Financial / Investing / US Government / US Markets

U.S Debt: Time to learn to eat with Chop Sticks?

Grace Century, FZ LLC  Scott Wolf DubaiIn light of all the recent attention on the government shutdown and the crisis of lifting the debt ceiling, I thought it would be useful if I helped set the record straight.

I think what I am about to tell you will not only shock most people in America, but those abroad as well. The same old people are screaming that the sky is falling (as noted in my recent “Henny Penny” article), and that Americans will just keep printing money and mortgaging their children’s future into Chinese servitude as these debtors continue to buy our paper debt. The warning was that at some point the Boogeyman will come out from under the bed or in this case the debtors, such as China and Japan, will want to change denominating currency or even stop buying American debt all together.

So what’s the real story?Scott Wolf, Dubai, Grace Century FZ LLC

According to a recent study, The U.S. debt was more than $14.3 trillion during the so-called Debt Crisis of 2011 when the level of borrowing reached its statutory limit and the President warned of a potential default if the cap wasn’t raised.

So who owns all that U.S. debt?

About 32 cents for every dollar of U.S. debt, or $4.6 trillion, is owned by the federal government in trust funds for Social Security and other programs such as retirement accounts, according to the U.S. Department of Treasury.

China and U.S. Debt

The largest portion of U.S. debt, 68 cents for every dollar or about $10 trillion (of the $14 trillion), is owned by individual investors, corporations, state and local governments–all located in the U.S.!  

Foreign governments hold about 46 percent of all U.S. debt held by the public —more than $4.5 trillion. The largest foreign holder of U.S. debt is China, which owns more about $1.2 trillion in bills, notes and bonds, according to the Treasury.

So let’s think about that:  $4 trillion of the $14 trillion is owned by outside entities. China only holds $1.2 of the $14 trillion. Yes that is a lot of money, but I think most people will be surprised by the portions. As I often state, and as it has been pointed out to me by one of our readers:  Not only can statistics be used to influence someone, but can be used to help support a biased argument.

The truth of the matter is that these entities buy U.S. debt for a reason. They know they will get their money back. All things being equal, whether you want to call it “too big to fail” or “In God we trust, “ the U.S. is still the safest place in the world to put your money.

Yes it is a lot of money and far from self-sufficiency, but I have to argue that I am certainly not ready to trade in my cutlery for chopsticks.

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