18 ms·

Who Owns the US National Debt?

147 points by omarfarooq 5y ago

bikamonki 5y ago
More importantly: will it ever be paid? Let's say this is a household that decides to stop accumulating debt and starts a pay off plan. How long will it take?
- jl6 5y ago
  First order answer: GDP is about $20tn, debt is about $30tn, so if everybody put half their income towards paying down the debt, it would be paid off in about 3 years.
  - rwmj 5y ago
    Assuming you could get every American to agree to that (good luck!) the economy would be massively transformed while everyone stopped spending on every luxury and most necessities. I guess this would require enormous government intervention to prevent all the out of work shopworkers and manufacturers from starving, which might require taking on a bit more debt. (The serious answer to the original poster's question is that the US economy is not like a household and the debt does not to be paid off, nor will it ever be paid off.)
    - jl6 5y ago
      Quite, hence “first order” - although every dollar paid back needs to be paid back to someone, and as the article points out, the majority of the debt is held by US taxpayers, so that money is still likely to be participating in the US economy, just flowing through different hands.
    - JackFr 5y ago
      People investing in treasuries do not want your cash. Thayer had cash and spent it on treasuries. They want cash in the future to match their future liabilities. There is a real utility to having a vehicle for investing free of credit risk.
      - rwmj 5y ago
        Pensions are another investment where you need somewhere safe to "store" the money. Government bonds are one of those safe places. A quick search says US pension funds alone invest about $32 trillion (not all in bonds of course).
  - annoyingnoob 5y ago
    > if everybody put half their income towards paying down the debt You realize how unrealistic that is right?
    - Jxl180 5y ago
      Yeah, what a dummy. If everybody put 100% of their income toward paying the debt, we’d be debt free in 1.5 years!
      - 6510 5y ago
        1.5 without eating? I think people would be debt free much faster.
  - sp332 5y ago
    GDP doesn't measure people's income. It measures capital expenditures and consumption. So it would be a 50% sales tax and 50% tax on capital spending.
    - jl6 5y ago
      That’s just another method for estimating the same thing: https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/methodologies/nationalaccounts https://www.ons.gov.uk/economy/nationalaccounts/uksectoracco...
      - sp332 5y ago
        Ok but it still includes corporate income. It's not just 50% of people's paychecks.
  - stephen_g 5y ago
    That's not how it works at all though. It's not really something that is "paid off", it's a stock of bonds that eventually come due, and can be rolled over into new bonds basically forever. The actual constraints to the issuance of the bonds or money is 1) available natural resources, 2) available labour resources, and 3) inflation (which is usually a result of money issuance or velocity outstripping (1) or (2)).
- version_five 5y ago
  As I understand, these debts will never be repaid, they will be inflated away so that they remain inconsequential (for some definition of that word) relative to the size of the economy. This is true e.g. for corporate bonds as well, they are a structural part of financing operations rather than a loan to do a specific thing that then gets paid back.
  - syncsynchalt 5y ago
    That's my understanding too. Another way that I've heard it: you don't need to reduce your national debt, rather you need to ensure that your tax base is growing more quickly than your debt.
  - lottin 5y ago
    This might work for long maturity bonds, but debt in the form shorter maturity bonds (0.5 to 5 years) can't really be "inflated away" without destroying the economy in the process.
    - ac29 5y ago
      Right now 5 year US government debt pays less than 1%, with shorter maturities paying less than that. Inflation is always a touchy subject, but I think we can agree that 1%/yr or greater inflation is hardly unimaginable over the next 5 years. https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield https://www.treasury.gov/resource-center/data-chart-center/i...
      - lottin 5y ago
        Sure, but for this scheme to work, the increase in inflation has to be unexpected. If the expected real return is too negative, nobody will buy the bonds in the first place.
  - verdagon 5y ago
    The treasuries I've seen are adjusted for inflation, so this won't happen to those. Not sure if there are also un-adjusted treasuries though. Probably?
- thpint 5y ago
  No, it won’t be. Society will collapse, humanity will die out, or we’ll legislate it away. Two of the three have happened before. No national debt has ever been paid off. Cheney said the quiet part out loud back in the day with “deficits don’t matter.” Debt is circular political chicanery. Humans participate in economic activity to survive. Not to enrich a minority. The idea we have to owe some random person to exist is ludicrous on its face. Aristocratic minorities are as outdated as monarchy and slavery.
- rmah 5y ago
  Government finance is not like household finances or even business finances. Most critically, the government controls the issuance of money. In the USA that's done via the Federal Reserve. Which while not part of the government per-se, is sorta controlled by the government. If the USA wishes maintain the US Dollar's position as the de-facto international currency, then it must maintain a negative balance of trade and high debt levels. Simple fact is that foreigners cannot use USD if they don't have any USD (in the form of cash or US Treasuries). There was once a hope that the Euro could rival the USD but that dream is dead in most people's eyes.
  - toomanydoubts 5y ago
    You seem to have moved from "the government controls the issuance of money" to "a private organization that controls the issuance of money is sorta controlled by the government" really fast. This are most definitely not the same thing.
    - stephen_g 5y ago
      The Federal Bank is only independent from the US Government in a very symbolic way. The system only exists as set out in US Legislation, the President of the US appoints all the board members and designates which is the chair, they all have to be confirmed by the US Senate, etc. etc. The "private ownership" in that member banks hold stock is also largely symbolic, given that they can't sell the stock and the stock doesn't give them any control, voting rights, etc.
    - rtpg 5y ago
      Congress could, tomorrow, choose to just take control of the fed if it was being such a problem. They have done things to this effect many times in the past!
