Us Debt

[Deepwater6]

I found this story on the BBC website about who actually owns US Debt. According to this Americans do.

 

 

 

 

 

 

 

http://globalpublicsquare.blogs.cnn.com/2011/07/21/who-owns-america-hint-its-not-china/

[phillip1882]

HA! that would be funny, if it wasn't sad. personally i have a hard time beliving this. my father for example owns about 600,000 dollars of US debt (the money he paid into social security.) but i myself don't own any. (i've made below the poverty level every year so far.) i guess it seems possible, if you multiply that amount by enough people, but still...

[CraigD]

I found this story on the BBC website about who actually owns US Debt. According to this Americans do.

 

http://globalpublicsquare.blogs.cnn.com/2011/07/21/who-owns-america-hint-its-not-china/

The BBC article is well-cited, and makes the important point that much (about 29%) of the debt of the US is owed to the US government, while the combined debt to foreign governments and businesses, and individuals is about 31%. In summarizing its sources, it makes a significant error, describing the 11.3% of the debt owed to the Federal Reserve System as owed to the “the US Treasury”. The Federal Reserve and the Treasury are separate financial entities.

 

Otherwise, the article does a good job, I think, of dispelling the popular misconception that the US debt is owed mostly to foreign governments, businesses, and individuals.

 

HA! that would be funny, if it wasn't sad. personally i have a hard time beliving this.

You would do well then, Phillip, to further study the subject until you do believe it, as the information in the BBC articles is, with the exception of the inaccuracy I noted and perhaps other minor inaccuracies, correct.

 

my father for example owns about 600,000 dollars of US debt (the money he paid into social security.)

The idea that ones payroll taxes – what one has paid into the Social Security (OASDI) and Medicare (HI) programs – is a loan made by you to the US is a common, but wrong, one.

 

OASDI/HI taxes are used to pay retirement, disability, and healthcare benefits. As these programs have long and are currently collecting more in taxes than they pay in benefits, they have excess cash, with which they have purchased a significant amount (19%) of the US debt. This debt, however, is owed to the Social Security and Medicaid programs, not to taxpayers. The intention of these programs loaning money to the US is that the interest paid on these loans, primarily in the form or return on bonds (Treasury notes), will allow these programs to pay benefits when, in the future, benefits paid exceed taxes collected, without requiring an increase in the OASDI/HI tax rates.

 

but i myself don't own any. (i've made below the poverty level every year so far.) i guess it seems possible, if you multiply that amount by enough people, but still...

Unless you’ve purchased US treasury notes directly, or through a bank or retirement account that does, you aren’t owed any of the US debt.

 

Even if you have a low income, unless all of your income is “under the table”, or you’re otherwise breaking US law in failing to pay it, if you make more than $400 a year, you’ve paid OASDI/HI tax. When you reach retirement age or are disabled, you’ll receive Social Security payments based on the inflation adjusted average of your 30 highest income years, and Medicare for medical expenses.

[Deepwater6]

http://abcnews.go.com/blogs/business/2011/11/fed-gave-banks-trillions-in-bailout-bloomberg-reports/

 

This ABC article tells of the trillions lent to US banks in 2008...it's insane.

[CraigD]

Though one can seriously question whether its creation a century ago was good legislation, or its current regulation and management as effective in fulfilling its legislated function, I wouldn’t call the US Federal Reserve doing what it was created to do – provide short-term loans to banks to prevent them from failing to be able to supply cash when its demanded – “insane”.

 

It’s important, I think, to understand that the huge total amount of money loaned by the Fed (meaning Federal Reserve Banks, not US Federal Government, which has only indirect control over these banks), about $7,800,000,000,000 during 2007, 2008, and 2009, $1,200,000,000,000 on a single day, 5 Dec 2008, was loaned, and with only a few exceptions involving mostly small banks that actually were bankrupted despite these loans, were repaid promptly. (this Bloomberg News article, which the ABC article links to, has I think a better explanation ABC’s) These were not grants of money from Federal or state tax revenues, which at about $2,600,000,000,000 per year for the Federal tax, are far too small to be used for such purposes even if they were not needed to pay all US and state expenses.

