Who Owns the US National Debt? Is China the real threat we are being told?

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posted on Apr, 1 2007 @ 08:17 AM
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Updated pie chart: Who Owns the National Debt, Jan. 2007

Larger Picture

See it is amazing to see this, and no one is griping about the brits and the dutch now are they?

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Bernanke: China's debt holdings not a problem

China owns 4% of our federal debt. It's nothing to worry about—according to the Chairman of the Federal Reserve. Here's the article.

LINK


China's premier, Wen Jiabao, answered several reporters' questions last Friday. Because China's holdings of US dollar assets seems to be on everybody's radar, I thought this exchange with the Wall Street Journal would be of interest.

Wall Street Journal [excerpt]:

...the government has announced plans for a new agency to manage the diversification of China's foreign exchange reserves. Can you tell us what kind of assets this agency will invest in?

China's Premier Wen Jiabao [excerpt]:

In the 1990s, China did not have enough foreign exchange, so we borrowed foreign exchange from the IMF. The IMF only lent us $800 million. Now our foreign exchange reserves have exceeded $1 trillion, and how to make good use of them has become a new issue for us.

China practices diversification of its foreign exchange reserves to ensure their security. Yes, we do plan to set up a foreign exchange investment company, and it will not be under any government department... It will be under government oversight and regulation and should preserve and increase the value of the assets...



I know by raising this question, you may wonder whether the overseas investment to be made by this newly established agency will affect US dollar-denominated assets. China's foreign exchange reserves mainly consist of US dollar denominated assets. This is the fact. China's holding of US dollar denominated assets is mutually beneficial in nature. The setting up of a Chinese foreign exchange investment agency will not affect the US dollar-denominated assets. [emphasis mine]

It wouldn't be logical for China to invest their dollars in a way that diminishes their value. As some have been trying to point out, even if that were feasible, it would be the financial equivalent of shooting oneself in the foot, or worse. It just wouldn't be logical.

I do understand that logical economics isn't always what drives politicians; however, the massive worldwide market in dollar-denominated assets will make it difficult if not impossible for any single country, including China, to dent the dollar by much—even if its politicians were willing to risk shooting their country's foot off. [In fact, I think the only country in the world whose politicians might be able to pull that off is the USA.]


See I think the economy is in good shape for the most part. Heck we are on pace to even balance the budget way ahead of schedule. Let's see the Dems want to RAISE taxes. What are they smoking?



Balanced budget trend: still June 2008

LINK to larger chart






This is such a good site that I bookmarked it and look at it quite often. This site gives a much different perspective than most. Take a look

The Skeptical Optimist




posted on Apr, 6 2007 @ 06:42 PM
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Outside of its own citizens, the national debt is an indicator of who the US owns. I see [derogatory ethnic references removed], brits, and koreans at the top. LOL! We own them!




Mod Note: General ATS Discussion Etiquette – Please Review This Link.

[edit on 8-4-2007 by 12m8keall2c]



posted on Apr, 6 2007 @ 07:10 PM
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Things look like they are getting better, but while public traded companies are scruntinized by the SOX laws our own government cooks the books worst than Ken Lay!


Let's see, we don't recognize long term obligations and we add the SS & MED taxes in with the general revenue. Then there is the off budget items for the war in Iraq and Afganistan that are not added to the budget.

As far as the foreign debt you did not include the trade deficit with China, it is a big problem! FYI the chinese are building aircraft carriers with our money! They have over a 1 Trillion in Dollars or 10% of GPD!

China Building 2 Carriers!

You need to balance the "facts" from Rush/Necon crowd and get the facts from people like the Comptroller of the U.S. David Walker!


U.S. Heading for Financial Trouble!



posted on Apr, 6 2007 @ 07:52 PM
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Holy #, two aircraft carriers?

What does that make, two total, nine less than the US, and per capita inferior to the # we sold to mexico that won wwii?



posted on Apr, 6 2007 @ 07:57 PM
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Etotheitheta what is your point? Keep believing drugy Limbaugh, if the US gets too far in debt we may have to sell the 9 carriers to pay for SS and the interest on our debt!



posted on Apr, 6 2007 @ 08:21 PM
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What is debt in this case? The ablity to start war with a country with oil reserves 100+ billion and the best friends in the west with the most filthy oil rich nation in the world? LOL! The chinks can't do a thing about it, even if we have debt, in that case we can control the Chinese economy. Wars are won by those with access to oil, not debt freed status.

