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This is an alarmist article that ignores lots of important details and vastly oversimplifies things. For example, few people realize that one of the largest ow
by cs702 8y ago
This is an alarmist article that ignores lots of important details and vastly oversimplifies things.
For example, few people realize that one of the largest owners of US Treasuries and US government sponsored enterprise (i.e., Fannie, Freddie, and Ginnie Mac, or collectively the GSEs) debt holdings is... the US government itself, via the Federal Reserve. As of yesterday, the Fed owns and is earning interest income on $2.3 trillion of treasuries and $1.9 trillion of GSE debt.[a]
In other words, the US federal government and GSE-guaranteed borrowers owe $4.2 trillion to... the US federal government itself.
Among other things, this means the US treasury is currently paying annual interest on $2.3 trillion of US treasuries to the Fed, and at the end of the year the Fed hands over all that earned interest to the US treasury, in perfectly circular fashion.
This startling fact is just one of many -- many! -- important details about modern monetary systems that are generally poorly understood by the public and which are utterly ignored by this article. Don't waste time reading it.
[a] https://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab1 https://www.federalreserve.gov/releases/h41/current/h41.htm#...
- mastermojo 8y agoIt was hard for me to gauge what percentage of total debt that is, so a quick search indicates that by end of year 2018 the US government debt is going to be 21.4 trillion. Roughly 20% of US government debt is held by itself.
- mikeash 8y agoI believe it's more than that. The Social Security trust fund holds another ~$3 trillion in federal debt.
- stonemetal 8y agoAccording to the national debt's Wikipedia page 5.7 trillion is owned by the government. That ends up being about a forth of it.
- rwc 8y agoDo you have suggestions on books or other sources that would enlighten me on these details?
- illumin8 8y agoThis video: http://www.economicprinciples.org/economic-principles/index.html http://www.economicprinciples.org/economic-principles/index....
- sschueller 8y agoIs there a good source explaining how this whole thing works? How do we know that the US isn't just printing this money out of thin air (as in money that is not declared to have been printed)? The system seems extremely complex which worries me that such things might be going on. As the global reserve currency the US has way more power than a country like Venezuela and in my view could be getting away with printing extra money.
- illumin8 8y agoYes, this video explains in very easy to understand terms exactly how all of this works: http://www.economicprinciples.org/economic-principles/index.html http://www.economicprinciples.org/economic-principles/index.... edit: It is a 30 minute video by Ray Dalio, founder of Bridgewater Associates, one of the largest and most profitable hedge funds.
- fspeech 8y agoThe Fed does pay interest on excess reserves these days so the portion of debt that comes from issuing zero interest obligations (namely dollars) is not as large as it seems. As it currently stands, excess reserves are around $1.8T: https://fred.stlouisfed.org/series/EXCSRESNS https://fred.stlouisfed.org/series/EXCSRESNS
- cs702 8y agoYes. My comment was meant to illustrate sharply the utter lack of depth of this article, without going into too much detail... but thank you for pointing that out :-)