Who owns the $16T debt owed by the US Government? And just
how big a risk is having such a debt to our economy and our way of life?
Since 1934, $4.6T in taxes collected for Social Security and
other Trust Funds have been spent on other things. The IOU is in the Treasury. The government considers this
“intergovernmental debt” and includes it in the total debt but does not include
the interest on intergovernmental debt in its budget. The remaining $11T is owed
to entities outside the U.S. government. This is called public debt and is 72%
of the US GDP. The Chinese government owns the largest chunk with about $1.2T.
The American people hold $1T mostly in T-bills and Savings Bonds. Japan has a trillion. The UK, Brazil, Taiwan,
Hong Kong, OPEC and Caribbean bankers have over a trillion collectively. Pension
funds, mutual funds, state, and local government have a bunch more. America
owes foreigners about $5 trillion in debt. But America owes Americans $11
trillion. Interest is paid on this debt but current rates are tiny (e.g. the
benchmark 10 year bond closed at 1.62% on October 3, 2012).
The US public debt is typical of many OECD nations. Japan
actually owes more in public debt than the USA with $12T outstanding. On a per
capita basis the US government public debt is $35,600 per man, woman and child
in the country. This very similar to the debt of the U.K., Germany, France,
Canada, Greece and quite a bit lower than the $100,000 per person indebtedness
of the Japanese government. As a
percentage of the GDP, US public debt is lower than most OECD countries. World
public debt is just under $49T. 90% of governments spend more than they take
in.
Looking at the economy through the lens of the GDP is like
looking at the income statement of a business without examining the balance
sheet, and the debt of the federal government is only a tiny part of the
overall balance sheet of the USA. The Federal Reserve Bank publishes the “Z1: Flow
of Funds Report” every quarter which contains the missing data. In 2010 this
report showed the US had financial assets of $131T, financial liabilities of
$106T, and tangible assets of $56T for a positive net worth of $81T which is
almost exactly 5 times the GDP. These
numbers tend to suggest we are good for our government’s debt and remain an
excellent credit risk and that we are leaving our children and grandchildren a
positive legacy.