[edit on 6-4-2007 by etotheitheta]



posted on Apr, 7 2007 @ 03:00 AM
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Originally posted by etotheitheta
Outside of its own citizens, the national debt is an indicator of who the US owns. I see Japs, Chinkes, brits, and koreans at the top. LOL! We own them!


Could you explain this 'own' a bit more please?




Originally posted by etotheitheta
Holy #, two aircraft carriers?

What does that make, two total, nine less than the US, and per capita inferior to the # we sold to mexico that won wwii?


Oh that's funny, could not have said it better myself!


China to build 93,000-ton atomic-powered aircraft carrier: source

It would be interesting to see this big atomic carrier now wouldn't it? They have been trying to build one for 15 years at least and really got no where, even the Indians outbid them for the Gorshkov! I am really scared, I bet it will even have electromagnetic cats also!





Originally posted by mel1962As far as the foreign debt you did not include the trade deficit with China, it is a big problem! FYI the chinese are building aircraft carriers with our money! They have over a 1 Trillion in Dollars or 10% of GPD!



The trade deficit is not as large an issue as you think, just how do you think they got all them there dollars in the first place. So lets see a minute, them Chinese sure like them dollars and them treasuries now don't they?



U.S. Heading For Financial Trouble?

The cancer, Walker says, are massive entitlement programs we can no longer afford, exacerbated by a demographic glitch that began more than 60 years ago-- a dramatic spike in the fertility rate called the "baby boom."



Oh I agree - its that socialism promised to folks to garner their votes and create government dependants --- also known as liberal democrats by another definition.




What would happen in 2040 if nothing changes?

"If nothing changes, the federal government's not gonna be able to do much more than pay interest on the mounting debt and some entitlement benefits. It won't have money left for anything else – national defense, homeland security, education, you name it," Walker warns.




Well I disagree and will show it in a minute...



"The Wall Street Journal for example calls you 'Chicken Little,' running around saying that the 'sky is falling, the sky is falling,'"


Slammed by the WSJ?

Are things so bad right now? The budget being so negative? Hmmm



Is you cant see the above pic - OPEN THIS



Do you notice what happens after 2009? Look at the lines again...



posted on Apr, 7 2007 @ 03:57 AM
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From what I heard, Wal-Mart is China's third or fourth largest trading partner. If I were American, I would be interested in keeping the Chinese as my friend. Otherwise, my lifestyle as a consumer of inexpensive quality merchandise might be impacted, heaven forbid. Now who's worried about the debt scenario? Given the foregoing, who controls who's economy??



posted on Apr, 7 2007 @ 11:49 AM
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"Let's see, we don't recognize long term obligations and we add the SS & MED taxes in with the general revenue. Then there is the off budget items for the war in Iraq and Afganistan that are not added to the budget."


The Real Budget Deficit!



posted on Apr, 7 2007 @ 07:57 PM
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Originally posted by mel1962



The Real Budget Deficit!


This fails to recognize that we are on pace to have revenue outpace spending, that is as long as we don't start raising taxes and screw it up.




"What the comptroller of the United States is telling us is that as bad as a $4.6 trillion federal budget deficit and a $53.1 trillion GAAP negative net worth are today, the situation with the Bush administration federal budget deficit might even be worse yet if the government’s overall bad accounting procedures could be fixed. With truly accurate GAAP reporting by the various administrative agencies, the 2006 financial report of the federal government would have shown even larger deficits and a larger negative net worth, hard as that may be to imagine."


So since in these numbers it counts government payouts over xx years, does it also take into account the anticipated receipts it will take in? Does it account for an economy that is growing? These numbers seem very suspect to me. There is no way that we owe 50+ trillion without counting the receipts yet to come.

[edit on 7-4-2007 by edsinger]



posted on Apr, 7 2007 @ 08:02 PM
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Originally posted by edsinger

Originally posted by mel1962



The Real Budget Deficit!


This fails to recognize that we are on pace to have revenue outpace spending, that is as long as we don't start raising taxes and screw it up.


Unfortunately you don't understand business accounting practices, the long term liabilities (SS, MED, etc.) are going to outstrip revenues once the Boomers start to retire. The real deficit is the real deficit. The budget numbers from the government over recognize revenue and under recognize long term obligations!



posted on Apr, 7 2007 @ 08:08 PM
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Originally posted by mel1962

Unfortunately you don't understand business accounting practices, the long term liabilities (SS, MED, etc.) are going to outstrip revenues once the Boomers start to retire. The real deficit is the real deficit. The budget numbers from the government over recognize revenue and under recognize long term obligations!