- pjc50 5y ago
  The US is very much not a household; long duration low interest tbills are almost a special form of high denomination currency. If the treasury stops selling them into the market and doesn't issue new ones, strange things happen, starting with the loss of control of interest rates. You'd probably see a bidding war over the remaining bills, resulting in slightly negative effective rates. Especially for the 30 year ones, which are currently below 2%. https://www.ft.com/content/a0482f69-be5c-4d92-ae59-17a8e2b2cdde https://www.ft.com/content/a0482f69-be5c-4d92-ae59-17a8e2b2c... (This is the modern version of "shortage of specie", shortage of physical coins, which occasionally paralyzed pre modern economies)
- rsj_hn 5y ago
  That is a truly bizarre question to ask of a sector of the economy. In fact, it's so bizarre as to be a category error. You might as well ask, when will household debt be zero? Well, household debt refers to debt owed by a sector of the economy; it is not, you know, an actual person that will retire and move to Florida. Neither will our government retire and move to Florida. Our government is not saving up for the days when it collects no taxes. There is no clicking tock that says it's time for government liabilities to shrink to nothing. Similarly the corporate sector is never going to "repay" all corporate debt. Corporates are not planning on retiring and earning no more revenue. Like all other sectors, debt is rolled over and grows with the overall growth of the sector, generally in line with the growth of revenue. For the government, that means tax receipts. The government is a sector of the economy that will maintain a positive debt level just as households and corporates. That does not mean that things like interest rate burdens and debt ratios can be ignored. When looking at the health of the corporate sector or the household sector or the foreign sector, we do look at various ratios, and the government sector is no different. But all of these ratios like debt to income for non-financial business assumes that the debt level owed by non-financial business will never be zero. So asking when government will "pay back" debt is silly. The government will pay back debt when the household, financial, and foreign sector no longer wish to hold liquid risk-free assets and decide to own gold, seashells, and bitcoin instead. That would be never.
  - BiteCode_dev 5y ago
    So why do we repay the debt at all?
    - tantalor 5y ago
      It matures, e.g. 10 year treasury note has to be paid off in 10 years
      - BiteCode_dev 5y ago
        That's like saying we must pay them because we said we will pay them, which is the definition of debt. My question is more, that given your comment and others suggest it will never been paid completely, why then pay at all? What's the threshold for "we pay this, but not that"?
- rojeee 5y ago
  Debt is money. So, if we pay off all the debt then we won't have any money other than (probably) physical notes but even then there won't be any debt for the central bank to collateralise the physical notes - physical notes are a central bank liability and therefore must be balanced with an asset (debt, usually). Debt isn't inherently bad. However, if mis-managed or abused then both creditors and debtors get into trouble.
  - Jensson 5y ago
    Do the US government pay interest to you on your dollar bills? If not I don't see how that is debt. Lots of countries has a currency without paying huge amounts of interest to support it.
    - rojeee 5y ago
      That was my point. Physical bills are not debt - everything else is! Update for clarification - initial response was a bit flippant and not very well considered... Technically phyisical bills ARE debt (they are a liability of the central bank, after all) but they don't _behave_ like debt because they yield 0%.
btilly 5y ago
The flip side of Social Security owning the US national debt is that Social Security's solvency is entirely dependent upon the USA being able to pay. If you assume that, then Social Security is fine for decades to come. Unfortunately once the Baby Boom retires and their SS payments come due, there is no reasonable path to the US government being able to actually pay. Doubly not when expenses from Medicare is projected to double in the next decade. And yes, I know it is popular to say that we can just cut the military. But that is not enough. In fact if we eliminated all government programs except social security, medicare and medicaid, by the middle of this century our federal budget still can't add up. :-(
- lotsofpulp 5y ago
  Any government with the ability to print its own currency can always pay a debt denominated in its own currency. The only question is whether or not the currency can retain its ability to procure labor and materials. I have no qualms about getting the numbers I am owed from social security deposited into my account. I do wonder how much I will be able to buy with it though.
  - umvi 5y ago
    Yeah let's just print trillion dollar bills to pay off the debt. Zimbabwe had trillion dollar bills if I remember correctly.
    - alangibson 5y ago
      Google Modern Monetary Theory. The jist is that printing money is only inflationary when the nations productive capacity is fully utilized.
      - blowski 5y ago
        MMT does say that, but MMT is far from being widely accepted as correct.
mindvirus 5y ago
The weirdest part of all of this: all of the debt is in a currency it can print, and the USA is mostly in debt to itself.
amin 5y ago
The last paragraph sums it up well: "The Bottom Line Many people believe that much of U.S. debt is owed to foreign countries like China and Japan. The truth is, most of it is owed to Social Security and pension funds. This means U.S. citizens, through their retirement money, own most of the national debt."
- smitty1e 5y ago
  That means that I need to pay myself in order to be paid? At the risk of sounding pejorative, and understanding that there are volumes of sophistries in support of the status quo: how is this not effectively a Ponzi scheme?
  - loeg 5y ago
    The essential element of a ponzi scheme is that investors are deceived. > A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds. In contrast, the Social Security model is pretty transparently a wealth transfer from workers to the elderly and disabled.
    - akoncius 5y ago
      so main difference is kinda transparency? everything else matches. you (old investor) are receiving profits from new investors. and in some countries retirement money is speculative matter for politicians (vote for me I will increase retirement payments).
      - lotsofpulp 5y ago
