What Is Included In the U.S. National Debt? Who Does the U.S. Owe All That Money To?
How Much Is the U.S. National Debt?
By the end of fiscal year 2017 (September 30, 2017) the U.S. National debt is expected to be 23.2 trillion dollars. It is hard for most people to wrap their minds around so much money, and that only makes it harder to understand the U.S. National Debt.
Here is the thing -- some politicians believe, or more accurately, want us to believe, that we are now working for, and basically owned by China. These fear mongering politicians want us to believe that we owe China most, if not the entirety, of the U.S. National Debt!
To hear them tell it, our economy and our world are about to come crashing down around our ears at any moment. It is more certain and scary in the minds of some people than the certainty of death and taxes -- incidentally, 7,000 millionaires paid NO taxes in 2011, the most recent statistics available, so it turns out that only death is a certainty. Lots of people escape taxes, but there is no record of anyone who has ever escaped death indefinitely.
Yes, it is odd that no statistics are available regarding how many wealthy people did not pay taxes in years since 2011. There are estimates of how many families and/or corporations did not pay taxes, but those estimates include all income brackets.
Contrary to what those fear mongering politicians (and their supporters) want us all to believe, our current national debt is not the largest on record. No, it has actually been MUCH bigger and miracle of miracles, when it was much bigger than it is today, the U.S. did not go bankrupt and the sky did not fall.
History of National Debt
Maybe this breakdown will help you visualize all that money.
250 thousands = a quarter million
500 thousands = a half million
1000 thousands = 1 million
1000 millions = 1 billion
1000 billions = 1 trillion
GDP and Its Ratio to the U.S. National Debt
Gross Domestic Product (GDP) is the total value of goods produced and services provided in a country during one year.
The total national debt at any given time is about the equivalent of the GDP. See the definition for GDP above. Currently the debt is 69% of current GDP.
Pew Research Center
The U.S. National Debt Has Historically Been Much Higher Than It Is At This Moment
Let me qualify the above statement. Our country has had a much larger national debt compared to our country’s GDP. Back during World War II, our debt was much higher compared to our GDP, than our debt is today compared to our GDP, and our GDP is what determines our ability to manage that debt.
You might put the debt to GDP ratio in perspective this way: For the sake of discussion let us say that you make $25,000 a year in total income and your debt for housing, credit cards, etc. is $500,000, or half a million dollars. How long do you think it will take you with those earnings to pay your debt? Yes, forever, if something doesn’t change for the better.
On the other hand, if you make $500,000 in total income every year, how long would it take you to pay off that same $500,000 debt?
So you see, how much income a person – or a country has – in relation to his or her debt, or the country’s debt, makes a huge difference in whether or not it is manageable.
You would not expect Bill Gates to lie awake nights worrying about a debt he may have of say $5, or $500, or $5000, or $50,000, or even $500,000 would you? Bill Gates could probably carry several million dollars in debt with no danger of bankruptcy, because his combined income and assets are beyond most of our imaginations.
Time.com estimates Bill Gates’ worth at 76 Billion, and he is said to be the richest man in the world as of March 2014. He has held that lofty position for 15 of the last 20 years according to Forbes.
Do you understand how debt is relative? The word debt in itself is not evil. The problem comes when a person or a country has more debt than they can reasonably manage.
So long as a country’s GDP is near, equal to, or greater than its debt, it should be able to manage that debt without any real concern. It is when a country becomes indebted considerably beyond its GDP that it may be in trouble.
However, economists like Paul Solman and Paul Krugman and others say that so long as a country’s debt is owed to itself and borrowed in its own currency there should never be a reason for that country to go bankrupt.
During the years of 1939 until approximately 1955, the U.S. National debt was more than 100% of this country’s GDP. Yet here we are safe and sound nearly 60 years later, with no bankruptcy in our history, and no defaulting on our debt in our history either. (See the graph above, "History of the National Debt.")
