our debt.  But, even still, it is our 5th largest expenditure, today.  When interest rates go up, and they are certain to do so at some point, it will easily be the 4th largest expenditure, and moving on upward to eventually surpass even our defense budget.  Left unchecked, it will be our largest expenditure, after all the baby boomers die off …… assuming the millennials will one day learn how to be productive people and not sponges. 

IMHO, we should move to cease the endless money games with Social Security.  The fact of the matter is, it is a government agency.  We’re long past the pretense that it’s the individual citizens money.  It’s an entitlement program.  It’s a tax.  It’s run and ruled by the federal government.  If we simply quit pretending it’s something separate, and officially absorb it into the US federal government, then our elected officials would have to quit pretending.  You can’t borrow money from yourself, which is exactly what our government does in regards to Social Security, because we’re all intent on pretending it’s something it isn’t.  Yes, it is suppose to be something different, it just isn’t.  And, it allows for our elected officials to play pretend. 

At some point, if we don’t stop pretending, SS will cease being the cash cow that it is today.  (2030 or so).  At that point, SS won’t be able to pay the benefits it promises to retirees without the federal government repaying the money it’s “borrowed” from SS.  Of course, the feds won’t have the money.  So, they’ll either renege on the benefits promised, or, borrow more money from other entities ……. like China …… or Russia ….. or OPEC ….

Then, we’ll have a real concern about whether or not we are beholding to another nation.    

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8 Responses to The US National Debt And Perspective ….

  1. leftinflagstaff says:

    Or seize checking and savings accounts.

  2. Latitude says:

    …and all that scares the ….. out of me

    I don’t think people realize what one point of an increase in interest really means

  3. Rich says:

    The really sad but scary part of all this is that the people running the government refuse to actually listen to anyone who talks about reducing spending. Oh, sure they give it lip service and make campaign speeches but they never actually make any effort to do the things necessary to stop or even slow spending. The top dogs in DC have actually said they don’t think there is a problem! They do listen to “economic experts” who tell them not to worry they can just keep printing more money to spend. Have actually had conversation with a very well educated individual who said ( I kid you not) ” we can print as much as we need, the money is backed by the full faith and credit of the American people”. When I asked him to explain just what that meant he just looked at me and couldn’t coherently explain himself. Finally he gave up and said that I “couldn’t understand monetary or macro-economic policy”. To me it sounded like a true believer of crystal magic or astrology.

    • suyts says:

      No doubt. “Faith and Credit” only works when people and other nations have faith in the US government and is willing to extend the govt credit. Greece is starting to understand this notion.

      Rich, welcome! Sorry about the wait in moderation. You’re now approved to freely comment w/o moderation.

  4. Keitho says:

    Alternatively China sees US paper as being a safe and sensible investment as do many nations and individuals around the world. In the event China decides to disinvest for whatever reason there are plenty of others looking for safe investments.

    • DirkH says:

      China still has the Dollar peg. Chinese companies who receive Dollar payments from American customers MUST exchange them against Yuan at the PBOC. This mechanism ensures that fresh Yuan are printed in tandem with received US currency.

      The PBOC exchanges the Dollars received for treasuries.

      China itself does not want this anymore. More and more Chinese companies make agreements with foreign trade partners that the goods must be paid in Yuan. The amount of exports paid for in Yuan is still small but rising quickly.

      IF the growth of Chinese US treasury holdings DID actually happen and is not a brazen propaganda lie, it is a PROBLEM for the Chinese government, not something they WANT.

      They will accordingly accelerate their efforts of making Yuan available outside China, and introduce more Yuan swap lines with other countries, like they already have with Canada, Australia, Germany.

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