Monday, February 21, 2011

Deficit Components

While it may have occurred since I started delivering papers in the early morning, this past weekend featured a setting moon along with a rising sun. In addition, the moon was full so the combination was quite remarkable. It was especially striking when travelling on the back streets where there are fields on either side of the roadway. The moon, stark white and full beginning its descent on one side while the rising sun produced pastel pinks and oranges on the other side.

A while back I saw a comedian, Dennis Miller I think, mention the national debt during his routine. He said what I believe reflects many people's thoughts, that the number is so big it is hard to get your head around it. I thought of that remark earlier today, and, in conjunction with all the doomsday rhetoric concerning the debt, I thought I would google "national debt" to see if I could get some data as to whom we owe this money. Do we owe the Japanese? Chinese? Australians?

Wikipedia detailed the debt in the following manner.

The national debt is broken down into two main categories:

1.Securities held by the public

Marketable securities
Non-marketable securities

2.Securities held by government accounts

It pegs the breakdown of these 2 categories as 60-40 where the 60% portion is held by the public. I think this means that 40% of the debt is held by one US government agency against another. For instance, the chart I saw showed that over $2 trillion was held by the Social Security Administration which I assume represents the amount of money that has been paid into Social Security by people over the years but not yet collected by retirees. Other agencies are listed as well. In effect, it sounds like we owe ourselves about 40% of the national debt. Which I guess also means that when we pay interest on this debt, we are paying ourselves as well. Interesting.

That leaves 60% owned by the public. Again, are they citizens of the United States, corporations, foreign governments?

Again, data was hard to decipher but it appears that about half of the "public" debt (which again is 60% of the total) was held by non-US citizens and institutions. Of this amount, about 66% was held by the central banks of these countries, in particular the central banks of Japan and China.

So, what does it all mean? I think it mainly means that the federal deficit is not a debt owed to people who are looking to bankrupt this country. I often hear some alarmists talk about the day when our debtors will "call our loans". As we live in a time of a global economy where all monies are tied together, I can not imagine the banks of the word deciding to foreclose on America as it would bring everyone down together. This seems true in light of the concern of countries like Greece and Ireland failing and all the effort extended to keep them afloat. Now times that by 1000 in regards to the United States.

But it also means that we cannot continue to forestall serious discussions about the debt. The problem is, you can't discuss something serious if you don't understand the problem, and if my experience today in trying to detail the minutia of the debt is typical, there are very few people who understand this topic. Unfortunately, there are many who are using the national debt for political gain regardless of whether then understand it, and in fact seem only interested in adding to the confusion about its true meaning as opposed to educating the people as to what it will take to reverse the process.

So, when you hear someone discussing the debt, listen for facts as opposed to opinions. You might find a dearth of one but a plethora of the latter yet it is the latter that seems to be driving the discussions.

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