Our current debt is only 69% (2011) of our GDP and yet we are in imminent danger of bankruptcy and default according to many fear mongers.
“In dollar terms, this is the largest the U.S. debt has ever been. However, one could say the same about [today’s] house payments, grocery bills, [and/or] the prices of new cars,” (Harvey). Dollarwise almost everything costs more than it ever has before, but in comparison to income, it is about the same percentage as it has always been.
Economists look at a person’s or a country’s debt compared to income. Lenders look at an individual’s income/debt ratio when deciding whether or not to loan that individual money. The debt/GDP ratio is what matters when it comes to a country’s national debt. In the case of a country, however, “government debt is not analogous to that in the private-sector because it represents an injection of wealth, not a drag on growth,” (Harvey).
U.S. National Debt Divided Up
Types of Debt
Public debt includes money that is owed to individuals, mutual funds, hedge funds, pension funds, foreign governments, etc.
So, if you decide to buy a $1,000 US government savings bond, then you are considered to be included in the "public debt" tally for the country.
Dave Manuel (DaveManuel.com)
"Intragovernmental debt" is money that the government basically owes to itself.
For instance, the government has heavily borrowed from the Social Security fund over the past number of years, as the Social Security fund has taken in more money than it has paid out. The government has borrowed trillions of dollars of this money, basically writing an IOU to itself.
Dave Manuel (DaveManuel.com)
American Citizens Own the Biggest Share of the U.S. National Debt
American citizens own about 53 percent of the debt, and that is more than half of the total debt.
For people who do not understand percentages, everything starts out at 100 percent, or ALL of it (whatever IT is.). 20.2 trillion dollars is “all of our debt” and therefore 100 percent of our debt. Of that 100 percent of our debt, 53 percent, or just over half of it, is owned by United States citizens.
Yes, I realize this is probably a huge shock to a lot of people who prefer to believe we owe all that money (along with our souls to hear some people tell it) to China. It gave the fear mongers something to complain about, and a reason to keep their shades pulled down tight, but now what?
A lot of members of that political party that has spent so much time preaching doom and gloom, in part to persuade our older citizens to take cuts in their Social Security and Medicare benefits, have been pretty convincing to a lot of people who do not know any better, and who have trusted the wrong people to tell them the truth.
That same party has demanded cuts in other social programs as well, because they have said disaster is imminent due to our outrageously high national debt that is entirely owed to foreign countries, and most of all, to China.
To put it as simply as I can:
They did a good job of lying too, did they not? YOU believed them, didn’t you? It can be very confusing to be told one’s country’s economy is about to tank and then a little while later told that it was all a ruse to put more money in the pockets of the wealthy, and of course in the pockets of their favorite congress people too -- the congress members who made it possible for the wealthy to become wealthier.
What Is the Difference Between Our Country’s Deficit and the National Debt?
No, the debt and the deficit are not the same thing. The debt is the accumulation of deficits.
For example, say you need $100.00 in your home budget for food every week. Let us say that you only make enough money for $60.00 a week for food. The difference between what you need for food and how much money you actually have for food is $40.00 in this example. That $40.00 that you are short compared to what you need for food is a deficit.
Let us further say you take your credit card and charge the additional food you need each week. As you do this, you accumulate debt. Every time you charge that $40 worth of food, which is the deficit between what you need for food and the income you actually have available for food, it adds up to a debt. Unless you pay that debt off every month you will end up paying interest on your debt.
Unlike the government, you cannot issue bonds in order to obtain the extra money you need to buy food every week, but you can put that deficit on your credit card if you have one with sufficient credit available on it.
In the case of our country, when any department or program falls short of their budget needed to meet their obligations, money is borrowed, often by selling Treasury Certificates, or dumping money into the general fund from the Social Security Trust Funds. (also in the form of T-bills). The deficit is the difference between what is needed for our country to operate and meet all of its obligations and the amount of money actually coming into the U.S. Treasury from various sources, mostly taxes.
