US Debt Primer

[Hannah Bell]

The Admin has "tentatively agreed" to create an independent budget commission "that would be granted broad authority to propose changes in the tax code and in the massive federal entitlement programs --including Medicare, Medicaid and Social Security --" in the interest of reducing the federal debt:

http://www.washingtonpost.com/wp-dyn/content/article/2010/01/19/AR2010011903310.html


So let's look at the federal debt to see if the proposed solutions fit the problem.


1. How much is the US debt?

As of January 19th, $12,322,107,592,352.96: 12.3 trillion dollars & some change:

http://www.treasurydirect.gov/NP/BPDLogin?application=np



2. What's that as a percent of the US GDP?

About 85% of one year's GDP:

http://www.google.com/search?hl=en&source=hp&q=us+gdp&aq=f&aql=&aqi=i1g10&oq=



3. Is this the highest debt load on record?

At the end of WW2, US debt was about 120% of GDP:





4. Who does the US owe all that money to?

About 7.8 trillion (about 63% of the total debt) is held by "the public". The other 4.5 trillion (about 37%) is in "intragovernmental holdings".

http://www.treasurydirect.gov/NP/BPDLogin?application=np



5. What are intragovernmental holdings?

"Government securities held by Government trust funds, revolving funds, and special funds; and Federal Financing Bank securities."

In other words, intragovernmental holdings are funds one part of the government (or the Central Bank) has borrowed from another.

The SOCIAL SECURITY TRUST FUND falls under "intragovernmental holdings". Excess Social Security taxes not needed to pay current SS recipients were borrowed by the US government to fund the US general budget. In exchange, the government deposited securities (debt obligations) in the SS Trust Fund.

Currently, these outstanding securities total about $2.5 trillion dollars (9/09).

http://www.socialsecurity.gov/OACT/ProgData/assets.html

In other words, the US federal government owes 2.5 trillion to the Social Security Trust Fund, & ultimately, to US workers.

This $2.5 trillion is more than half of all the "intragovernmental transfers," & 20% of the federal debt. It is probably THE BIGGEST debt owed to any single entity; bigger, for example, than government debt to China.

Total federal debt to ALL FOREIGN ENTITIES (as of 9/09) = 3.4 trillion dollars, just 36% more than the government debt to Social Security recipients. (See "ownership of federal securities" doc at http://www.fms.treas.gov/bulletin/index.html)



6. What does "debt owed to the public" mean?

In the next installment.

[laughingliberal]

1. I sooo hate this independent commission idea

I'm pretty sure we aren't going to see what we want and we are going to see what we don't want. Here's a hint. When you hear 'entitlement reform' think 'stealing the people's money.'
'

[XemaSab]

5. When I hear "entitlement reform" I think

"Those people in the 'hood don't vote anyway." :(

[leftstreet]

2. They're coming after SS and Medicare

They know the 'Republican' brand can't do it, so the Dems have to.

This is just sickening.

[laughingliberal]

3. And nobody is talking about it. It's gonna be a done deal before they know what hit 'em. nt

[TxRider]

8. There will be talking about it.

Congress has to vote soon to increase the legal debt ceiling by something like another 1.9 trillion dollars.

Without a 60 vote majority in the senate now the repubs will be making a stand for concessions on spending before they will vote to increase the debt ceiling.

This could get very visible.

[Hannah Bell]

17. hopefully it will.

[taught_me_patience]

4. Debt to GDP ratio is extremely misleading

Debt to Tax Receipts is a much better measure because tax rates have been falling. A 12T debt to approx 2T in tax receipts is becoming dangerous territory.

[WCGreen]

6. If you do that then you have to measure the long term debt vs.

projected tax revenues.

The way you are looking at it means that all the debt be compared to one years tax collection.

A lot of that debt is 30 years out...

[Hannah Bell]

10. Not misleading at all. It depends on what you want to highlight.

The US could certainly raise income & cap gains taxes back to earlier levels - if it wanted to. But its sponsors don't want it to.

They'd rather fund it at the margins with social security & other use taxes from the working class.

[taught_me_patience]

12. We can't raise taxes to earlier levels (1950's)

because we're in a near depression, while the 50's were a time of amazing economic growth.

