When talking about the debt of the United States, most of us can infer that it is a pretty large number and getting larger by the second. Most of us can also make an inference as to how bad having such a large amount of debt is. But do we really know what it means and where the debt comes from? With a current debt of over $27 trillion, which is continuing to rise at an astounding rate, there are many questions to answer.
To understand the U.S. debt, it is important to understand who holds ownership of it, and it is not just one person or country. After knowing who owns the debt, it is imperative to measure and know its impacts on the U.S. economy and the citizens of the United States. By understanding those two key things, the debt our country has can be better comprehended and dealt with.
In an article published on MarketWatch back in August of 2018, there is a breakdown in the form of a pie chart of who owns the U.S. debt. According to the chart, the U.S. owns about 70% of its debt, broken into three categories: U.S. investors at 32.5%, the Federal Reserve at 11.2% and the government itself at 27%. This means about 30%, or 29.3% according to the pie chart, is owned by foreign investors.
When thinking of the U.S. debt and foreign investors, we may tend to think that it must all be owned by China, but in reality it’s not as large as one may think. Within the same article is a breakdown of the foreign investor countries with China at the top. China owns a little over one trillion dollars of the U.S debt at 5.6%, but Japan is close behind at around the same amount with a 4.9% ownership share. Some countries, like Ireland, may not seem like they would hold any of the U.S. debt, but Ireland in 2018 was tied with Brazil holding around $300 billion or 1.4% of the debt. For more updated statistics and a more in-depth breakdown, take a look at the U.S. Government Accountability Office (GAO) website, listed below the article.
That MarketWatch article was published a little more than two years ago, and back then the debt was a little over $21 trillion. Today it stands around $27 trillion as mentioned above, meaning in just about two years the United States added over $6 trillion on to the debt. That growth is incomprehensible.
Debt is gathered when the United States Government needs more money than is both planned for in its budget and what it has available to use. The money it borrows has a date that it needs to be fully paid back, and interest that needs to be paid in the meantime, so that the lender gains money from lending the government money. The interest payment on America’s debt is so large; in 2019, it took up 8.5% of its budget.
So far, in 2020, the U.S. has spent almost $500 billion in net interest on its debt. To put that in perspective, the U.S. has only spent about $210 billion on education so far: that’s less than half the total spent on debt. Imagine how the hundreds of billions of dollars could be spent, how that money could be used to invest in American infrastructure, health and education.
Overall, the debt that the United States holds is massive: the largest in the world and growing at an ever faster rate. To ensure that it doesn’t get to the point where the interest payment has to be paid with loans, America needs to first halt all borrowing, thus flattening all growth of the debt. Next, the government needs to gradually pay down the debt, so that each year the interest payment is lower and lower.
International debt shouldn’t necessarily be paid down first. While it does mean that a higher percentage of the debt is owned by foreign investors, when other countries own some of our debt, it economically binds us. With an economical bond, war and feuds are less likely and less aggressive. So a high debt overall is bad, but some foreign holders in our debt could be helpful for foreign policy.
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Evan Brooks is a third-year Business Management major with minors in Economics and Civic and Professional Leadership. EB916132@wcupa.edu
Websites:
https://www.gao.gov/americas_fiscal_future?t=federal_debt
https://www.usaspending.gov/explorer/object_class
https://www.marketwatch.com/story/heres-who-owns-a-record-2121-trillion-of-us-debt-2018-08-21
Debt Clock- https://www.usdebtclock.org/