 

What I, and I think most people, find disgusting about the Fed’s performance of one of its intended functions, preventing banks from failing, is that the executives and managers of the saved banks were saved along with them, continuing to receive $1,000,000+ salaries and bonuses despite many having behaved incompetently and unethically to cause their companies near failures. As US banks are private businesses, however, with the exceptions of cases where state prosecutions and private lawsuits can and chose to prove actual criminal wrongdoing, such as may happen soon over Citigroup’s selling of $100,000,000s of investment products while at the same time taking loans to profit when these investments failed (short selling) (see this news story, there is little under current law that government can do to punish such executives. Via their board of directors, investors could fire them, but other than these options, I can’t see any legal way they can be “made to pay” or otherwise punished.

 

Bloomberg News is to be applauded, I think, for forcing the release of the details of the 2007-2009 Fed rescues of so many banks via a successful court battle to honor a Freedom of Information Act request. The Federal Reserve is to be condemned for making such a court battle necessary by attempting to block the request. I hope that this information will motivate shareholders to purge banks of executives who, this information shows, continue to lie to them about the financial solvency of their companies, and thus perpetuating the risk of future financial crises. A business culture that rewards dishonesty is one, I think, that needs to be changed, severely and soon!

[Deepwater6]

The excuse often given by big banks is "If we don't offer a huge bonus/salary we will not be able to attract good people." If they have the most talented people why did so many of them get caught so short?

[Qfwfq]

The excuse often given by big banks is "If we don't offer a huge bonus/salary we will not be able to attract good people." If they have the most talented people why did so many of them get caught so short?

The essential thing is: Why do they keep offering so well, when the person has already proven unworthy? Nobody can predict the future with certainty, including judging how someone will behave, but the concept of responsibility no longer exists in enterprise nowadays.

[meryem]

Regarding the point they won't be able to attract best brains without hefty pay checks for people sitting at top. I think it all depends on them for if they can manage to give almost similar returns to depositors than they can certainly also manage to fix lesser market price of CEO class as well. But of coarse who will do that CEO/COO himself is a big question here? :)

[Guest MacPhee]

What seems hard to understand, is why you in the US are in debt.

 

The United States covers a large part of the North American continent. This continent has rich ore-fields, for mining metals. The metals can be worked by energy supplied from your abundant off-shore oil.

 

As for food, your Great Plains grow a hugh amount of wheat, and cereal crops, to feed your people. With an abundant surplus to export to the rest of the world.

 

And your people are extremely intelligent. The best in the world at Science. US science produced the nuclear bomb and the Internet. Both of which, in their own way, transformed human civilisation.

 

So with all these amazing economic and intellectual resources, why are you in debt - who exactly do you owe money to?

[Knothead]

What seems hard to understand, is why you in the US are in debt.

 

The United States covers a large part of the North American continent. This continent has rich ore-fields, for mining metals. The metals can be worked by energy supplied from your abundant off-shore oil.

 

As for food, your Great Plains grow a hugh amount of wheat, and cereal crops, to feed your people. With an abundant surplus to export to the rest of the world.

 

And your people are extremely intelligent. The best in the world at Science. US science produced the nuclear bomb and the Internet. Both of which, in their own way, transformed human civilisation.

 

So with all these amazing economic and intellectual resources, why are you in debt - who exactly do you owe money to?

 

Probably will regret this but;

 

"We are suffering from a mountain of debt because we have accepted this idea that we have this responsibility to mold the world, mold the people and mold the economy. Government is incapable of doing that. The responsibility of the government is to provide the environment which is proper to allow us to thrive, for us to work hard and have the incentive." Dr. Ron Paul

[CraigD]

What seems hard to understand, is why you in the US are in debt.

…

So with all these amazing economic and intellectual resources, why are you in debt - who exactly do you owe money to?

Gotta watch our pronouns here!

 

We people in the US consist of some debtors, some direct and indirect debt holders, and many people, such as me, who are both.

 

Nearly all corporations under the laws of US states have and/or hold debt.

 

The governments of the US and the 50 states have and/or hold debt. The Government of the US has much more debt – about $15,000,000,000,000 – than it holds.

 

So, back to your question, MacPhee, I’ll proceed with the assumption that your “you” refers to the Government of the US. Otherwise, the question would have as many answers as there are people and corporations in and of the US.

 

Of the $15 trillion, the US government owes about 5 to itself. Many different trust funds that have more money in savings, current and projected income than they have expenses lend money to the general, the largest at about $2.5 trillion, being the Old-Age and Survivors Insurance Trust Fund, better known as Social Security.

