Chart of the Day — Who the US Owes Money To
Since it looks like we’ll be hearing about the debt ceiling all week (unless the Senate comes up with a rescue plan between this Sunday night writing and Monday morning), it is useful to remind ourselves who the US owes money to:
China owns $1.3 trillion in US debt, but Social Security owns $2.6 trillion. As noted on the chart, Social Security and other government account debt is meant to represent surpluses in various trust funds. The debt held by these trust funds aren’t accounted for as a liability in the government books, but there is no doubt that these Treasuries are legal debt.
Tags: Debt Ceiling
Think about what Social Security holding $2.6 trillion in treasury bills means: it means that the solvency of Social Security depends upon the transfer of $2.6 trillion in general tax revenues to the SS system over the course of the bond maturity dates.
Social Security is, by law, allowed to invest its surpluses only in United States government securities, and it can hold only so much cash on hand. This means that SS is going to eat up general tax revenues at increasing rates as the years pass.
This means that SS is going to eat up general tax revenues at increasing rates as the years pass.
This would also be true if the Chinese wanted to withdraw from US Treasuries over the course of their bond maturity rates.
Social Security surpluses are in Treasuries not just because they have to, but because the FICA taxes you pay each pay period go into the general fund. And Congress has been using those taxes as a loan from you.
Cassandra wrote:
That is incorrect. Social Security payroll taxes are paid directly into the Social Security trust fund. That’s a direct Social; Security Administration site, but it is actually stated more precisely on Wikipedia:
I included the SSA direct citation because people often question Wikipedia citations.
This was the gist of Vice President Gore’s “lock box” idea for the 2000 campaign, but it would never have worked, since the surpluses were always in a form of non-traded Treasury Bills.
To expand on that, because the surpluses are, by law, required to be invested only in Treasury Bills, that mechanism, in effect, transferred the surpluses to the general fund, but the FICA taxes were not directly paid into the general fund.
Back to the chart you presented, the chart demonstrates what is wrong with the continued “stimulus” idea. During World War II, we borrowed heavily, but we were borrowing from ourselves; at the end of FY1946, 99% of the national debt was owed to Americans. That meant that as the debt was serviced, through interest payments and the redemption of matured bonds, that debt service went right back into our economy.
Today, much of the debt is financed by foreign governments, banks and individuals, and that means that whatever additional economic activity is produced by stimulus doesn’t have a lasting effect, because so much of it winds up leaving our economy again in the debt service payments.
Keynesian economics holds that the government should attempt to stimulate the economy through deficit spending during bad times, but should catch up, balance the budget and pay down the debt during prosperous years. We have done the first, but not the second: even during the four balanced budget years under President Clinton, the national; debt kept increasing.
What we’ve had, since FY1969, is perpetual stimulus, which has become, in effect, the importation of foreign money. We have inoculated our economy to stimulus, because continued stimulus has been the norm for decades.
The taxes may not go directly to the general fund, but they surely get there via the Trust Fund. Once the Trust fund buys those securities from the Treasury, what do you think happens to the money they’ve just borrowed? They spend it and that is how they incur a debt.
Back to the chart you presented, the chart demonstrates what is wrong with the continued “stimulus” idea.
Actually, this does no such thing. Stimulus and Treasury Bills are two different things. T-Bills are all about borrowing money for either ongoing expenditures or for cash flow purposes. Stimulus is about putting money into the economy as a direct way to get demand moving again. The QE from the Treasury involves buying assets from banks to provide reserves (mostly). Even in this chart much of the debt is financed by us. Including the banks and other institutional buyers of US Debt. Even during WWII, institutional buyers were a primary customer of Liberty bonds.
Keynesian economics is abit more complex than you describe, but I recognize the right-wing version of it you note here. We haven’t had perpetual stimulus, but we have had large portions of our economic life dominated buying stuff that no one wanted to pay for on the fly and created nothing of real asset value. Like the Vietnam War, like the Reagan-era arms buildup, Grenada, various Clinton-era skirmishes, Iraq, Afghanistan, etc. I’m going to exempt Iraq I from this as this was mostly paid for by the international community. But none of this is stimulus except to DOD contractors and certainly does not lift the larger economy which is what stimulus is meant to do.
What, don’t defense contractor jobs count as part of the economy? I’d point out here that it was the manufacturing of military supplies which lifted this country out of the Depression.
