Who Is the Owner of the US National Debt?

How does the Social Security Trust Fund possess a major percentage of the US national debt, and what does that mean? We'll look at who owns the US national debt and how it affects you in the sections below.

There are two kinds of national debt

In early 2022, the US national debt surpassed $30 trillion. The Bureau of Public Debt of the United States Treasury is in charge of managing the country's national debt. The bureau divides the sum into two categories: intragovernmental holdings and public debt.

Debt held inside the government

Other government agencies owe the Treasury a portion of the debt. In February 2022, intragovernmental holdings surpassed $6.5 trillion. What makes you think the government owes you money? Because certain government entities, such as the Social Security Trust Fund, collect more tax income than they require. Instead of stuffing the money beneath a big mattress, these agencies invest it in US Treasurys. The excess revenue from the agencies is transferred to the general fund and spent there. They cash in their Treasury bills whenever they need money. The federal government either hikes taxes or issues more debt to raise the necessary funds. Which government agencies have the most Treasury bills, notes, and bonds? By a long shot, it is Social Security. This data is published by the US Treasury in its monthly Treasury statement. As of August 2021, the Social Security trust funds, which include the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, owned $2.86 trillion in Treasurys. With a $1.03 trillion budget, the Military Retirement Fund was the next largest agency. The Office of Personnel Management Retirement, Medicare (which includes the Federal Supplementary Medical Insurance Trust Sustain), and cash on hand to fund federal government operations are all big debt holders.

A debt of the State

The general populace holds over $22 trillion of the national debt. A substantial amount of the public debt is held by foreign governments. In contrast, the balance is held by American banks and investors, the Federal Reserve, state and local governments, mutual funds, pension funds, insurance companies, and holders of savings bonds. In a quarterly Treasury bulletin, the Treasury breaks down who owns how much of the public debt. According to its September 2021 bulletin, which comprised statistics through March 2021, foreign and international investors held almost $7 trillion. $1.17 trillion was held by state and local governments, whereas $3.6 trillion was held by mutual funds. Other holders of public debt include individuals, government-sponsored companies, brokers and dealers, banks, bank personal trusts and estates, corporate and non-corporate firms, and other investors. Note that the public's share of the national debt is made up of more than Treasury bills, notes, and bonds. Treasury Inflation-Protected Securities, as well as certain State and local government series securities, contain it. When you add Social Security debt to all the retirement and pension accounts, you'll find that about half of the US Treasury debt is held in trust for retirement. If the United States defaulted on its debt, current and future pensioners would be the hardest hit.

Why Does the Federal Reserve Hold Treasury Bonds?

As the country's central bank, the Federal Reserve is in control of the country's credit. It has no financial need to hold Treasury bills. So, why does it do it? Between 2007 and 2014, the Federal Reserve's assets more than tripled. In response to the financial crisis of 2008, the Fed increased open market operations by purchasing bank-owned mortgage-backed securities. In 2009, the Fed began buying US Treasury bonds. By 2011, it had amassed $1.6 trillion in assets, reaching a peak of $2.5 trillion in 2014. Quantitative easing (QE) boosted the economy by lowering interest rates and flooding the financial markets with cash. It ensured that firms could continue to borrow at low rates for operations and expansion. The Fed used to credit it generated out of thin air to buy Treasurys from its member banks. It had the same impact as if money had been printed. By keeping interest rates low, the Fed assisted the government in avoiding the high-interest rate penalty that would have been imposed if it had taken on too much debt. Important: In October 2014, the Federal Reserve announced the conclusion of its quantitative easing program. As a result, 10-year Treasury note interest rates jumped from a 200-year low of 1.43 percent in July 2012 to roughly 2.17 percent by the end of 2014. In 2017, the Federal Open Market Committee (FOMC) announced that the Fed would begin to reduce its Treasury holdings. It did, however, buy Treasurys again a few years later. The Federal Reserve stated on March 15, 2020, that it would buy $500 billion in US Treasury bonds and $200 billion in mortgage-backed securities over the next few months. On March 23, 2020, the FOMC increased QE purchases to an unlimited amount. By May 2021, its financial sheet had expanded to $8.76 trillion. Foreign ownership of US debt is currently at an all-time high. In July 2021, Japan held $1.32 trillion in US Treasury bonds, making it the country's largest foreign debt holder. China is the second-largest holder, with $1.07 trillion in US debt. Both Japan and China want the dollar to remain higher in value than their own currencies. This allows them to keep their exports to the United States affordable, allowing their economies to thrive. When China boosted its holdings to $699 billion in 2006, it surpassed the United Kingdom as the second-largest foreign holder. With $579.8 billion, the United Kingdom is the third-largest holder. As the effects of Brexit continue to wreak havoc on the country's economy, its holdings have risen in rank. Ireland is next, with $324.3 billion in its coffers. The top ten include Luxembourg, Switzerland, the Cayman Islands, Brazil, Taiwan, and France.

Final Thoughts

The total public debt held by other countries, the Federal Reserve, mutual funds, and other businesses and individuals, as well as intragovernmental holdings held by Social Security, the Military Retirement Fund, Medicare, and other retirement funds, makes up the US national debt. Many people believe that much of the US national debt is owed to foreign countries such as China and Japan, but the truth is that the majority of it is owed to US Social Security and pension systems. This means that Americans own the majority of the national debt.

Most Commonly Asked Questions (FAQs)

Is there a problem with the national debt?

Economists and legislators routinely discuss the optimal level of the national debt. Most people agree that some debt is important to drive economic growth and that debt can become a problem at some point, but they disagree about where that point is. If the debt grows too large, government programs will be eliminated, taxes will be raised, and the economy will suffer.

What is the relationship between the deficit and the national debt?

The national debt and the deficit are inextricably linked. A budget deficit occurs when the federal government spends more money than it receives in tax revenues. This imbalance must be filled by borrowing additional money, which adds to the debt.