See my edit above:


When these boomers retire and cash in their savings, they will not spend a dime, nor pay any taxes? True the entitlements will be the thing that breaks us if anything, but in your number it dos not count the whole picture.



posted on Apr, 7 2007 @ 09:09 PM
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Edsinger

Just to get my point across in plain english, the feds currently count the SS & MED revenue against the total budget. Right now SS & MED revenues exceed expenditures, so the excess is used against the deficit. But, by 2018 the SS & MED revenue will go into deficit also.

You have a good point about the Boomers spending tax and having to pay additional tax on their 401k's. I would hope that 401k revenue will exceed SS & MED expenditures, but I doubt it.



posted on Apr, 8 2007 @ 09:46 AM
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Originally posted by mel1962
Edsinger

Just to get my point across in plain english, the feds currently count the SS & MED revenue against the total budget. Right now SS & MED revenues exceed expenditures, so the excess is used against the deficit. But, by 2018 the SS & MED revenue will go into deficit also.

You have a good point about the Boomers spending tax and having to pay additional tax on their 401k's. I would hope that 401k revenue will exceed SS & MED expenditures, but I doubt it.


I agree with the Med and SS statements, this has been known a while. What I am trying to tell you is that IF and its a big IF, government revenue can grow faster than spending then paying off the debt and the obligations is possible.




If we continue to have a growth centered economy and not a 'take from those that have and give to those that don't' one, we can easily meet the government obligations..





And why I would argue that tax rates should either lower more or at least stay the same and not be raised..





Which paycheck looks better?






Are the alarmists right? Is the debt that bad?





compared to others it doesnt look so bad now does it?


Just one more example of what growth does to the 50 trillion owed, look at GDP and imagine uncle Sam's receipts!





posted on Apr, 8 2007 @ 12:20 PM
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On The Federal Debt

Concern is often raised over the consequences to the United States should any foreign debt-holder “dump” their bonds on the world market in retaliation to or disagreement with US policies.

Number 1 debt holder Japan ($649 b.) holds 2X debt as much as China ($354 b.) and number 3 in foreign debt holders is the UK ($249 b.) OPEC, our nemesis in the 1973 oil embargo era - oil prices rose 8X - collectively holds a mere $102 b. which is less than 1% of our debt. Therefore, OPEC’s holdings are negligible as we say in high finance. Even China holds but 4%. In and of itself an insignificant amount.

Q. Why do foreigners buy US debt?

A. Because the US has the largest GDP, it’s the world's safest large county - despite the Nine Eleven Event anomaly - it has a stable government and can boast the reputation of never having defaulted on its debt. Because the US dollar is still the world's currency and holds about 400 million ounces of gold. Say you are a rich guy in Nepal, Taiwan or Uruguay, with a couple hundred million laying around, where can you “stash” your nest egg knowing that if the sun rises, your money is safe? Right. The US of A. Or, do you know anyone rushing out to buy Rhwanda or Cuban bonds?

Q. Is China an economic threat to the United States?

A. No. In a nutshell. the PRC and USA are symbiotic. We need each other.

Q. Who holds the largest part of the US debt? 34.5%.

A. The Trust Funds.

A trust fund is an old idea that once had great appeal but now seems to be more a liability than a once expected asset. The first trust fund came in 1920s, when the first Federal highway construction program was launched. A 1 cent a gallon gasoline tax was levied. The money collected was by law dedicated to highway construction. A “trust fund” was created to hold the money until it was needed. In 1935, the Social Security Act was passed and a trust fund established. In 1965, Medicare was created and a trust fund was also set up. I have not listed all the trust funds but you can go to firstgov.gov to check them out.

But alas, times change. In the 1960s, the Congress approved the president’s idea to drop the dual bookkeeping system and to merge all Federal accounts into one “Consolidated Budget.” There were and are sound theoretical reasons for this method of bookkeeping. It is not easy to explain and not directly relevant here.

The problem with the consolidated budget is the excess funds collected by the FICA - Federal Insurance Contributions Act - are counted as revenue to the Treasury when in fact, the money is dedicated to go into either the Social Security Trust Fund or the Medicare Trust Fund. Instead the money is spent as it comes in, and (interst bearing) IOUs are given to the Trust Funds. $3,008 b. worth.