 

The US government owes the remaining about $10 trillion to individuals and corporations – known as “the public” – who have purchased US bonds and other investment financial products – Treasury Bonds, Notes, Bills, and some more exotically named – from the US government. Slightly more than half of this debt is owed to US citizens and corporations, slightly less to non-US citizens and corporations.

 

Like other large, wealthy countries that sell debt to the public, US debt is a much-desired financial product, mostly for 3 reasons: they promise a predictable return amount; they’re considered very safe, as the likelihood that the US government will fail to pay the promised return amount – ie: “default” – on them is slight; and they’re available in large amounts, at least $5,000,000 as a simple purchase to any investor, many times larger via a more complicated “competitive auction bidding” process.

 

That was all very technical, well known and documented information (The US governments treasurydirect.gov website is an authoritative, easy to use source of data on it, and along with the wikipedia article United States public debt, where I got my facts and figures), and answers the “who exactly do you (the US government) owe money to?” fairly precisely, I think. However, I think a better question is “What effect does the US government owing this money have?”

 

The short, simple answer is that, as with any successful financial investment product, the effect of the US public debt is that the people and corporations who own it make money, for example, people who own US notes, bills, and bonds, either directly, or indirectly, such as retirement pensions accounts offered by private companies or public agencies that own US debt, most prominently the Social Security agency I mention above, through which practically every US citizen who has ever had a paying job is guaranteed some income in their old age or disability (though not necessarily enough to live as comfortably as he did when working).

 

As with any reliable investment, the more of the US debt a person/corporation owns, the more income it gets from it. So people who have more money – the rich – are able to make more money from the US debt than people who don’t.

 

The US government’s income is mostly (about 70% - source wikipedia article 2009 United States federal budget) from taxes on individual people. Though the accounting is complicated, the net effect of US taxes and public debt is that rich people can make much more from directly and indirectly owning US debt than they pay in taxes, while poor people cannot.

 

To put it more catchily, the US government’s debt helps the rich get richer and the poor get poorer.

[CraigD]

"We are suffering from a mountain of debt because we have accepted this idea that we have this responsibility to mold the world, mold the people and mold the economy. Government is incapable of doing that. The responsibility of the government is to provide the environment which is proper to allow us to thrive, for us to work hard and have the incentive." Dr. Ron Paul

Rep. Ron Paul, MD (I think it’s important when titling Paul as “Dr.”, in the context of a discussion of government finances, to note that his education is in medicine, not history or economics) often makes good, thought provoking statements, though like many short “sound bite” statements from elected officials, they often seem superficial and poorly thought out. I think this is one such.

 

I like that it places blame for excessive US government spending on the People (“we”). I think this is correct, because, as I explain in at some length in this post, US government derives its legitimacy from the consent of the governed. It is our collective acceptance of the status quo of our national government’s policies that, assuming our republic to be working properly, allow them to continue.

 

That spending on its military and related agencies, by which it, to borrow Paul’s words, attempts to “mold the world”, is very significant is undeniable, as it constitutes about 22% of total US government spending, many times greater than that of any other country, and at about 44% of all military spending worldwide, nearly greater than all the other nations of the world combined.

 

As a practical assertion of cause and effect, however, I can only partially credit it, because even during the cold war, when the US was focused on maintaining military superiority over the USSR more than “world molding”, military spending was nearly as great as it is now. Even during the “peace dividend” period from about 1996 to 2000, in which US military spending was at reached nearly its lowest point since the dramatic increase marking the beginning of the cold war ca. 1952, it was still nearly 60% of its present rate.

 

To me, this suggests that, while US military spending can be about doubled by “world molding” US policies, ending these policies are unlikely to decrease it below its 1998 lowpoint. Although this lowpoint did coincide with the first period of reduction in US debt since 1969 (1998-2001), this budget surplus was due also to high tax revenues due to a period of unusually high individual and corporate prosperity.

 

In short, while I agree with Paul that the US should reduce its military spending by ceasing to engage in “world molding” though warfare, I think this will not be enough to begin steadily reducing the US government’s debt. I believe it will be necessary to reduce military spending to pre-cold war (1947-1951) levels.

 

(sources: http://en.wikipedia.org/wiki/2009_United_States_federal_budget, http://en.wikipedia.org/wiki/Military_budget_of_the_United_States, http://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures, http://www.infoplease.com/ipa/A0904490.html, http://www.usgovernmentdebt.us/spending_chart_1792_2016USp_XXs1li111mcn_G0f)