Elizabeth Warren, Advocate for Ordinary People
How can United States citizens own all that debt?
The following numbers are agreed to by many well-known economists along with Paul Solman and PBS News Hour, The Christian Science Monitor, the Pew Research Center, and more. See sources at the end of this article.
At the end of September 2013, after many months of politicians yelling that the sky was falling as a direct result of the National Debt, 28.4% of the debt (about $4.76 trillion) was owed to another arm of the federal government itself (Pew Research Center).
More than 2.76 Trillion of the debt is owed to the Social Security Trust funds. Another big holder of the U.S. National Debt is the Federal Reserve System, which collectively held nearly 2.1 Trillion dollars worth of Treasuries (12.4% of the total debt) at the end of September 2013, (Pew Research Center).
Included in the 20.2 Trillion dollars of the U.S. national debt are pension funds owed to people who one day hope and plan to retire. Investors in insurance companies, banks, and holders of mutual funds are also included. They bought into the various types of funds to make their retirement money grow and now they are owed money, which is included in the U.S. national debt.
The money a person has invested for their future retirement will continue to be a part of the national debt until that person has collected every penny owed to them. Even if they die, in the case of personal investments, the money owed to the deceased person will continue to be part of the national debt as it will likely be inherited and left in investment by the person who receives it through inheritance.
People who have invested in or purchased Treasury Notes or municipal bonds own part of our national debt also. You know the bonds that cities (maybe yours) make available for sale to people like you when they want to build a new school or add another fire station in a newly developed subdivision?
According to Paul Solman and PBS News Hour: “State and local governments, for example, including their pension funds, hold about $700 billion; mutual funds, nearly $900 billion; private pension funds, $600 billion; banks, $300 billion or so; insurance companies, $260 billion. These figures are from early to mid 2013.
Add in personal holders of U.S. savings bonds -- another $185 billion -- and individuals, government-sponsored enterprises, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, and other investors in Treasuries, and you've got an additional $1.4 trillion or so. In total that’s another $4.3 trillion more in money Americans essentially owe -- to Americans!
Grand subtotal thus far: $11 trillion – nearly two-thirds of the total U.S. National Debt.
How to Help Lower the National Debt
Want to help lower the national debt? Stop investing in your retirement savings. Put it in your mattress. Stop paying into Social Security. Stop buying anything on credit like houses, vehicles, businesses, college educations, vacation homes, boats, or anything at all. Pay cash or go without. Can you even begin to imagine how badly our economy would tank if even a quarter of all U.S. citizens did this?
You see, when you invest in any of the investment vehicles previously mentioned you raise the national debt. When you buy a house or other large expenditure on credit, often your mortgage or business loan will be wrapped into a package with other similar transactions and be sold to investors, thus becoming a part of the national debt and raising it still higher.
So it seems that most of that horrendous 23.2 Trillion dollar debt is owed to our friends and neighbors, our coworkers, and family members, maybe even to ourselves!
Yes, Americans owe 11 TRILLION DOLLARS to AMERICANS!!
Paul Krugman is fond of saying we owe all that money included in the U.S. National Debt to ourselves. Some people do not like Paul Krugman. He is not a member of that party that likes to control us by saying the sky is falling every time we turn around, nor does he subscribe to their idea that creating more poor people, or leaving the ones we already have to suffer without medical care or food, helps our country.
Paul Krugman has acquired quite a few accolades for his work despite finding fear politics disdainful. Those accolades include the Nobel Memorial Prize in Economic Sciences, the John Bates Clark Medal, the H. C. Recktenwald Prize in Economics, and the Prince of Asturias Award for Social Science. Clearly Krugman knows something about economics and is right a sufficient amount of time to impress the organizations that make these awards to people outstanding in their fields.
“Washington has spent the past three-plus years in terror of a debt crisis that keeps not happening, and, in fact, can’t happen to a country like the United States, which has its own currency and borrows in that currency. Yet the scaremongers can’t bring themselves to let go,” (Paul Krugman, the New York Times).
