What do you think about the trillions of dollars already spent in the Biden Administration and the additional six-10 trillion that this President wants to spend for additional items? Do you feel the government spending is out of hand? Sure, we’re told that none of this spending is really “spending:” it’s “investing” in things that Americans “need.” Have you even peeked at some of these “needs” that are secretly tucked away in the late paragraphs in this legislation? We’ll detail much of it during Friday’s “TNN Live” Show from 9:00-11:00 AM Central time. You will be shocked to hear what is included. None of it is investments! In fact, MOST of it is pure fat designed and used to pay off many of those individuals and companies who contributed heavily during the 2018 midterms and the 2020 presidential elections. And, of course, very little of those contributions went to anyone bearing the brand of the “Elephant!”
Besides the obvious shock and disbelief many will hold when realizing how evil are the spending habits of this Administration and the things that President Biden intends to spend taxpayers’ dollars for, the problems that accompany such spending are sufficient to suffocate the greatest nation on Earth. And many economists are predicting the biggest hit against the U.S. economy in a century are knocking at our door just because of this deficit spending and its resulting inflation and massive, unsustainable U.S. debt.
Let’s dive into the details of our nation’s debt today — before we even add the “Biden Pork” to the total that our great, great, great, great-grandchildren are being saddled with paying. And, if Uncle Joe gets his way, there’s much more debt in the wings.
The U.S. Debt
The U.S. debt reached a new high of $28.1 trillion as of March 31, 2021. Most headlines focus on how much the United States owes China, one of the largest foreign owners. Many people don’t know that the Social Security Trust Fund, also known as your retirement money, owns most of the national debt. How does that work, and what does it mean?
The Debt Is in Two Categories
The U.S. Treasury manages the U.S. debt through its Bureau of Public Debt. The debt falls into two categories: intra-governmental holdings and debt held by the public.
The Treasury owes this part of the debt to other federal agencies. In February 2021, intragovernmental holdings totaled more than $6 trillion.1 Why would the government owe money to itself? Like the Social Security Trust Fund, some agencies take in more revenue from taxes than they need. Rather than stick this cash under a giant mattress, these agencies invest in U.S. Treasuries.
This transfers the agencies’ excess revenue to the general fund, where it is spent. They redeem their Treasury notes for funds as needed. The federal government then either raises taxes or issues more debt to raise the cash.
Which agencies own the most Treasuries? Social Security, by a long shot.
The U.S. Treasury publishes this in the Monthly Treasury Statement. Here’s the breakdown from the February 2021 data:
- Social Security trusts, including the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds: $2.90 trillion
- Office of Personnel Management Retirement: $955.1 billion
- Military Retirement Fund: $1.01 trillion. This has become a big issue in funding our nation’s defense and is only expected to grow.
- Medicare, which includes the Federal Supplementary Medical Insurance Trust Fund: $304.4 billion
- Cash on hand to fund federal government operations: $723 billion2
The public holds over $21 trillion, or almost 78%, of the national debt. Foreign governments hold about a third of the public debt. At the same time, the rest is owned by U.S. banks and investors, the Federal Reserve, state and local governments, mutual funds, pensions funds, insurance companies, and savings bonds.
The Treasury breaks down who holds how much of the public debt in the monthly Treasury Bulletin. Here are highlights from the March 2021 report (September 2020 data unless indicated otherwise):
- Foreign: $7.07 trillion (in September 2020, Japan owned $1.28 trillion, and China owned $1.06 trillion of U.S. debt, which is more than a third of foreign holdings)
- Federal Reserve and government: $10.81 trillion (December 2020)
- Mutual funds: $3.5 trillion
- State and local governments, including their pension funds: $1.09 trillion
- Private pension funds: $784 billion
- Insurance companies: $253 billion
- U.S. savings bonds: $147 billion (December 2020)
- Other holders, including individuals, government-sponsored enterprises, brokers and dealers, banks, bank personal trusts and estates, corporate and non-corporate businesses, and other investors: $2.28 trillion
This debt is not only in Treasury bills, notes, and bonds but also in Treasury Inflation-Protected Securities and special state and local government series securities.
If you add the debt held by Social Security and all the retirement and pension funds, almost half of the U.S. Treasury debt is held in trust for your retirement. If the United States defaults on its debt, foreign investors would be angry, but current and future retirees would be hurt the most.
Why the Federal Reserve Owns Treasuries
As the nation’s central bank, the Federal Reserve is in charge of the country’s credit. It doesn’t have a financial reason to own Treasury notes. So why did it triple its holdings between 2007 and 2014?
The Fed needed to fight the 2008 financial crisis. In 2008, it ramped up open market operations by purchasing bank-owned mortgage-backed securities. In 2009, the Fed began adding U.S. Treasuries. By 2011, it owned $1.6 trillion, maxing out at $2.5 trillion in 2014. This quantitative easing (QE) stimulated the economy by keeping interest rates low and infusing liquidity into the capital markets, giving businesses continued access to low-cost borrowing for operations and expansion.
Did the Fed monetize the debt? In a way, yes. The Fed purchased Treasuries from its member banks, using credit that it created out of thin air. It had the same effect as printing money. By keeping interest rates low, the Fed helped the government avoid the high-interest-rate penalty it would incur for excessive debt.