        Main difference is the profits come from work being performed by members of society that can work, in the form of actual problems being solved. The members of society who are working hope this will help perpetuate the cycle by allowing new members of society to work and solve problems when the previous working members are not able to work.
anthony_r 5y ago
There's a lot of misunderstanding about what is currency and what is debt. All modern currency is debt. All of it. The amount of debt created and the amount of new money created is equal, because x=x for all x. It's just that simple - there isn't a difference. There are the printed bills (that everyone has access to), there's the digital base money printed by the Fed that you keep hearing about, it's the liabilities side of their balance sheet (that only select large financial institutions have access to), then there are govt bonds and govt-guaranteed bonds (Mortgage-backed securities) (which again everyone has access to, but they're impractical for day-to-day conduct of business; they're extremely liquid though, you can convert them by the hundreds of millions to bills/base money by a single phone call). But all of this is money, just different types / quality of money. Operations such as QE are just a means of conversion between the types of money. For example since 2008 we have continuous conversion of high quality bonds (govt and govt-guaranteed) into base money (the top quality money). All of it is still a government liability, since the Fed is a part of the government. Similarly, the Social Security buying Treasury bonds is just an internal government operation. Pension liabilities are just like government bonds (it's a promise to deliver money at a later point in time), if you fund a pension liability with tbonds you're just doing some internal reshuffling within the federal government books. No actual funding takes place, i.e. no one is delaying their personal (or corporate or nonprofit) consumption in exchange for a future payoff. If you don't believe me then please try to explain why hasn't Japan experienced a double or triple digit inflation. They are so much more advanced in the "central bank money magic". PS. I'm using "quality" to refer to types money to simplify a bit, the more accurate first order approximation term would be "duration". Then there are further technicalities such as coupon structures, whether or not the coupons depend on the CPI (TIPS), whether or not they exist at all and maybe you just get a lump base money sum at the end, etc. PS2. I've skipped the (actually larger) private credit. Yes, bank credit and the bond market also create money, though definitely lower quality than anything discussed above. Private credit is allowed to disappear at any given point in time. The Fed is currently not allowed to touch private credit whatsoever (this might change if the Congress decides so), they very briefly violated their own rules in March of 2020 by doing a weird type of deal with the Treasury (which is allowed to deal in the private credit, as the Treasury is allowed to spend; buying a bond that later defaults is effectively spending). And by the way: their announcement of an intervention in the non-govt guaranteed credit markets was the exact bottom of the covid market panic.
xhrpost 5y ago
> The truth is, most of it is owed to Social Security and pension funds After all that data, how did they come to this conclusion? Based on numbers in the article, SS and pensions account for only 13%. The clear largest holder is the federal reserve + government at 35%. Whether or not this means US citizens effectively own most of the debt is another discussion.
- deleted 5y ago
  [deleted]
keewee7 5y ago
From across the Atlantic it sounds like US national debt is often brought up by Internet libertarians as to why the US can't afford basic healthcare and welfare for its citizens. It's manipulative strategy that takes advantage of people wrongly thinking that national debt is like personal debt. There are plenty of countries with higer national "debt" as % of GDP and with a higher quality of life than the US: https://en.wikipedia.org/wiki/List_of_countries_by_external_debt https://en.wikipedia.org/wiki/List_of_countries_by_external_... https://en.wikipedia.org/wiki/List_of_countries_by_public_debt https://en.wikipedia.org/wiki/List_of_countries_by_public_de...
runawaybottle 5y ago
I am somewhat confused by all of this. If mostly pension/mutual funds, social security, military, Medicaid, is buying our debt (as in Americans are buying its own debt? Very confused), aren’t we basically saying the economy can never have a serious prolonged correction? We’d all have to default on the debt we bought to give ourselves? Really confused and scared here.
- lotsofpulp 5y ago
  >Very confused), aren’t we basically saying the economy can never have a serious prolonged correction? We’d all have to default on the debt we bought to give ourselves? It can have a serious prolonged correction. "The economy" is the sum total of the productivity of a country, and in some ways is a measure of the expectation of what one can expect to come out of the country, especially stability. The glue that holds it together is trust amongst its participants, and I would say that a currency's desirability is a combination of the trust one has in the ability for a society to continue delivery desirable goods (including stability). People in society also have expectations about their future quality of life, based on assumptions that may or may not be true. Debt is priced based on these assumptions, and it is certainly possible that if assumed rates of economic growth are not met, then debt will be defaulted on. It has already happened in some local governments (e.g. Detroit), and I assume it plays out the same way. Members of the society that experience the default will go through pain and suffer losses. On a national level, one might experience revolution or violence. But it all depends on the level of trust and cohesiveness amongst the members of society. Right now, based on the USD's purchasing power, it seems that relative to other societies in the world, a lot of people around the world still assume US society and government will be relatively stable and able to deliver desirable goods and services for the foreseeable future. Of course, this is all speculation, and any society at any given point in time may be in an inevitable downward spiral, or in a temporary downward trajectory, or just about to hit the local minima and about to experience a boom.
  - runawaybottle 5y ago
