Where is America getting all the money?… The answer might surprise you.

The federal government continues to rack up debt as they dole out beefed-up jobless benefits to people who don’t really need it. Meanwhile, businesses are short on employees thanks to these excessive and unneeded handouts that dis-incentivize many from working. I can’t help but think of the 90s movie Dumb and Dumber, when Harry tells Lloyd, “Man, I can’t believe we drove around all day and there’s not a single job in this town. There’s nothing, nada, zip!” and Lloyd replies, “Yeah, unless you want to work 40 hours a week!”

You don’t have to be an economist to know the federal government has a serious problem managing money, nor do you have to be an academic scholar to know this inability has led to a serious debt problem. Politicians have been blustering about it for years. If you really want to get a visual representation of the seriousness of the issue, visit a website like USdebtclock.org, and watch the real time numbers spin out-of-control. All of this begs the question: “Who in their right mind is willing to loan the U.S. money?” Most people think that China is the primary enabler. Wrong. Although they do own $1.1 Trillion in U.S. treasury bills, notes and bonds, they are still behind Japan, who is on tap for $1.3 Trillion of U.S. debt. However, total national debt is currently $28.6 Trillion and rising fast.[1]

Many people fear that China could use the debt America owes to destroy the U.S. economy. This isn’t true. China could slowly sell off its $1.1 Trillion in U.S. treasury bonds, but this would raise the Yuan in comparison to the Dollar. A lower value dollar would mean U.S. consumers would buy more U.S. goods and import less Chinese products. This would have dire effects on the Chinese economy. Of course, this could change in the distant future, as China continues to expand its international trading ties via their silk road initiative, but for now, China is not the threat. In fact, China favors a strong Dollar for its own exports. If China is only responsible for 1/28th of the U.S. debt, who is the real sucker that is continuing to finance the federal government? It’s you.

Americans and government agencies finance most of the national debt. According to thebalance.com, intra-governmental holdings account for roughly $6 Trillion or 22% of the total. This includes things like the Military Retirement Fund, Medicare and the Social Security Trust. This is what political candidates are talking about when they say that the very existence of Social Security is at stake. For example, Social Security has collected a $3 Trillion surplus since its inception in 1937. This surplus is placed in a trust that is managed by the U.S. Treasury Department who, no surprise, thinks the best way to invest that money is through the purchase of U.S. Treasury bonds. The implied intent is to invest the American taxpayer’s income with a more conservative investment option that offers a steady return on investment. In reality, the federal government is putting all its eggs in one basket. Should the US default on its debt to the Social Security Trust, then millions of Americans could find themselves without their sole source of retirement income.

The other 78% of national debt is referred to as public debt. Foreign entities hold around 25%, but the rest is held by the American people, through the federal reserve, state and local governments, mutual funds, pension plans, the list goes on. The key takeaway is that American citizens are the financers of 75% of the national debt.

Even with a record setting deficit, the Biden administration is taking out more loans to cover their proposed $3.5 Trillion “infrastructure” bill, even as Americans watch the Taliban sequester billions in military equipment that has been left behind in Afghanistan. The federal government is borrowing money from future American generations, to make interest only payments on their exorbitant credit card debt. Instead of paying them back, they are leaving IOUs, just like Lloyd and Harry from Dumb and Dumber, and they swear those IOUs are as good as the real thing.

[1] https://www.thebalance.com/u-s-debt-to-china-how-much-does-it-own-3306355.  US Debt to China, How Much, Reasons Why, and What If China Sells.  Kimberly Amado. April 07, 2021.

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