Please do read Krugman’s column explaining how some politicians have been preaching doom and gloom for years now and it has not happened yet. Will it happen if they preach it long enough? We know that negative thoughts and a attitude can bring about disaster in our personal lives, so maybe that is what politicians are trying to do? Bring disaster on this country through preaching lies?
Who Is the Single Biggest Creditor to Whom the U.S. Owes Money? If you Answer “China” You are WRONG
“The single biggest creditor of the U.S. National debt as of September 2013, was in fact, Social Security’s two trust funds, which together held $2.76 trillion in special non-traded Treasury securities (16.5% of the total debt). (Social Security revenues exceeded benefit payments for many years; the surplus was required by law to be invested in Treasuries.”) (Pew Research Center)
Did you read the above paragraph carefully? The single biggest creditor, in other words the one creditor that owns the biggest part of the U.S. National Debt, is the Social Security program’s two trust funds. That’s us, folks. We are our own biggest creditor.
That also means that no other entity, no other creditor, investor, lender, or anyone, or anything else, not China, not England, not Saudi Arabia, not any other single holder of our debt is owed more than 2.76 Trillion Dollars. That sounds like a lot of money, and it is, but compared to our GDP, it is peanuts. Pocket change.
Out of the entire U.S. National Debt, less than a third is owed to anyone outside of this country. Most of the U.S. National Debt, as explained below, is owed to ourselves.
So if we owe most of that money to ourselves, what is this thing about China owning the United States and every soul in it? More on China later.
Raising the Debt Ceiling
When members of Congress postured and threatened not to raise the debt ceiling in the fall of 2013, the people who would not have received their interest payments, if Congress had followed through and not raised the debt ceiling, were US!! American citizens.
Congress members threatening not to raise the debt ceiling were threatening to hurt us, their fellow Americans who pay their salaries!
Currently, despite what some complainers want to believe, the U.S. is considered a dependable investment vehicle. The U.S. has always met its obligations, and that is why foreign investors want to buy our Treasury Certificates. That is why foreign investors want to invest in the United States. U.S. citizens should be proud of the financial reputation this country has built instead of trying to tear it down with their lies and scare tactics.
Our country has a good reputation abroad when it comes to fiscal responsibility and dependability. Who out there wants to change that? Who would feel better if we were looked down on for not keeping our promises? Who among my readers would prefer that the U.S. be known for defaulting and therefore be considered a bad risk?
Only a very few foreigners would be hurt -- if any -- if the interest on our National Debt were not paid -- but a whole lot of Americans would be hurt.
There is usually enough in the Social Security program to pay out benefits for 1-2 months in the event congress refuses to raise the debt ceiling. After that, if Congress has not acted to resolve the situation, and you are a Social Security beneficiary, you may need to get a job.
Can’t you just see Xi Jinping (leader of China) crying crocodile tears because our Congress refused to raise the debt ceiling and gave their own countrymen and women the shaft?
Which Presidents Raised the U.S. Debt the Most?
Definitions of Debt
Total federal debt—also known as gross debt—is the amount of the federal government's outstanding debt issued by the Treasury and other federal government agencies. Total federal debt, which was about $16.1 trillion at the end of fiscal year 2012.
A Fiscal Year is any yearly accounting period, regardless of its relationship to a calendar year. The fiscal year for the federal government begins on October 1 of each year and ends on September 30 of the following year; it is named by the calendar year in which it ends. Prior to fiscal year 1977, the federal government began its fiscal year on July 1 and ended it on June 30.
[U.S. debt] consists of two components: (1) debt held by the public and (2) debt held by government accounts or various arms of the federal government.
Public Debt: Federal debt held by all investors outside of the federal government, including individuals, corporations, state or local governments, the Federal Reserve and foreign governments.