    That’s what scares me. I actually don’t think we have the type of productivity in our country to be so aggressive with awarding ourselves debt. Our major growth industry mostly makes apps. We don’t even have a proper semiconductor industry in America. People are getting older. Where is all this productivity going to come from? From everyone switching to web development and making more TikTok apps? That’s the productivity that we think will pay trillions of dollars worth of Medicare/social security? I don’t really see it. I just read a wsj article about how men have pretty much stopped going to college: https://www.wsj.com/articles/college-university-fall-higher-education-men-women-enrollment-admissions-back-to-school-11630948233 https://www.wsj.com/articles/college-university-fall-higher-... What is this productive future we are envisioning here? Bunch of SaaS apps?
ur-whale 5y ago
> The Biggest Owner Is Not Foreign Entities, but U.S. Taxpayers In other words, the average US citizen has, over the years, been taxed way harder than they've ever realized. And the argument that this is a "debt" and can therefore be "repaid" at some point does not hold, since it will be repaid in USD, whose value generally decreases over time and is controlled by the USG (they can produce arbitrary amounts of it). Nice way to boil the frog.
- akira2501 5y ago
  > In other words, the average US citizen has, over the years, been taxed way har I look at it through the shares of income to the Treasury. In 1950 the Treasury took in $39 billion, adjusted for inflation that would be $458 billion today. 40% of that was individual income taxes, 10% was social security. 26% was corporate taxes, and 20% was excise taxes. In 2020 the Treasury took in $3,421 billion. 47% of this was individual income taxes, 38% was social security. 6% were corporate taxes, and 2.5% was excise taxes. The individual burden went from 50% to 85% over the past 70 years.
- mempko 5y ago
  Every dollar the US spends goes into the private sector. Your bank account. US debt is private sector savings. Some of that savings is interest bearing like US treasuries. Think of it like a bathtub. Spending is the spout, and taxes are the drain. The US must spend more than it taxes otherwise there won't be money in the economy.
chronolitus 5y ago
It almost feels as though economics discussion is made complicated on purpose. Almost none of the comments and article mean anything practical to me. A country issues debt to itself? In money it can print? Here's the crux: The US goes into 'debt', to pay for something. Where did the money (resources) come from? - it printed it itself -> that isn't debt, just 'money creation' - someone else -> it is debt, owed to another entity You can't pay your groceries by taking a loan from yourself, you either have the money or you don't
- weavie 5y ago
  I believe this is why any arguments comparing finance at a national budget level to finance at a home budget level are incorrect. Money works completely differently at both levels.
  - gumby 5y ago
    This is why microeconomics and macroeconomics are different but related disciplines. By way of analogy, think of the first as physics and the second chemistry (the study of emergent phenomena from the more fundamental relationships). But less rigorous than physics/chemistry, at least so far.
  - the6threplicant 5y ago
    My favourite how different the "home budget" and a national economy works is if you want to save some money for a trip you just stop spending a bit and keep the extra money in a savings account until needed. If an economy did that then the economy will contract, reducing peoples spending power and income. It's like you're saving for you holidays and your hourly rate goes down because of it.
- tsjq 5y ago
  >You can't pay your groceries by taking a loan from yourself, pay using credit card and then repay the the cc (with interest) over the next few months / years.
  - 5y ago
dharma1 5y ago
Pension funds own a lot of it but the Fed has more on their balance sheet, about a third of all US debt. But this is the same situation with most central banks - ECB, BoE - they have roughly a third of their respective national debts on their BS. It has been going up since the global financial crisis and accelerated during COVID. Central banks keep saying they’re going to taper but it will be very, very slow tapering in order to not hurt the economy. In essence, currency is being debased when central banks buy debt to protect the financial system from sudden shocks, and keep buying it because the economy remains fragile and gets hooked on the central bank asset purchases. Due to artificially low interest rates (because of said debt purchases) asset bubbles are formed elsewhere in the economy, and the ones who gain disproportionately the most from this are people who own invested assets, while those who don’t are no longer able to afford financialised assets like housing, or goods affected by inflation.
- deafcalculus 5y ago
  Central bank buying govt debt or QE is basically just maturity transformation. The Fed / ECB / BoE buys 10 year debt and issues cash which is also a form of govt. debt. IMO, when interest rates are as low as they are, it is foolish to issue short term debt. A lot of people like Martin Wolf and John Cochrane have been calling on govts to take advantage of the low interest rates and issue perpetual (or 50 or 100 year) debt and insulate themselves from sharp increase in inflation or interest rates.
  - dharma1 5y ago
    if they find free market buyers for 100 year debt at current interest rates, sure. I'm not sure there will be many, so the central banks would end up buying most of it themselves. Soros is also advocating perpetual bonds for the EU/ECB, especially Club Med countries, with the whole union guaranteeing the debt. Northern EU member states are already subsidising the south/east member states, something like this would set it in stone for a long time.
    - deafcalculus 5y ago
      Pension funds are required to own some percentage of their assets in govt bonds. Also, many high net worth individuals have a strong preference for safe assets like govt bonds. And then there are speculators who think interest rates will fall and they'll make killing by actively trading on long term bonds. So, there will be buyers. Not all of it is being purchased by central banks.
rfreytag 5y ago
For those using TOR: https://web.archive.org/web/20210828180159/https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124 https://web.archive.org/web/20210828180159/https://www.theba...
known 5y ago
Rest of the World since US dollar is https://en.wikipedia.org/wiki/Petrocurrency https://en.wikipedia.org/wiki/Petrocurrency
tom-thistime 5y ago
The piece says that Social Security owns "most of" the national debt (2.9T out of 28T). I wouldn't call 10% "most of."
adolph 5y ago
Maybe the US strategy is to become (or stay) too big to fail, after all it’s the same people rotating in and out the banks and govt. Once everyone’s on the dole with UBI there’s no problem using inflation as a back door tax.