[Hannah Bell]

15. oh, bull. hoover & roosevelt both raised taxes. one of the *causes* of

recession/depression is too much money at the top with nothing profitable to invest in. taxing it away & circulating it to the bottom gets money moving again.

[AdHocSolver]

7. Another proposed commission to obfuscate the issues and put off implementing real solutions.

The solutions to American economic problems are easy to understand and solve.

1. Bring jobs back to the U.S. Take the profit out of offshoring jobs and put Americans to work making the products that Americans spend the most money on such as clothes, shoes, electronics, toys, tools, etc. Working Americans pay taxes in America -- Chinese workers don't pay U.S. income taxes. This means "adjusting" the corporate cartel trade agreements that make it profitable to send jobs to low-wage countries. There is NO such thing as "free trade". Another economically meaningless corporate buzzword is "global economy".

2. One significant reason corporations offshore jobs is to evade paying taxes. Bringing jobs back to America and "fixing" the tax code will significantly reduce the national debt.

3. Bringing jobs back to America will decrease the trade deficit, and stop the sell-off of American technology to foreign countries by the corporations.

4. Insist that the Federal government repay the Social Security Trust Fund the money it borrowed, which will make the fund solvent again for decades. The problem with Social Security is that the funds were taken by the previous administration to pay for tax breaks for the corporations and the wealthy. Now, it wants to "default" on the debt so it claims the fund is insolvent.

5. The "entitlement" program that needs the most scrutiny is the one for the military/industrial complex. Huge cost overruns and pork barrel systems that provide little military effectiveness for their huge costs need some serious scrutiny. We frequently hear that one or another contractor is fined for failure to meet their contractual obligations, and yet the money continues to flow freely to those companies.

6. Reregulate the banks to take the profit out of exotic Ponzi schemes, and redirect the money to legitimate businesses. Reregulate Wall Street. Start auditing the Fed.

The solutions are straight forward. All we need is for our government to exercise its responsibility to the people.

[Hannah Bell]

11. yes, the solutions are pretty obvious - unless your money comes from not solving

what seems (to most average people) to be "the problem".

[Hannah Bell]

9. So now let's look at the "debt held by the public" -- $7.8 trillion in January.

1. What is the "debt held by the public"?

The Debt Held by the Public is all federal debt held by individuals, corporations, state or local governments, foreign governments, and other entities outside the United States Government less Federal Financing Bank securities. Types of securities held by the public include, but are not limited to, Treasury Bills, Notes, Bonds, TIPS, United States Savings Bonds, and State and Local Government Series securities.

http://www.treasurydirect.gov/govt/resources/faq/faq_publicdebt.htm#DebtOwner


This gets confusing, because what this federal reserve source calls "debt held by the public" overlaps with what this other federal reserve source:

http://www.frbsf.org/education/activities/drecon/answerxml.cfm?selectedurl=/2005/0507.html

calls "private debt".

In the linked 2005 article above the author talks about "public debt" (= total US debt), Fed & government accounts (= roughly: intragovernmental holdings) & "private debt" (= roughly "debt held by the public).



So, keeping in mind the "roughly" part, let's look at the "private" debt (the "debt held by the public") in June 2009 under "Ownership of Federal Securities" here:

http://www.fms.treas.gov/bulletin/index.html

In June 2009, we have Total government debt of $11.5 trillion, of which Federal Reserve & Intragovernmental holdings = $5 trillion.

Total Privately Held Debt is $6.5 trillion. Of that:

- $0.14 trillion held by Depository institutions (inc commercial & savings banks & credit unions)
- $0.19 trillion held by US Savings Bond holders
- $0.48 trillion held in Pension funds as follows:
---- Private: $0.31 trillion
---- State & local gov't: $0.18 trillion
- $0.16 trillion held by Insurance companies
- $0.69 trillion held by Mutual funds
- $0.53 trillion held by State & local governments

Subtotal Domestic Private = $2.2 trillion.

Then we have $3.3 trillion held by Foreign/International individuals & institutions. Who held this category of debt in 2005?

"Most of the world’s official reserves are held in U.S. dollars. Also, because of its relative safety, foreign investors (both government and private) may choose to hold assets denominated in dollars, such as U.S. Treasury securities... Central banks or other monetary authorities... may hold foreign exchange reserves—such as dollars—in order to influence the value of their domestic currency...