Debt held by Government Accounts: Federal debt owed to government accounts, primarily to federal trust funds such as Social Security and Medicare. The cumulative surpluses, including interest earnings, of these trust funds and other government accounts have been invested in Treasury securities, almost always nonmarketable. Whenever a government account needs to spend more than it takes in from the public, the Treasury must provide cash to redeem debt held by the government account. Consequently, this reflects a future claim on the economy and taxpayers.
(Also known as intragovernmental debt holdings -- such as the Social Security and Medicare trust funds.)
Government Accountability Office
If American Citizens Own Two Thirds of the National Debt -- Who owns the rest?
Foreign creditors of course! Foreign creditors including China, Japan, the United Kingdom, and various oil producing nations own the balance of the U.S. national debt that American citizens and United States government entities do not own.
Some U.S. citizens like to separate themselves from our government, but in fact when our government owes somebody money – even itself – then we citizens are the folks that will ultimately pick up that tab. So really, over two thirds of the national debt is owed to U.S. citizens, one way or another.
The countries listed above own about 5.5 Trillion dollars worth of the U.S. national debt -- a long way from owning our entire country, or even one of our states. Or maybe you think our entire country and everything in it is only worth 5.5 Trillion? Really?
If you want to know what countries we owe that 5.5 Trillion dollars to as of May 2014, and exactly how much each of them is owed, follow this link to a Department of the Treasury Government Report. It’s an easy to read report, so don’t be afraid to click on the link.
Foreign countries, like U.S. citizens, are allowed to purchase our Treasury certificates and other securities offered to the general public. That is how they came to own some of our debt in the first place.
I know some of you want to believe President Obama went hat in hand, crying pitifully, and got down on his knees and begged Xi Jinping (pronounced shee jeenping, with emphasis on the ping), to bail him out. If you truly believe that, well, what can I say? You are wrong.
It seems that lots of people like to invest in our country because they believe it is a wise investment that is likely to yield a good profit. They believe our country is stable and unlikely to default on their investments. In other words they do not believe we will take their money and then refuse to pay them back with interest as promised. In still other words, they have more confidence in this country than many of the sorry citizens living here, and more confidence in this country than those sorry citizen's sorrier representatives in congress seem to have!
What if those investors in other countries who bought our treasury certificates suddenly decided to cash them in? Well, what would happen if you or I owned them and cashed them in?
I will tell you what would happen. The Treasury Certificates would not mature and therefore they would never reach their full value with interest, because when you sell your securities before they mature, you lose money. Would any wise investor do such a thing if they had a choice?
Even if foreign investors did decide to cash in their Treasury Certificates way early losing interest, the total amount the U.S. owes to investors in other countries, as previously stated, is about 5.5 Trillion dollars. Our GDP is much higher than that. In other words we are good for that amount -- but wait, if it is cashed in early it could be considerably less than 5.5 Trillion dollars total because 5.5 Trillion is the value with interest added. The interest will be lowered if they are cashed in early.
Of course a lot of people who support the Party of Scare think we should default on our obligations. What does that say about the supporters of the Party of Scare and what would it say about all of us if we did that?
I wonder how the pro-defaulters would feel if their employer defaulted on their paycheck? Or if their health or other insurance company defaulted on their agreement to pay for their health services or car repairs from an accident?
These people who want to default on our national debt apparently think our reputation as a country is unimportant. They do not realize how our country’s default on our obligations would filter down to all of us including themselves and how much worse all of our lives would become compared to the present.
The U.S. has always paid its debts and that is the reason people are willing to lend the U.S. Government money through the purchase of certificates and bonds.
Definition of a Fire Sale
A sale of goods or assets at a very low price, typically when the seller is facing bankruptcy.
What About China?
Specifically, as of July 2013, the U.S. owed Chinese investors 1.28 Trillion Dollars. Who of my readers believes that is enough to force the United States into bankruptcy? Think about the U.S. GDP and what this country is worth if you can wrap your mind around that huge amount.