147 points by omarfarooq 5y ago

More importantly: will it ever be paid? Let's say this is a household that decides to stop accumulating debt and starts a pay off plan. How long will it take?

jl6 5y ago
First order answer: GDP is about $20tn, debt is about $30tn, so if everybody put half their income towards paying down the debt, it would be paid off in about 3 years.
- rwmj 5y ago
  Assuming you could get every American to agree to that (good luck!) the economy would be massively transformed while everyone stopped spending on every luxury and most necessities. I guess this would require enormous government intervention to prevent all the out of work shopworkers and manufacturers from starving, which might require taking on a bit more debt. (The serious answer to the original poster's question is that the US economy is not like a household and the debt does not to be paid off, nor will it ever be paid off.)
  - jl6 5y ago
    Quite, hence “first order” - although every dollar paid back needs to be paid back to someone, and as the article points out, the majority of the debt is held by US taxpayers, so that money is still likely to be participating in the US economy, just flowing through different hands.
  - JackFr 5y ago
    People investing in treasuries do not want your cash. Thayer had cash and spent it on treasuries. They want cash in the future to match their future liabilities. There is a real utility to having a vehicle for investing free of credit risk.
    - rwmj 5y ago
      Pensions are another investment where you need somewhere safe to "store" the money. Government bonds are one of those safe places. A quick search says US pension funds alone invest about $32 trillion (not all in bonds of course).
- annoyingnoob 5y ago
  > if everybody put half their income towards paying down the debt You realize how unrealistic that is right?
  - Jxl180 5y ago
    Yeah, what a dummy. If everybody put 100% of their income toward paying the debt, we’d be debt free in 1.5 years!
    - 6510 5y ago
      1.5 without eating? I think people would be debt free much faster.
- sp332 5y ago
  GDP doesn't measure people's income. It measures capital expenditures and consumption. So it would be a 50% sales tax and 50% tax on capital spending.
  - jl6 5y ago
    That’s just another method for estimating the same thing: https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/methodologies/nationalaccounts https://www.ons.gov.uk/economy/nationalaccounts/uksectoracco...
    - sp332 5y ago
      Ok but it still includes corporate income. It's not just 50% of people's paychecks.
- stephen_g 5y ago
  That's not how it works at all though. It's not really something that is "paid off", it's a stock of bonds that eventually come due, and can be rolled over into new bonds basically forever. The actual constraints to the issuance of the bonds or money is 1) available natural resources, 2) available labour resources, and 3) inflation (which is usually a result of money issuance or velocity outstripping (1) or (2)).
version_five 5y ago
As I understand, these debts will never be repaid, they will be inflated away so that they remain inconsequential (for some definition of that word) relative to the size of the economy. This is true e.g. for corporate bonds as well, they are a structural part of financing operations rather than a loan to do a specific thing that then gets paid back.
- syncsynchalt 5y ago
  That's my understanding too. Another way that I've heard it: you don't need to reduce your national debt, rather you need to ensure that your tax base is growing more quickly than your debt.
- lottin 5y ago
  This might work for long maturity bonds, but debt in the form shorter maturity bonds (0.5 to 5 years) can't really be "inflated away" without destroying the economy in the process.
  - ac29 5y ago
    Right now 5 year US government debt pays less than 1%, with shorter maturities paying less than that. Inflation is always a touchy subject, but I think we can agree that 1%/yr or greater inflation is hardly unimaginable over the next 5 years. https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield https://www.treasury.gov/resource-center/data-chart-center/i...
    - lottin 5y ago
      Sure, but for this scheme to work, the increase in inflation has to be unexpected. If the expected real return is too negative, nobody will buy the bonds in the first place.
- verdagon 5y ago
  The treasuries I've seen are adjusted for inflation, so this won't happen to those. Not sure if there are also un-adjusted treasuries though. Probably?
thpint 5y ago
No, it won’t be. Society will collapse, humanity will die out, or we’ll legislate it away. Two of the three have happened before. No national debt has ever been paid off. Cheney said the quiet part out loud back in the day with “deficits don’t matter.” Debt is circular political chicanery. Humans participate in economic activity to survive. Not to enrich a minority. The idea we have to owe some random person to exist is ludicrous on its face. Aristocratic minorities are as outdated as monarchy and slavery.
rmah 5y ago
Government finance is not like household finances or even business finances. Most critically, the government controls the issuance of money. In the USA that's done via the Federal Reserve. Which while not part of the government per-se, is sorta controlled by the government. If the USA wishes maintain the US Dollar's position as the de-facto international currency, then it must maintain a negative balance of trade and high debt levels. Simple fact is that foreigners cannot use USD if they don't have any USD (in the form of cash or US Treasuries). There was once a hope that the Euro could rival the USD but that dream is dead in most people's eyes.
- toomanydoubts 5y ago
  You seem to have moved from "the government controls the issuance of money" to "a private organization that controls the issuance of money is sorta controlled by the government" really fast. This are most definitely not the same thing.
  - stephen_g 5y ago
    The Federal Bank is only independent from the US Government in a very symbolic way. The system only exists as set out in US Legislation, the President of the US appoints all the board members and designates which is the chair, they all have to be confirmed by the US Senate, etc. etc. The "private ownership" in that member banks hold stock is also largely symbolic, given that they can't sell the stock and the stock doesn't give them any control, voting rights, etc.
  - rtpg 5y ago
    Congress could, tomorrow, choose to just take control of the fed if it was being such a problem. They have done things to this effect many times in the past!
pjc50 5y ago
The US is very much not a household; long duration low interest tbills are almost a special form of high denomination currency. If the treasury stops selling them into the market and doesn't issue new ones, strange things happen, starting with the loss of control of interest rates. You'd probably see a bidding war over the remaining bills, resulting in slightly negative effective rates. Especially for the 30 year ones, which are currently below 2%. https://www.ft.com/content/a0482f69-be5c-4d92-ae59-17a8e2b2cdde https://www.ft.com/content/a0482f69-be5c-4d92-ae59-17a8e2b2c... (This is the modern version of "shortage of specie", shortage of physical coins, which occasionally paralyzed pre modern economies)
rsj_hn 5y ago
That is a truly bizarre question to ask of a sector of the economy. In fact, it's so bizarre as to be a category error. You might as well ask, when will household debt be zero? Well, household debt refers to debt owed by a sector of the economy; it is not, you know, an actual person that will retire and move to Florida. Neither will our government retire and move to Florida. Our government is not saving up for the days when it collects no taxes. There is no clicking tock that says it's time for government liabilities to shrink to nothing. Similarly the corporate sector is never going to "repay" all corporate debt. Corporates are not planning on retiring and earning no more revenue. Like all other sectors, debt is rolled over and grows with the overall growth of the sector, generally in line with the growth of revenue. For the government, that means tax receipts. The government is a sector of the economy that will maintain a positive debt level just as households and corporates. That does not mean that things like interest rate burdens and debt ratios can be ignored. When looking at the health of the corporate sector or the household sector or the foreign sector, we do look at various ratios, and the government sector is no different. But all of these ratios like debt to income for non-financial business assumes that the debt level owed by non-financial business will never be zero. So asking when government will "pay back" debt is silly. The government will pay back debt when the household, financial, and foreign sector no longer wish to hold liquid risk-free assets and decide to own gold, seashells, and bitcoin instead. That would be never.
- BiteCode_dev 5y ago
  So why do we repay the debt at all?
  - tantalor 5y ago
    It matures, e.g. 10 year treasury note has to be paid off in 10 years
    - BiteCode_dev 5y ago
      That's like saying we must pay them because we said we will pay them, which is the definition of debt. My question is more, that given your comment and others suggest it will never been paid completely, why then pay at all? What's the threshold for "we pay this, but not that"?
rojeee 5y ago
Debt is money. So, if we pay off all the debt then we won't have any money other than (probably) physical notes but even then there won't be any debt for the central bank to collateralise the physical notes - physical notes are a central bank liability and therefore must be balanced with an asset (debt, usually). Debt isn't inherently bad. However, if mis-managed or abused then both creditors and debtors get into trouble.
- Jensson 5y ago
  Do the US government pay interest to you on your dollar bills? If not I don't see how that is debt. Lots of countries has a currency without paying huge amounts of interest to support it.
  - rojeee 5y ago
    That was my point. Physical bills are not debt - everything else is! Update for clarification - initial response was a bit flippant and not very well considered... Technically phyisical bills ARE debt (they are a liability of the central bank, after all) but they don't _behave_ like debt because they yield 0%.

