PBS NewsHour business and economics correspondent Paul Solman is answering questions from Next Avenue visitors about personal finances, business and the economy. His advice appears on Next Avenue as well as Solman’s PBS NewsHour blog, Making Sen$e With Paul Solman, and the Rundown, NewsHour‘s blog of news and insight.
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Is it true that running federal budget deficits increases a harmful debt burden on our children? If so, could you explain why, since Treasury bonds will also be assets to them? Thanks. – Nick Estes, Albuquerque, N.M.
An excellent point, Nick, masked as a question. But whatever your motivation, the answer depends in part, at least, on who owns how much of the U.S. Treasury debt.
Breaking Down the $16.5 Trillion
Let’s start with a scary number: $16.5 trillion. That’s the total tally of U.S. Treasury securities issued to date and not yet redeemed — Uncle Sam’s IOUs coming due in days, weeks, months and years.
For the most frightening and discombobulated presentation of this number, updating maniacally in real time, go to the website, Usdebtclock.org. Those interested in a simpler breakdown of the numbers may prefer Usadebtclock.com. And the chill among you will opt for this debt clock.
But the headline number remains the same wherever you look: $16.5 trillion (rounded up slightly). So who’s holding the IOUs?
Well, first of all, the government itself.
Just about $5 trillion of the total is in the form of “intragovernmental” holdings, mainly the Social Security and Medicare Trust funds (roughly $3 trillion) and federal employee pension and health insurance programs (just north of $1 trillion).
This is referred to as “non-public” debt: money the government owes to itself. Typically, when you see the ratio of debt to GDP (Gross Domestic Product) reported at about 70 percent, it is total debt minus the “intragovernmental” chunk. Including debt to ourselves, the number would be about 100 percent.
By the logic of excluding what we owe to ourselves, though, it might seem reasonable to exclude the Federal Reserve’s holdings as well. That’s another $1.7 trillion or so that one branch of the government owes, in effect, to another branch, since the Fed holds about $1.7 trillion worth of Treasuries.
I don’t mean to debate the issue, however, just to clarify to whom “we” owe money.
For those keeping score, if you tally up the Fed holdings and the trust funds, we’re now up to about $6.7 trillion of the $16.5 trillion total — all owed to ourselves. And we’re still not done with what you might call “intra-American” debt.
How Much Americans Own
That’s because the next big tranche, as they like to say on Wall Street, is also held by or on behalf of citizens of the United States.
State and local governments, for example, including their pension funds, hold about $700 billion; mutual funds, nearly $900 billion; private pension funds, $600 billion; banks, $300 billion or so; insurance companies, $260 billion. Total: roughly $2.8 trillion.
Add in personal holdings of U.S. Savings Bonds — an additional $185 billion — plus individuals, government-sponsored enterprises, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses plus other investors in U.S. Treasuries and you’ve got an additional $1.4 trillion or so.
Hit the calculator: that’s $4.3 trillion more in money that Americans essentially owe to Americans.
Grand subtotal thus far: $11 trillion — two-thirds of the $16.5 trillion total.
How Much Foreigners Own
So who’s holding the rest? Let me pause so you can guess.
Right: foreign creditors. They’re holding about $5.5 trillion worth of U.S. Treasury securities. These include the infamous bond hoard held by China, for example. You’ve surely heard the story: the Middle Kingdom could supposedly, if angered, dump on our bond market, driving up U.S. interest rates.
But China holds no more in U.S. Treasuries than does Japan: just over $1 trillion each. You can see the total list for yourself here, though you may want to take a crack at guessing the top 10 first.
Russia above Germany, do you suppose? Singapore more than Switzerland? Check it out.
But details aside, the foreign total is about $5.5 trillion, roughly a third of the $16.5 trillion.
The Bottom Line
Nick, if by asking whether the national debt is harmful to “our children” you mean the next generation of Americans, the answer is that they are holding, at least implicitly, the substantial majority of our national debt. It is the government’s liability; it is their asset.
So, yes, if taxes rise to pay off the interest and principal on those Treasuries, the next generation will be on the hook.
But mostly, one could argue, they will be paying themselves, especially to the extent that today’s American holders of Treasuries bequeath them to their children.
Paul Solman is a member of the Twitterati and can be followed at [email protected]. His daily blog can be followed, well, daily at Making Sen$e by linking here or just Googling the words: “Making Sense.”
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