The sheer size of the National Debt is almost beyond the comprehension of average Americans. However, it is important that we not only comprehend its scale, but also understand to whom that debt is owed. The answers may surprise you.
As of August 13, 2014, the total national debt fell just short of $17.679 trillion. Of that total, close to $12.672 trillion is public debt. The remaining $5 trillion and change is known as “intragovernmental holdings,” which means trust fund programs like Social Security and Medicare.
In other words, that debt is the U.S. government borrowing off funds for future obligations – not quite like borrowing from your 401(k) to pay current bills, but not too far removed from it, either.
A large chunk of the public debt is known as SOMA (System Open Market Account holdings) held by the Federal Reserve. These serve as reserves and collateral for the Fed, and they are also where “quantitative easing” purchases end up (the bonds and mortgage-backed securities that the Fed has been purchasing to stimulate the economy).
As of August 13, 2014, total SOMA holdings are $4.141 trillion. Of that total, $2.313 trillion is in Treasury Notes and Bonds and $1.689 trillion is in Mortgage-Backed Securities. Combine SOMA and intragovernmental holdings, and one could argue that the U.S. holds around half of its own debt – some owed to holders of bonds and securities, others to future recipients of programs such as Medicare and Social Security.
To trace all the rest, let’s use the end of 2013 as a reference point, since that is the last point where comprehensive data is available from the June 2014 Treasury Bulletin.
At that point, according to the Bulletin, the total debt was $17.6 trillion, with $7.3 trillion in combined SOMA and intragovernmental holdings comprising 41% of the total. (Over the past decade, this number has typically been in the 40-50% range.) The rest of the debt is privately held – $10.3 trillion (with rounding).
6.5% of the debt is held by mutual funds, 4.2% by private and government pension funds, 2.9% by state and local governments, and the rest held by banks, insurance companies and other investors. The largest group in this category is foreign-held debt, with 33.4% of the total debt at $5.802 trillion.
Who holds our foreign debt? Most people know that China is our largest creditor, but you might be surprised to learn that Japan is a very close second. Total foreign holdings of US government debt stand at $6.013 trillion. China holds $1.268 trillion and Japan holds $1.220 trillion, for a combined 41%.
Far below that, there is a group of ten “countries” (some are strategic groupings of countries) that hold between $0.1 and $0.4 trillion in US debt. Leading this list, in third place overall, is…Belgium? Yes, Belgium is estimated to hold $0.364 trillion in US debt.
This represents an unusual rise – essentially double what the holdings were a year ago. Are we consuming that much chocolate? Probably not. Such a rise is unusual among major debt holders, and some analysts are questioning if Belgium is becoming a financial hub for U.S. debt owned by other countries.
In order, the next ten largest holders are: Caribbean Banking Centers (Bahamas, Bermuda, Cayman Islands, etc.), Oil Exporters (Iran, Iraq, Kuwait, Qatar, Venezuela, Saudi Arabia, Nigeria, etc.), Brazil, Taiwan, Switzerland, the United Kingdom, Hong Kong, Luxembourg, Russia, and Ireland. There are many on that list with less than friendly attitudes toward the US.
If you want more details, the most current comprehensive report of foreign holdings, both debt and equity, may be downloaded at http://www.treasury.gov/ticdata/Publish/shla2013r.pdf. This is a snapshot as of June 30, 2013 – data lags in comprehensive reports.
While foreign countries could use debt against us to make life difficult, keep in perspective that much of our debt is owned internally – which does not necessarily make it any more acceptable. It has to be viewed in the context of growth and our income – effectively the Gross Domestic Product (GDP). Currently, our national debt is slightly over 100% of GDP, which is why both the debt and economic growth is of growing concern. Moreover, each of these countries would suffer in the long run should the US economy be imperiled.
Just because “we, the people” own a significant chunk of the debt does not mean we can send Cousin Vito up to Washington to collect, or that it would be a good idea even if Vito could collect. Remember where the money to fund the government ultimately comes from – we, the people.