btilly 5y ago

The flip side of Social Security owning the US national debt is that Social Security's solvency is entirely dependent upon the USA being able to pay. If you assume that, then Social Security is fine for decades to come. Unfortunately once the Baby Boom retires and their SS payments come due, there is no reasonable path to the US government being able to actually pay. Doubly not when expenses from Medicare is projected to double in the next decade. And yes, I know it is popular to say that we can just cut the military. But that is not enough. In fact if we eliminated all government programs except social security, medicare and medicaid, by the middle of this century our federal budget still can't add up. :-(

lotsofpulp 5y ago
Any government with the ability to print its own currency can always pay a debt denominated in its own currency. The only question is whether or not the currency can retain its ability to procure labor and materials. I have no qualms about getting the numbers I am owed from social security deposited into my account. I do wonder how much I will be able to buy with it though.
- umvi 5y ago
  Yeah let's just print trillion dollar bills to pay off the debt. Zimbabwe had trillion dollar bills if I remember correctly.
  - alangibson 5y ago
    Google Modern Monetary Theory. The jist is that printing money is only inflationary when the nations productive capacity is fully utilized.
    - blowski 5y ago
      MMT does say that, but MMT is far from being widely accepted as correct.

mindvirus 5y ago

The weirdest part of all of this: all of the debt is in a currency it can print, and the USA is mostly in debt to itself.

amin 5y ago

The last paragraph sums it up well: "The Bottom Line Many people believe that much of U.S. debt is owed to foreign countries like China and Japan. The truth is, most of it is owed to Social Security and pension funds. This means U.S. citizens, through their retirement money, own most of the national debt."

smitty1e 5y ago
That means that I need to pay myself in order to be paid? At the risk of sounding pejorative, and understanding that there are volumes of sophistries in support of the status quo: how is this not effectively a Ponzi scheme?
- loeg 5y ago
  The essential element of a ponzi scheme is that investors are deceived. > A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds. In contrast, the Social Security model is pretty transparently a wealth transfer from workers to the elderly and disabled.
  - akoncius 5y ago
    so main difference is kinda transparency? everything else matches. you (old investor) are receiving profits from new investors. and in some countries retirement money is speculative matter for politicians (vote for me I will increase retirement payments).
    - lotsofpulp 5y ago
      Main difference is the profits come from work being performed by members of society that can work, in the form of actual problems being solved. The members of society who are working hope this will help perpetuate the cycle by allowing new members of society to work and solve problems when the previous working members are not able to work.