The Office of Management and Budget states that, at the end of 2005, “oreign central banks owned 63 percent of the Federal debt held by foreign residents; private investors owned nearly all the rest”. The official foreign holdings of specific countries is a “well-guarded secret,” but overall foreign holdings (that is, official foreign holdings plus holdings from private foreign investors) are tracked by the Treasury, and are displayed in Chart 3."



So, assuming the same ratio still holds, approximately 37% of our foreign debt ($1.2 trillion) is held by individual investors.

In addition, these "foreign" investors aren't necessarily non-Americans. Notice that 3% of "foreign" holdings are in the Cayman Islands, notorious for offshore, tax-free accounts for corporations & the wealthy. Undoubtably the large "other" category contains some of this as well.

Also notice the "foreign" category has been growing as a % of total private debt:




The final category of "private debt" is not specified as domestic or foreign. It is "other private investors", holding $0.92 trillion in securities. This category includes holdings of individuals, Government-sponsored enterprises, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, and still "other investors".


To what extent the private "debt held by the public" accrues to the very wealthy v. the ordinary joe would take more detailed analysis. However, I note the following:

(Rounded), The top 1% of Americans owns:

62% of business equity
61% of financial securities
39% of trusts
38% of stocks & mutual funds
20% of deposits
14% of pension accounts
22% of life insurance
28% of non-home real estate & 9% of principal residences

The next 9% owns the majority of what's left.

http://sociology.ucsc.edu/whorulesamerica/power/wealth.html

I also note that "private" debt has been growing as a percent of total US debt. In 2005 "private" debt was 48.5% of total debt; in June 2009 it was 56.5%, & this month it is 63%.

Have private "investors" been moving into government "investments" as a safe haven following the crash, expecting the government to make their losses elsewhere whole? I don't know, however, IMO based on the information here:

If cuts are proposed to Social Security, Medicare & Medicaid, it's mainly to pay off the "investments" of the wealthy on the people's dime, & at the cost of the people's security & health.

[galileoreloaded]

13. Oh lord. Ok. Look at Total Debt to GDP and the outlook worsens drastically.

Then look at the M1 MULT factors, and the fact the the FED bought 92% of all the UST debt in 2009 (monetization), and the reality will hit you like a freight train that the reason that the Government (whoever they are) is easing us into ideas of reform is because they are rapidly loosing the ability to fund daily operations.

Now, I could go into who implodes first, China or the U.S., but it really doesn't matter, as the net effect is very inflationary as the Chinese dump UST to fund their deleveraging, or we continue to print. Either way, now listen close here, THE PERCENTAGE OF REVENUE, IE: ACTUAL TAXES PAID, NEEDED TO PAY JUST THE INTEREST IS EXPANDING EXPONENTIALLY. A greater percentage of the actual cash we have is paying interest on debt. No amount of growth or policy changes can fix that, and our "investors" are saying no thanks.

What we are heading for is third world austerity, and the most brutish type of free-market capitalism, ala Russia after the breakup, except get this: WHEN THE COUNTRY COLLAPSED, EVERY CITIZEN GOT THE HOUSE THEY WERE STAYING IN FROM THE GOV'T. FREE.

[Hannah Bell]

16. total debt to gdp = 85% as stated. japan = 160%. russia's debt to gdp = about 7%.

nov 09: china holds 789 billion in us debt, japan holds 757 billion, social security holds 2.5 trillion.

http://www.ustreas.gov/tic/mfh.txt

your apocalyptic tenor = dumb. but it helps the ptb print a license to steal.

they just finished giving banks over 700 billion, nearly = to total us debt to china. the china-us debt relationship = very cozy for both parties.

oh, & ps: that "chinese" debt? it's not all chinese, some of it belongs to us corps.

[galileoreloaded]

18. Try total debt @ 380%. Public AND Private, not Privately held UST.

Very different animals. 350% in Total debt is 100% over the levels seen during the runup to the Great Depression. Sooooo, actually my "dumb" tenor is firmly rooted in reality.

Do a search on my username, I have posted charts in the last 30 days.

[invictus]

14. We need a military spending reform commission.