Military supplies are actually more stimulative: they are manufactured goods which we expect to be expended rapidly and have to be replaced. And the people who work for defense contractors spend money at WalMart and Dunkin’ Donuts and Sears and Macy’s and Ford just the same as do people who work for General Motors or Lafarge Cement or Abercrombie & Fitch.
Cassandra wrote:
And for which we keep borrowing money; that’s part-and-parcel with the definition of stimulus.
You might have noticed that the 2009 American Recovery and Reinvestment Act did not produce anything like the results promised for it. The money was put into the economy, as you said, but does not seem to have had the effect that the President claimed it would.
Of course, some of my friends on the left claimed — after the fact, of course — that that simply proved that the recession would have been far worse than projected without the stimulus, but that’s an exercise in unproven justification; it is just as probable, and I’d say more probable, that the stimulus didn’t work as it was supposed to work because the government didn’t know what it was doing.
they are manufactured goods which we expect to be expended rapidly and have to be replaced
Only if they are used and there’s the perverse incentive built into the cake. We have failing bridges and roads all over the US — which get worse every day, and yet the thing we are interested in going into debt over are war goods that we’ve just used.
But there’s alot of perverse incentives built into the DOD world. Like maintaining a big enough footprint to be the world’s policeman, while our partners never have to invest much in their own defense. The nest stimulus is the kind of thing that has the greatest use and has the greatest lifespan. Improving and fixing the roads we commute on and send goods back and forth on is a great investment and puts Americans who aren’t working now back to work. Same for fixing bridges, upgrading port, rail facilities, improving cso’s and water treatment plants. Or how about just cleaning up Superfund sites or even building additional trash or recycling capacity? These things are all good until they are obsolete and even then we know that with some decent maintenance, you can get more than the usual life out of these structures.
The stimulus did work, and there is large consensus around that, as there is large consensus around the fact that the stimulus as passed by Congress was quite inadequate. The argument is around *how much* the stimulus worked.
How the Great Recession Was Brought to an End
CBO Quarterly Reports on ARRA
< a href="http://web.econ.ohio-state.edu/dupor/arra10_may11.pdf">The American Recovery and Reinvestment Act: Public Sector Jobs Saved, Private Sector Jobs Forestalled
There’s plenty more, but you won’t be interested in any of those, either.
Cassandra, your citations were from people who were invested in the idea that the stimulus worked; you might as well have cited democrats.org.
Cassandra wrote:
OK, just how much stimulus do you get from cleaning up a Superfund site? You get the labor costs, and the costs associated with cleaning up, but it doesn’t really produce anything.
Roads and bridges? I guess that it depends: someone in the business of repairing automobiles might disagree. 🙂
But roads and bridges aren’t really stimulus items: they are part of the ordinary workings of government. An example: the 2009 ARRA put federal money into repaving a section of US 209 near where I live; most of it was asphalt, but I made a little money on concrete for curbs and drains. That was done in the Fall of 2009, and it provided business for a paving company as well. Sounds good, right?
Trouble is, come 2011, when that work would normally have been done, it had already been done, so that work wasn’t there for contractors. The stimulus plan moved up some work, but didn’t create any real new work . . . but we added about a trillion dollars in additional debt to get it done.
OK, just how much stimulus do you get from cleaning up a Superfund site?
It’s a construction project and the amount of stimulus depends upon exactly what you are doing. And depending upon where that site is, you can boost the property values for quite the radius which would have been useful as the real estate market fell. If the site was clean (not just in long term monitoring) you also might have a piece of real estate ready to be developed.
But roads and bridges aren’t really stimulus items: they are part of the ordinary workings of government.
That would be true if the government was doing this. They aren’t, which is why so many roads and bridges are in disrepair and why so many corridors are so congested.
The stimulus plan moved up some work, but didn’t create any real new work
That was called “shovel-ready” and if people were hired or retained to do this work and materials were bought and equipment was rented, etc, that was more work than was going to get funded in a crash.
but we added about a trillion dollars in additional debt to get it done.
We added about $1 trillion in debt to fuck up Iraq for no reason and include in that the lives lost which wasn’t stimulative to anything.
We added about $300 billion to the debt to finance Medicare Part D which Bush and the GOP congress never paid for.
We added more than $1 trillion in debt to pay for the Bush tax cuts — that’s just the first decade, without the Obama extensions.
Only a small percentage of which could have saved this bridge — employing the people to do the work, sell the materials, rent the equipment AND keeping the normal commerce between Seattle and Canada going for a very long time AND keeping Americans safe.