anthony_r 5y ago

There's a lot of misunderstanding about what is currency and what is debt. All modern currency is debt. All of it. The amount of debt created and the amount of new money created is equal, because x=x for all x. It's just that simple - there isn't a difference. There are the printed bills (that everyone has access to), there's the digital base money printed by the Fed that you keep hearing about, it's the liabilities side of their balance sheet (that only select large financial institutions have access to), then there are govt bonds and govt-guaranteed bonds (Mortgage-backed securities) (which again everyone has access to, but they're impractical for day-to-day conduct of business; they're extremely liquid though, you can convert them by the hundreds of millions to bills/base money by a single phone call). But all of this is money, just different types / quality of money. Operations such as QE are just a means of conversion between the types of money. For example since 2008 we have continuous conversion of high quality bonds (govt and govt-guaranteed) into base money (the top quality money). All of it is still a government liability, since the Fed is a part of the government. Similarly, the Social Security buying Treasury bonds is just an internal government operation. Pension liabilities are just like government bonds (it's a promise to deliver money at a later point in time), if you fund a pension liability with tbonds you're just doing some internal reshuffling within the federal government books. No actual funding takes place, i.e. no one is delaying their personal (or corporate or nonprofit) consumption in exchange for a future payoff. If you don't believe me then please try to explain why hasn't Japan experienced a double or triple digit inflation. They are so much more advanced in the "central bank money magic". PS. I'm using "quality" to refer to types money to simplify a bit, the more accurate first order approximation term would be "duration". Then there are further technicalities such as coupon structures, whether or not the coupons depend on the CPI (TIPS), whether or not they exist at all and maybe you just get a lump base money sum at the end, etc. PS2. I've skipped the (actually larger) private credit. Yes, bank credit and the bond market also create money, though definitely lower quality than anything discussed above. Private credit is allowed to disappear at any given point in time. The Fed is currently not allowed to touch private credit whatsoever (this might change if the Congress decides so), they very briefly violated their own rules in March of 2020 by doing a weird type of deal with the Treasury (which is allowed to deal in the private credit, as the Treasury is allowed to spend; buying a bond that later defaults is effectively spending). And by the way: their announcement of an intervention in the non-govt guaranteed credit markets was the exact bottom of the covid market panic.

xhrpost 5y ago

> The truth is, most of it is owed to Social Security and pension funds After all that data, how did they come to this conclusion? Based on numbers in the article, SS and pensions account for only 13%. The clear largest holder is the federal reserve + government at 35%. Whether or not this means US citizens effectively own most of the debt is another discussion.

deleted 5y ago
[deleted]

keewee7 5y ago

From across the Atlantic it sounds like US national debt is often brought up by Internet libertarians as to why the US can't afford basic healthcare and welfare for its citizens. It's manipulative strategy that takes advantage of people wrongly thinking that national debt is like personal debt. There are plenty of countries with higer national "debt" as % of GDP and with a higher quality of life than the US: https://en.wikipedia.org/wiki/List_of_countries_by_external_debt https://en.wikipedia.org/wiki/List_of_countries_by_external_... https://en.wikipedia.org/wiki/List_of_countries_by_public_debt https://en.wikipedia.org/wiki/List_of_countries_by_public_de...

runawaybottle 5y ago

I am somewhat confused by all of this. If mostly pension/mutual funds, social security, military, Medicaid, is buying our debt (as in Americans are buying its own debt? Very confused), aren’t we basically saying the economy can never have a serious prolonged correction? We’d all have to default on the debt we bought to give ourselves? Really confused and scared here.

lotsofpulp 5y ago
>Very confused), aren’t we basically saying the economy can never have a serious prolonged correction? We’d all have to default on the debt we bought to give ourselves? It can have a serious prolonged correction. "The economy" is the sum total of the productivity of a country, and in some ways is a measure of the expectation of what one can expect to come out of the country, especially stability. The glue that holds it together is trust amongst its participants, and I would say that a currency's desirability is a combination of the trust one has in the ability for a society to continue delivery desirable goods (including stability). People in society also have expectations about their future quality of life, based on assumptions that may or may not be true. Debt is priced based on these assumptions, and it is certainly possible that if assumed rates of economic growth are not met, then debt will be defaulted on. It has already happened in some local governments (e.g. Detroit), and I assume it plays out the same way. Members of the society that experience the default will go through pain and suffer losses. On a national level, one might experience revolution or violence. But it all depends on the level of trust and cohesiveness amongst the members of society. Right now, based on the USD's purchasing power, it seems that relative to other societies in the world, a lot of people around the world still assume US society and government will be relatively stable and able to deliver desirable goods and services for the foreseeable future. Of course, this is all speculation, and any society at any given point in time may be in an inevitable downward spiral, or in a temporary downward trajectory, or just about to hit the local minima and about to experience a boom.
- runawaybottle 5y ago
  That’s what scares me. I actually don’t think we have the type of productivity in our country to be so aggressive with awarding ourselves debt. Our major growth industry mostly makes apps. We don’t even have a proper semiconductor industry in America. People are getting older. Where is all this productivity going to come from? From everyone switching to web development and making more TikTok apps? That’s the productivity that we think will pay trillions of dollars worth of Medicare/social security? I don’t really see it. I just read a wsj article about how men have pretty much stopped going to college: https://www.wsj.com/articles/college-university-fall-higher-education-men-women-enrollment-admissions-back-to-school-11630948233 https://www.wsj.com/articles/college-university-fall-higher-... What is this productive future we are envisioning here? Bunch of SaaS apps?