Would you sell your home, valued at $150,000 for whatever you could get for it at a fire sale if you were facing a debt of say, $5,000 and you had to raise that amount of money in a hurry? If you would, you really should consult someone who knows more than you do about finances because you are your own worst enemy. (See the definition of ‘fire sale’ in the right hand column.)
No one in their right mind is going to worry about the U.S. going bankrupt when our GDP is equal to or greater than our National Debt and when at least three quarters of that debt is owed to ourselves.
Those people who wanted the U.S. to default on our interest payments (and probably have not changed their minds) were/are basically hoping and praying Congress would/will default on the Social Security program and other retirement and investment vehicles of U.S. citizens. Yes, on Medicare too! Who needs enemies when you have friends like that living right next door? Or among your own family members?
Table of Inflation Rates (%) by Month and Year (2001-2017)
Share Your Opinion
Do You Feel Better Informed About Our Debt Than Before Reading This Article?
Will Our Children Suffer Under Tremendous Tax Burdens As a Result of Our Current Spending and Huge National Debt?
The following is a question put to Paul Solman by a member of his PBS News Hour audience:
Nick Estes of Albuquerque, New Mexico asked Paul Solman this question: “Is it true that running federal budget deficits during present conditions increases a harmful debt burden on our children? If so, could you explain how, since Treasury bonds will also be assets to them?”
Here was Solman’s short answer: “If by “our children” you mean the next generation of Americans, they are holding, at least implicitly, the substantial majority of our national debt. It is the government’s liability; it is their asset.
Yes, if taxes rise to pay off the interest and principal, the next generation will be on the hook. But mostly, you could argue, they will be paying themselves. Especially to the extent that today’s American holders of Treasurys bequeath them to their children.”
So what that means is those people who own Treasury certificates and government bonds will pass those investment vehicles on to their children when they die. Their children will benefit from their parent’s investment. Instead of being burdened with a huge debt, the next generation will actually cash in on it as a result of interest earned on their parent’s investments.
Finally, regarding our current (February 2012 - July 2014) economic situation in the U.S., [and for the foreseeable future] John T. Harvey writing for Forbes says, “When such situations arise, only an entity capable of spending more than it earns without the prospect of bankruptcy is capable of breaking the stalemate. And that, of course, is the government, which can never be forced to default on debt denominated in its own currency, as ours is.”
Harvey is speaking of the stalemate of jobs not being created, or not being created fast enough when he says “when such situations arise.” He is making clear that so long as our debt is owed to ourselves in our own currency there is no need to go bankrupt or to fear that will happen. You may recall that Paul Krugman said the same thing in similar words.
Even our private or individual debt, credit cards, short-term loans, etc., will not cause our country to go bankrupt so long as it is all held in our own currency by our own country.
Indeed, creating more debt for the purpose of getting this country back on its feet so to speak, would be a good thing. People who have money, spend money, and that in turn creates demand (customers) for businesses who have no demand currently because no one has money to spend. Why would anyone create jobs when there are no customers?
Some people believe the tighter we pull our belts the better, but in fact, according to most economists, the government behaving in that way is actually making the situation worse.
As you might imagine, if you pull your belt tight enough you will make it impossible for your body to function, and if continued for a long time, you will die. By the same token, a government unwilling to move to alleviate a seriously bad financial situation will destroy itself.
More On the National Debt from Au fait and Friends
- What is the Difference Between the U.S. National Debt and the Deficit?
This article is presented from a non-partisan view explaining the difference between the national debt, the deficit, and the federal budget. It also shows the amount of debt each president has incurred since the founding of the country . . .
Official Social Security Website
US Economy and What Makes Up the National Debt
New York Times and Paul Krugman
The Daily Beast
Economists View and Paul Krugman
U.S. Government Accountability Office
Debt ceiling & how to balance the budget
PBS and Paul Solman
Paul Krugman for the New York Times
© 2014 C E Clark