The Fed ended quantitative easing in October 2014. As a result, interest rates on the benchmark 10-year Treasury note rose from a 200-year low of 1.43% in July 2012 to around 2.17% by the end of 2014.
In 2017, the Federal Open Market Committee (FOMC) said the Fed would reduce its Treasury holdings. That put upward pressure on long-term interest rates. The FOMC meeting statement summary is a report of FOMC’s discussion regarding the nation’s economic outlook. It also includes the resulting vote on the interest rates and the monetary policies the Fed plans to follow.
On March 15, 2020, the Federal Reserve announced it would purchase $500 billion in U.S. Treasuries and $200 billion in mortgage-backed securities over the next several months. On March 23, 2020, the FOMC expanded QE purchases to an unlimited amount. By May 20, its balance sheet had grown to $7 trillion.
Current Foreign Ownership of U.S. Debt
In January 2021, Japan owned $1.28 trillion in U.S. Treasuries, making it the largest foreign holder. The second-largest holder is China, which owns $1.10 trillion of U.S. debt. Both Japan and China want to keep the value of the dollar higher than the value of their currencies. That helps keep their exports to the United States affordable, which helps their economies grow.
Despite China’s occasional threats to sell its holdings, both countries are happy to be America’s biggest foreign bankers. China replaced the United Kingdom as the second-largest foreign holder in 2006 when it increased its holdings to $699 billion.
The United Kingdom is the third-largest holder with $439 billion. Its holdings have increased in rank as Brexit continues to weaken its economy. Ireland is next, holding $314 billion. Luxembourg follows it with $281 billion and Brazil with $260 billion. Luxembourg has earned a reputation for being a front for sovereign wealth funds and hedge funds whose owners don’t want to reveal their positions.
The Bottom Line
Many people believe that much of U.S. debt is owed to foreign countries like China and Japan. The truth is, most of it is owed to Social Security and pension funds. This means U.S. citizens, through their retirement money, own most of the national debt.
U.S. national debt is the sum of these two federal debt categories:
- Public debt, held by other countries, the Federal Reserve, mutual funds, and other entities and individuals
- Intragovernmental holdings, held by Social Security, Military Retirement Fund, Medicare, and other retirement funds
While Uncle Sam has $5.9 trillion in assets, the $129 trillion owed in bills — including military and civilian retirement benefits — means the U.S. is in the hole for $123 trillion. Just the unfunded liabilities in Medicare and Social Security add up to $96 trillion. It is a stunning amount coming due over the next 75 years. The Treasury Department sticks its proverbial head in the sand and does not even list the liabilities on the federal government’s balance sheet.
But not to worry, taxpayers will not actually be paying for this. How could they?
Instead, older people who have been promised these benefits likely will not be paid in full. If we do manage to pay for these promised benefits by some magic, it is young people who would be saddled with trillions in extra taxes with nothing in return.
$200 Trillion: What’s that dollar number about? If one adds the already-existing U.S. debt to the current federal government budget amount that will go unfunded (deficit spending) AND all the spending measures currently on the table under consideration, we could owe ourselves and many other countries $200 Trillion before this decade fades into the sunset! Any way you add these numbers, even if the total is less than $200 Trillion, it is virtually impossible to paint a picture of the United States EVER paying its debts in total. In fact, the interest alone on such debt is mind-boggling:
- One percent interest per year on just $1 Trillion is $10 Billion.
- Multiply that annual debt payment by 200 to get our total annual debt on what we owe today and the additional projected to be added over the next nine years.
- The annual interest on that debt at one percent is $2 Trillion each year!
By the way, the total annual gross revenue of the federal government for the last fiscal year was $3.42 Trillion.
In other words, we’re broke.
Is There a Solution?
The only realistic one that comes to mind is to increase our gross revenue and decrease our total spending. That’s a novel idea, isn’t it!?! We do that in our homes and businesses. But, for some reason, the federal government operates as if the blank checks in the Federal Treasury checkbook are still in abundance. That must mean there’s plenty of money in the Government checking account. So they keep writing checks.
Realistically, getting out of this debt picture will certainly never happen in our lifetimes, the lives of our children, their children, and then their grandchildren. Most economists pessimistically project that the nation has gone too far on its constant spending binges to pay its debts.
What are the inevitable results of all this? I don’t want to paint a bleaker picture, so leave it at this: Regardless of whether our debt can ever be paid, we need to immediately begin balancing our annual budget, if for no other reason, to start spending wisely. After all, what type of example are our national leaders setting for this and future generations of young Americans who will be forced to shoulder this burden of debt?
Our forefathers started this process of tax and spend ethically and financially sound. It wasn’t until elected officials realized that they control all the rules on taxing, collecting, and spending taxpayer dollars. They quickly realized THEY are the financial bosses over all Americans. Even though they technically work for us, we allowed them to be the signers on our bank account, so they don’t have to get our specific permission to issue checks. And issue checks they do!
The only thing I know that we can do (other than pray) is to bombard your Senators and Representatives about stopping the incessant spending sprees! NOTHING is free — someone always has to pay. And if they do NOT heed or warnings, send them packing in the next election.