The United States has more than seventeen trillion dollars in debt and each year the
government borrows more.
They do this because it costs more money to run the country than the country currently
earns in taxes...This is called a budget deficit.
The US deficit for this year is more than 500 billion dollars.
Yet, the US still regularly refers to itself as one of the most prosperous nations in the
world.
How is that possible?
Well, National Debt isn’t like personal debt and in a lot of ways it is much less
dangerous.
For example, the largest single owner of US debt is the Social Security Trust Fund, which
is run by the Department of the Treasury.
So, the largest single chunk of debt the US owes is to itself.
And Social Security isn’t the only Federal Program holding federal debt.
One third of US debt is held by Federal Agencies.
You might be wondering how a Federal Agency can own debt?
Well, if an entity like Social Security takes in more money in taxes than they need to pay
out in benefits, they’ll use the excess money to buy US Treasuries, which are just
documents with an amount of debt that the US now owes you.
That way the extra money goes back into the general fund, social Security gets to keep
a note worth the value of the money loaned, and they start acquiring interest on that
note.
So long as the US pays the interest every year, they avoid defaulting on the loan and
everybody is happy.
And that’s the standard arrangement with US Treasury Notes and part of why it is a
safe investment.
So safe that more than 30% of US debt is owned by retirement funds and other risk averse
investors.
A lot a noise is made in the press about Foreign Countries owning US debt.
But they only hold about a third of the total debt and it doesn’t really even matter how
much debt they own.
The interest on Treasury notes is incredibly low because the US isn’t in serious risk
of defaulting.
To quickly explain how that works.
If you give someone a loan of a hundred dollars and you are worried that they are going to
default on the loan in 100 days, you would charge them a dollar a day in interest in
the hopes of getting your money back.
If you loan someone a hundred dollars and you’re not worried about them defaulting
for hundreds of thousands of days, if ever, you can charge them fractions of a penny in
interest and still feel totally secure.
The idea now is that the US is never going to default and therefore pays a very small
interest rate.
So national debt is something to keep under control but it isn’t really all that scary.
Also, according to the most recent Credit Suisse Research Institute Report on World
Wealth the US’s current Net National Wealth is the top in the world.
The US alone has 29.91% of the wealth, the EU has 29.05% and the next highest holder
of Wealth is Japan with only 9.38%.
So, yes.
The US has a lot of debt, but that doesn’t have as much of an impact on their national
wealth, as you might think.
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