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A Check on the Debt
With so much emphasis on reducing the size, scope and cost of federal government, it is helpful from time to time to check in on our federal debt. That figure, nearly $14 trillion today, represents the total outstanding notes on which our country has borrowed. It also represents the obligation of this and future generations to pay tomorrow for the spending of the federal government today.
The currency of debt can be measured chiefly in Treasury bonds, simple securities which pay a rate of return – essentially interest payments offered by the U.S. Treasury. And an increasing proportion of our future federal debt will be made up of those interest payments.
In 2015, the net interest payments on the federal debt will triple what they are today, surpassing $500 billion in that year.
Yet, a concerning share of our federal debt is held by foreign governments – about $4.4 trillion worth. Essentially, those foreign governments own U.S. dollars, and the strategic value of holding the currency of your economic rivals in reserve cannot be overstated. In a trade war, dumping your rival’s currency is a crippling act of malice.
A quick review of the largest holders of U.S. public debt reveals that we are indebted to some of our fiercest competitors on the global stage. China is the chief holder of U.S. debt, with $891 billion. Japan is a close second – $883 billion.
Keep in mind that the combined annual economic output of Missouri, Wisconsin and Minnesota combined is roughly equal to these figures.
Fourth on the list of U.S. debtholders is a group of nations primarily known for exporting oil to America. Together, Venezuela, Iran, Iraq, Kuwait, Bahrain, Saudi Arabia, Ecuador, Oman, Qatar, the UAE, Algeria, Gabon, Nigeria and Libya hold $218 billion of U.S. Treasury securities. This list includes few countries we would consider allies, and many suffering from internal political strife and instability.
Brazil, another nation competing with the rest of the world for trade supremacy, ranks fifth with $180 billion. As we compete for more resources in our hemisphere and in the rest of the world, the giant U.S. debt may well be a disadvantage in the international markets where we ship commodities and manufactured goods.
Most Americans understand the fact that the U.S. has the largest national debt in the entire world. They also see how we got here: with government spending that far outpaced the growth of our economy. But less attention is given to the ways in which U.S. indebtedness can hurt us.
As I noted before, when foreign countries hold a large portion of our currency, they have a strategic advantage by which they may work to devalue the dollar. This hostile action creates inflation not just at home, but in the prices Americans would pay for every good and service which comes to our shores from abroad.
In addition, private capital spent in financing our public debt is money which is necessarily subtracted from the amount of investment which could occur in the companies, jobs and entrepreneurial opportunities which fuel our economy.
A nation saddled with debt loses these several strategic advantages, even when that nation is the most powerful in the world. Spending less through government is a start, but we must do much more to assure our country does not continue to finance our present at the expense of our children’s futures.