US Debt

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Our mountain of debt
Graphic by Todd R. Lindeman • Introduction by Neil Irwin
In the American political conversation, the national debt has become something almost mythical. The debt has become a metaphor for all that ails the United States, a scary monster under the bed. It isn’t. It’s an accounting concept. The debate over deficits and debt is frequently clouded with sloppy language and sloppy thinking. Here, as something of a primer, is an overview of how the nation is faring, as well as some basic concepts every American — and every member of Congress — should understand about the U.S. fiscal situation. The nation’s numbers, in the billions and trillions of dollars, start to get away from us quickly. But the challenge is not unlike any household’s juggle to manage its finances. Many Americans take on debt to secure a home or an education. When we take on more debt than we can handle, we’re faced with tough choices. And when we fall behind on payments, the costs can pile up quickly. So let’s look at it together: Below: Who owns the nation’s debt and what happens if we default? On G4: We also o er five truths (in a nod to our colleagues in Outlook, with their “five myths”) about the deficit and debt. In Outlook: How the debt-ceiling debate will shape American power and politics.

May 2011

$14.3 trillion

National debt

INTRAGOVERNMENT +107% increase

Buying power
Foreign investors hold the largest share of the national debt. Estimated foreign holdings of U.S. Treasury securities have more than tripled since 2001. Some worry about the geopolitical consequences of foreign governments investing so deeply in U.S. Treasurys. But the investments also tie the fortunes of foreign governments more closely to those of the United States.

March 2001

$5.8 trillion

DOMESTIC +100% increase

FOREIGN +350% increase

2001

2011

$4.5 trillion

Who do we owe?

$4.0

Who owns the $14 trillion U.S. national debt?
Estimated ownership of U.S. Treasury securities as of December
INTRAGOVERMENTAL AND FEDERAL RESERVE HOLDINGS PRIVATELY HELD DEBT

China $1.2 trillion

e government sometimes borrows from federal trust funds, such as the Medicare Trust Fund or Social Security Fund, to pay for current expenses.

e government also raises money to pay for expenses by selling debt in the form of investment securities — savings bonds, bills, notes and bonds that the Treasury Department issues — to anyone from individuals to power investors, such as foreign governments and dealers.

$3.5

Barack Obama becomes president

Debt that the government owes to itself.

ASIA

19.4%

Foreign investors Individuals, corporations and governments

$3.0 Japan $907 billion

$5.7 trillion
40.3%

Gross U.S. debt In trillions of dollars

$4.4 trillion 31.6%
(53% of net debt, excluding intragovernmental holdings)

$2.5 Taiwan $155 billion
Other investors $1.2 trillion
Individuals, brokers, businesses, trusts and estates

Russia $125 billion Hong Kong $122 billion $2.0

State, local governments $0.5

Banks and insurance companies $0.6

Mutual funds and savings bonds $0.8

Pension funds $0.8

Domestic investors

$3.9 trillion
$1.5

Britain $333 billion

Switzerland $112 billion

Foreign debt holders
Asia Europe Oil-exporting countries North America Australia South America Rest of the world
Oil-exporting countries include Algeria, Bahrain, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Oman, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. Caribbean banking centers include Bahamas, Bermuda, British Virgin Islands, Cayman Islands, Netherlands Antilles and Panama.

George W. Bush becomes president

Luxembourg $78 billion

$1.0 trillion Oil exporters $222 billion

Caribbean banking centers $138 billion $0.5 Canada $88 billion Brazil $207 billion

Rest of world $199 billion
March 2000 Jan. ’01 Jan. ’02 Jan. ’03 Jan. ’04 Jan. ’05 Jan. ’06 Jan. ’07 Jan. ’08 Jan. ’09 Jan. ’10 Jan. ’11

Countdown to default
MONEY IN THE BANK DWINDLES PAYING SOME BILLS AND NOT OTHERS THE COST OF NOT RAISING THE DEBT CEILING

Imagine coming up short at the end of the month when it’s time to pay the bills. is is what may happen Aug. 3 if Congress does not raise the debt ceiling and the government cannot roll over its debt or borrow any more money to cover its expenses.
Cash on hand, in billions

e government takes in revenue from taxes and other sources each business day -and likewise has a list of obligations to pay. On Aug. 3, for instance, the government will take in enough to cover about half of its Social Security payments, and nothing else. And Aug. 4 and each day a er will bring a new list of obligations.
Aug. 3 income Total obligations on this day: $32 billion
Medicaid, Medicare Education Dept. Other Defense Unemployment, HUD, food programs, welfare Federal salaries, benefits VA programs, IRS refunds to businesses $0.2

$300
$2.2

Cash on hand $12 billion

to Social Security $23 billion

Consumers who miss a credit card payment can be slapped with higher interest rates, which immediately drive up the cost of whatever debt they owe. Likewise, a government default -- or even the threat of one -- can push interest rates higher. Even a small increase would add billions of dollars to the cost of paying the U.S. debt. Increased expense if interest rates go Net debt up by 0.25 percent outstanding IN BILLIONS 2011 2012 2013 2014 2015

$1.8 $1.5

$1,086 $1,188 $1,278 $1,356 $1,430

$27.1 $29.7 $31.9 $35.7 $37.6

$200 Actual
Treasury’s “extraordinary measures” added $232 billion on May 16. Daily deposits total $171.8 billion
Aug. 3 MONEY IN

Projected range

$1.4 $1.4 $0.5

$100

$20 billion shortfall

$135 billion shortfall
Sources: Bipartisan Policy Center; Treasury Department; Congressional Budget O ce; Congressional Research Service; Government Accountability O ce; O ce of Management and Budget; and Bill Gross, founder and co-chief investment o cer of the investment management firm Pimco

April May 29 9

June 2

July 7

Aug. 2

MONEY OUT

Bills due in August: $306.2 billion

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