ur-whale 5y ago

> The Biggest Owner Is Not Foreign Entities, but U.S. Taxpayers In other words, the average US citizen has, over the years, been taxed way harder than they've ever realized. And the argument that this is a "debt" and can therefore be "repaid" at some point does not hold, since it will be repaid in USD, whose value generally decreases over time and is controlled by the USG (they can produce arbitrary amounts of it). Nice way to boil the frog.

akira2501 5y ago
> In other words, the average US citizen has, over the years, been taxed way har I look at it through the shares of income to the Treasury. In 1950 the Treasury took in $39 billion, adjusted for inflation that would be $458 billion today. 40% of that was individual income taxes, 10% was social security. 26% was corporate taxes, and 20% was excise taxes. In 2020 the Treasury took in $3,421 billion. 47% of this was individual income taxes, 38% was social security. 6% were corporate taxes, and 2.5% was excise taxes. The individual burden went from 50% to 85% over the past 70 years.
mempko 5y ago
Every dollar the US spends goes into the private sector. Your bank account. US debt is private sector savings. Some of that savings is interest bearing like US treasuries. Think of it like a bathtub. Spending is the spout, and taxes are the drain. The US must spend more than it taxes otherwise there won't be money in the economy.

chronolitus 5y ago

It almost feels as though economics discussion is made complicated on purpose. Almost none of the comments and article mean anything practical to me. A country issues debt to itself? In money it can print? Here's the crux: The US goes into 'debt', to pay for something. Where did the money (resources) come from? - it printed it itself -> that isn't debt, just 'money creation' - someone else -> it is debt, owed to another entity You can't pay your groceries by taking a loan from yourself, you either have the money or you don't

weavie 5y ago
I believe this is why any arguments comparing finance at a national budget level to finance at a home budget level are incorrect. Money works completely differently at both levels.
- gumby 5y ago
  This is why microeconomics and macroeconomics are different but related disciplines. By way of analogy, think of the first as physics and the second chemistry (the study of emergent phenomena from the more fundamental relationships). But less rigorous than physics/chemistry, at least so far.
- the6threplicant 5y ago
  My favourite how different the "home budget" and a national economy works is if you want to save some money for a trip you just stop spending a bit and keep the extra money in a savings account until needed. If an economy did that then the economy will contract, reducing peoples spending power and income. It's like you're saving for you holidays and your hourly rate goes down because of it.
tsjq 5y ago
>You can't pay your groceries by taking a loan from yourself, pay using credit card and then repay the the cc (with interest) over the next few months / years.
- 5y ago

dharma1 5y ago

Pension funds own a lot of it but the Fed has more on their balance sheet, about a third of all US debt. But this is the same situation with most central banks - ECB, BoE - they have roughly a third of their respective national debts on their BS. It has been going up since the global financial crisis and accelerated during COVID. Central banks keep saying they’re going to taper but it will be very, very slow tapering in order to not hurt the economy. In essence, currency is being debased when central banks buy debt to protect the financial system from sudden shocks, and keep buying it because the economy remains fragile and gets hooked on the central bank asset purchases. Due to artificially low interest rates (because of said debt purchases) asset bubbles are formed elsewhere in the economy, and the ones who gain disproportionately the most from this are people who own invested assets, while those who don’t are no longer able to afford financialised assets like housing, or goods affected by inflation.

deafcalculus 5y ago
Central bank buying govt debt or QE is basically just maturity transformation. The Fed / ECB / BoE buys 10 year debt and issues cash which is also a form of govt. debt. IMO, when interest rates are as low as they are, it is foolish to issue short term debt. A lot of people like Martin Wolf and John Cochrane have been calling on govts to take advantage of the low interest rates and issue perpetual (or 50 or 100 year) debt and insulate themselves from sharp increase in inflation or interest rates.
- dharma1 5y ago
  if they find free market buyers for 100 year debt at current interest rates, sure. I'm not sure there will be many, so the central banks would end up buying most of it themselves. Soros is also advocating perpetual bonds for the EU/ECB, especially Club Med countries, with the whole union guaranteeing the debt. Northern EU member states are already subsidising the south/east member states, something like this would set it in stone for a long time.
  - deafcalculus 5y ago
    Pension funds are required to own some percentage of their assets in govt bonds. Also, many high net worth individuals have a strong preference for safe assets like govt bonds. And then there are speculators who think interest rates will fall and they'll make killing by actively trading on long term bonds. So, there will be buyers. Not all of it is being purchased by central banks.

rfreytag 5y ago

For those using TOR: https://web.archive.org/web/20210828180159/https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124 https://web.archive.org/web/20210828180159/https://www.theba...

known 5y ago

Rest of the World since US dollar is https://en.wikipedia.org/wiki/Petrocurrency https://en.wikipedia.org/wiki/Petrocurrency

tom-thistime 5y ago

The piece says that Social Security owns "most of" the national debt (2.9T out of 28T). I wouldn't call 10% "most of."

adolph 5y ago

Maybe the US strategy is to become (or stay) too big to fail, after all it’s the same people rotating in and out the banks and govt. Once everyone’s on the dole with UBI there’s no problem using inflation as a back door tax.