A chart in “A Citizen’s Guide to The Federal Budget, FY 2001" at p. 7, shows the following sources of Federal revenues: individual income tax, 48%; excise taxes 4%; corporate taxes, 10%; other, 4%; AND social insurance, 34%! (Obtainable from the GPO at Boulder CO, for $1).

Comment. This means that the Federal budget will not be in the “black” by June, 2008, because that projection depends on FICA taxes which are already spent, if you see my point with trust funds. Whatever the amount of FICA is, and I don’t know it for 2007, that must be added to and NOT subtracted from the shortfall in Federal revenues. We are doing just what the conservative critics of the Consolidated Budget Act said we'd do. Count money already obligated as revenue. Example: Assume the 2008 budget is $3 t. Assume the FICA revenue is $700 b. Instead of “balancing” the budget as promised - income equals outgo - the budget is actually short by the FICA amount, $700 b.

The numbers furnished by Edsinger in his opening post show the total of trust fund obligations to be $3,008 b. In addition, banks are required to keep a ceratin percentage of their reserves in US Treasury paper, and this totaled $786 b. Owed but not payable. It does OTOH, earn interest which is payable. Every government -Dem and GOP - has “used” the Trust Fund monies to offset the discretionary part of the budget, and other entitlement programs. The 2 major components of the discretionary part of the budget are the Department of Defense and the Interest on the National Debt.

The Trust Funds are all in the black in 2007. This means all the Federal debts incurred since Ronnie Reagan went on a spending spree coupled with tax cuts - and repeated by Bush43 - are due at least 50% to the excesses in defense spending - buy now, pay later. To get the total cost of “defense” today, you must add half the interest on nation debt - about $200 b. - to the $455 defense budget, plus the $100 b. supplemental, plus the $34 b. for the VA which we have now learned thanks to the WPost and Not the WH, is about 50% underfunded, so add another $17 b. Yet another "Hey, you're doing a heck of a job Brownie!" That's known as "hands-off" management.


That puts the real US defense spending close to $806 b. this year! And unlikely to get smaller if we keep ourselves in the same War on Terror mode set for us by Bush43.

[edit on 4/8/2007 by donwhite]



posted on Apr, 8 2007 @ 12:53 PM
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Very good!

But it still doesn't explain that given a reasonable expectation of growth, that the GNP in 25 years will be near 50Trillion at least, so the US government will spend around ~25% of that say 12.5 Trillion, on budget items. See this talk of debt is fine but lets put it in perspective will we.



posted on Apr, 8 2007 @ 01:01 PM
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posted by edsinger

Very good! But it still doesn't explain that given a reasonable expectation of growth, that the GNP in 25 years will be near 50Trillion at least, so the US government will spend around ~25% of that say 12.5 Trillion, on budget items. See this talk of debt is fine but lets put it in perspective will we.


Yes. I believe it’s called “monetizing” the debt. The country never really plans to pay it off. In one sense it (debt) is irrelevant.

Except for one very crucial point. It is tax burden shifting from the current rich to the future poor. From the current ones who are spending the money on the cuff, to those who are not yet born.

In that sense it is grossly immoral.



posted on Apr, 8 2007 @ 02:17 PM
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Monetizing
vs
Obscuring

To “monetize” a debt means the real growth rate exceeds the interest rate. Then the debt diminishes in real dollars. If continued long enough, debt would approach zero.

OTOH, the chart assumes too high a growth rate. 8%. A rate we have never acheived. That makes me suspicious (or at least curious) what the chart is supposed to prove. Why not use more accurate 3% or 4% rates? What is really happening is inflation. But inflation is confusing. Inflation is not real growth. It just takes more to do the same.

It is true that a 20 year bond will be redeemed at its sale price 20 years ago. At redemption, in dollars then costing us less. Inflated dollars. Mixed with growth dollars. But that ignores the interest paid over the 20 years. People with money don’t give away their money. Anytime the interest is less than the inflation rate, the rich sell the bond. This issue here - monetizing the national debt - is made more confusing because sometimes bonds are sold at a discount off the face value. A $100 bond for $95. Which “raises” the effective interest rate if it is of fixed value. As in a coupon bond.

