Friday, March 13, 2015

Who Owns the US Debt?

We are often made aware that the US debt now exceeds 18 Trillion dollars. And we also know that China holds a lot of US debt. But do we really have any idea what the actual numbers are? Who actually owns all that debt? Who is increasing their holdings? Who is decreasing? With the two links below we can get a very good estimate as to who owns all this debt and what the current trends are.


First we can look at this article which gives an idea how the total $18 Trillion is broken out. It breaks down about like this (rounding off here and there):

Intragovernment holdings - about $5 Trillion - this is things like Social Security and other government agencies who actually own US bonds and notes. The article explains why Social Security for example owns US bonds and notes:

"Why would the government owe money to itself? Some agencies, like the Social Security Trust Fund, take in more revenue from taxes than they need right now. Rather than stick this cash under a giant mattress, they buy U.S. Treasuries with it.
This effectively transfers their excess cash to the general fund, where it can be spent. Of course, one day they will redeem their Treasury notes for cash. The Federal government will either need to raise taxes, or issue more debt, to give the agencies the cash they will need."
If you want to break this down further, it looks like this:
Social Security - about 2.8 Trillion
Various government pension funds - about 1.4 Trillion
Medicare - about 270 billion or .27 Trillion
Other government agencies - about 530 billion or .53 Trillion
The other $13 Trillion is owned about half by foreign entities. They own a little over 6 Trillion of the debt. The rest is owned by the entities listed below:
Federal Reserve - $2.46 Trillion
Mutual Funds - $1.03 Trillion
State & Local governments - about 818 billion or .818 Trillion
Private Pension funds - about 506 billion or .506 Trillion
Banks - about 407 billion or .407 Trillion
Insurance companies - about 269 billion or .269 Trillion
US Savings Bonds - about 177 billion or .177 Trillion
Other - 1.15 Trillion

What about the debt held by foreign entities? For that go to this link.
Interesting line items for foreign owners:
China - 1.244 Trillion (recently selling off some)
Russia - 86 billion (has sold off over 50 billion in the past year)
Brazil - 256 billion (fairly steady holdings)
India - 83 billion (up some over the past year)
South Africa - less than 10 billion (too small for individual report)
Japan - 1.230 Trillion (up over 100 billion in the past year)
Belgium - 335 Billion (no one is sure who really owns this debt)
Carribean Banking Center - 333 billion (not sure who all this might be)
Oil exporters (mostly OPEC) - 286 billion
Some added thoughts:
-First, the US will never pay off all this debt when you realize that current US entitlement programs have already promised over 90 Trillion more money in coming years to people who will be retiring. We cannot balance the current budget as things stand now. When the costs for these entitlements kick in over the coming years, things will only get worse.
-most people think China owns most of our foreign held debt. That's not true. And they are gradually reducing what they own. At the same time they are adding huge gold reserves to hedge against the US debt they do own. China is not nearly as vulnerable now as they have been in the past to our debt.
-Russia is clearly dumping US bonds rapidly. They need the cash for one thing. For another thing, they probably want to lessen their US dollar exposure as well.
-The Federal Reserve is a huge US debt holder (twice as big as China). If the Fed raised interest rates very much, they will take a huge hit on the US bonds they own. We'll see how that works out for them.
The $64,000 question people ask is: How much longer can the US keep issuing debt it will never repay that pays little or no interest rate? The answer is unknown. But what we know for sure is it will not go on forever. A day will come when it stops. On that day, all the debt owners in the above list will have a big problem on their hands. Since a big chunk of them are retirees who probably cannot survive without Social Security and Medicare, things will surely get interesting in the future. 
If the US really owns the 8,000 tons of gold that it claims, a last resort can always be to revalue gold much higher. It has been done before.

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