I see incurring debt when the general economic climate does not demand deficit financing, to be a moral issue. Why should the rich not pay taxes and the government be forced to borrow to pay for operating expenses. As opposed to borrowing for capital investment which is justified. It goes without saying the poor do not buy bonds. That is a rich mans prerogative. Because the tax on dividends is now limited to 15% and income earned overseas is now taxed at 5%, the rich are very often paying much less in taxes - or are taxed at much lower rates - than the lower middle class!

This (generational shifting of the tax burden) is contra-indicated for a decent society. It will kill the already ailing middle class.

[edit on 4/8/2007 by donwhite]



posted on Apr, 8 2007 @ 04:26 PM
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good points indeed, and I too thought the 8% was a bit high but I believe that figure was an all encompassing one but I am not sure. Either way, even at 4% if the tax receipts continue to grow faster than spending, things look much better in 25 years.



One thing I can agree on is that the rich pay less in taxes with the loopholes available to them. This is why I like the flat tax, they can't get out of it unless they don't spend it, which is unlikely.









Are we in bad shape? Look at this one especially 1946..



Is there too much being spent on defense?








But this is all moot, should we actually pay off the debt? Well my gut says that to do so would be good but historically that might not be the case....




posted on Apr, 8 2007 @ 06:36 PM
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posted by Edsinger
“ . . good points . . I too thought the 8% was a bit high . . even at 4% if the tax receipts continue to grow faster than spending, things look much better in 25 years. [Edited by Don W]



Yes and no. It depends on what we are spending the tax receipts for. We already have a $3.008 t. obligation to pay social security and medicare. Trust fund money that we have spent on day-to-day expenses. Starting in 2010 the Boomer generation will begin retiring. By 2020s the social security outgo will exceed the income. Then the trust fund should kick in but whoops! The trust furn has already been depleted. That means either raise taxes to cover the shortfall, or cut back on expenses. We cannot cut back on interest so what do we cut? We have real problems we are not dealing with.

We need a national discussion to reach an informed consensus on what is the best policy to follow. This issue is wide open for demagoguery and the world is full of demagogue.


One thing I can agree on is that the rich pay less in taxes with the loopholes available to them. This is why I like the flat tax, they can't get out of it unless they don't spend it, which is unlikely.



Believe me, the 15% dividend tax cap and the 5% overseas income rate are not loopholes. The really rich - dividend recipients - and the near rich - overseas investors - already have a flat tax. That is why you will not hear any candidate speak about a flat tax. I argued a flat tax would not have worked because it would have to raise enough revenue to run the government. To get that much revenue required a 34% flat tax rate, after exempting the first $25,000 in annual income plus $10,000 more for each dependant.


Are we in bad shape? Look at this one especially 1946.



The Chart gave 12.3% for 1942. The Great War had just commenced. December 7, 1941. Scarcities were popping up everywhere. The Federal OPA - Office of Price Administration - had not yet been fully implemented. Rationing and price controls contained inflation remarkably during the following war years.

Note the Inflation Graph compares one month, November, 2006, to whole years in 1932, 1942 and 1980. Oddly chosen years but I recall 1980 was an anomaly. The last year of stagflation. When you chose dates like that, you are trying to prove a doubtful point. 1932 was the bottom of the Great Depression and showed DE-flation.


Is there too much being spent on defense?



That depends on how you believe the War on Terror should be fought. It is my position we cannot afford the present method we chose or was chosen for us by Bush43. I believe we need to address the underlying issues, not try to fight and kill every dissident in the Middle East or Afghan. We have no allies - Tony Blair is out of a job and the UK is out of Iraq by Labor Day - which ought to tell us Americans something if we can get over our Last Standing Superpower hubris. We got lucky, we don’t own the earth.


But this is all moot, should we actually pay off the debt? Well my gut says that to do so would be good but historically that might not be the case.



We knew in 2001 that we faced the largest and longest lasting shortfall in revenue with the coming Baby Boomer’s retirement. Clinton left office with a $1.8 t. projected surplus. He wanted to pay down the debt so we would have a stronger, better credit position when we had to go to the bond market in a big way. But Bush43 gave it away in spades.

The weaker our financal position in the 2020s, the higher interest rates we will be charged. We can’t change that. OTOH, we could have prepared for it, but we squandered that opportunity. That is 6 years ago and 3 trillion dollars behind us now. That is the Bush Legacy.

Debt is never good. How you handle debt can make it less harmful, but debt is not something you ever want. Yes, we should pay down our national debt at every opportunity. But that requires personal integrity.

[edit on 4/8/2007 by donwhite]





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