Putting US Debt in Perspective

qwerty123

"Today, of course, we live in a more complicated world, in which American financial markets are intertwined with other nations, and in which a substantial part of our debt is indeed owned by foreigners. But what a lot of people apparently don’t know is that while foreigners have a lot of claims on America, America also has a lot of claims on foreigners. Here’s the way the national balance sheet vis-a-vis the rest of the world has evolved [see pic]

So the big rise in US debt hasn’t been accompanied by an equally big rise in our net obligations to foreigners. And in the past few years, as the budget deficit has exploded, the trade deficit has actually been lower than pre-crisis –which says that the big recent rise in debt is very much a rise in the amount Americans owe other Americans, not a matter of selling IOUs to foreigners.

Again, I’m not saying that debt is never a problem. But it’s not the kind of problem people imagine."

(It'd be interesting to see exactly who owes the US money.)

http://krugman.blogs.nytimes.com/2011/12/29/the-burden-of-debt-again-again/

Vitaliy_Kiselev

It is wrong view.
First, I suggest you to old blog entries, they have interesting charts.
Most probably 80% of the guys on your chart could be UK and offshores actually owned by US or affilated companies.
Second. This chart mostly illustrate that current ruling class fights increased complexity of the system with more money and similar instruments. Making system more complex. Exponentially more complex.

qwerty123

I did look at others entries. There are some disturbing trends suggested by those. But this topic / post is partly a response. :-)

Here's some more info from the Business Insider. I'm unsure how reliable it is; but I don't see a reason for the numbers to be fabricated. The question is what it ultimately means:

"Many people — politicians and pundits alike — prattle on that China and, to a lesser extent Japan, own most of America's $14.3 trillion in government debt.

But there's one little problem with that conventional wisdom: it's just not true. While the Chinese, Japanese and plenty of other foreigners own substantial amounts, it's really Americans who hold most of America's debt.
Here's a quick and fascinating breakdown by total amount held and percentage of total U.S. debt, according to Business Insider:

Hong Kong: $121.9 billion (0.9 percent)
Caribbean banking centers: $148.3 (1 percent)
Taiwan: $153.4 billion (1.1 percent)
Brazil: $211.4 billion (1.5 percent)
Oil exporting countries: $229.8 billion (1.6 percent)
Mutual funds: $300.5 billion (2 percent)
Commercial banks: $301.8 billion (2.1 percent)
State, local and federal retirement funds: $320.9 billion (2.2 percent)
Money market mutual funds: $337.7 billion (2.4 percent)
United Kingdom: $346.5 billion (2.4 percent)
Private pension funds: $504.7 billion (3.5 percent)
State and local governments: $506.1 billion (3.5 percent)
Japan: $912.4 billion (6.4 percent)
U.S. households: $959.4 billion (6.6 percent)
China: $1.16 trillion (8 percent)
The U.S. Treasury: $1.63 trillion (11.3 percent)
Social Security trust fund: $2.67 trillion (19 percent)

So America owes foreigners about $4.5 trillion in debt. But America owes America $9.8 trillion."

Source: http://globalpublicsquare.blogs.cnn.com/2011/07/21/who-owns-america-hint-its-not-china/

Also see: http://krugman.blogs.nytimes.com/2011/12/31/us-net-investment-income/#postComment

Vitaliy_Kiselev

I suggest you to approach this from other side.

First. You need to count all debt. Including states.
Second. You need to factually divide debt to foreign debt and domestic debt.
Third. You need to carefully look at dynamics (agains, see blog). Offshores, UK and Treasury are last strongholds.
Fourth. If you think that you can cancel debt for U.S Residents, funds and trust funds, you are wrong. As it'll make huge impacts to banks, people and firms.

kenoah

I just aced econ 2 this semester. Like 75% of usa debt is owned by the usa. I.e. The poor owing the rich. Its a huge fallacy.

onion

Krugman is an idiot. The US paid off its WWII debt through rising industrial output, a capital surplus and a sane trade policy. It was helped in this endeavour by the fact that the manufacturing base of the rest of the planet had been blown to smithereens.

For thirty years, America has opted for debt-fuelled growth, trade deficits and a spiralling mountain of debt. It has coupled this with fraud endemic in the banking sector to disguise the absence of capital, a policy that made a generation of parasitic plutocrats. That is vastly different to the economic policy following WWII.

The reason for the recent contraction in the trade deficit is nothing to do with who debt is owed to. It is a consequence of reduced economic activity leading to less imports and less exports.

qwerty123

"Krugman is an idiot." You might want to reconsider this sentence.

I'm not saying that Noble Prize winning economists can't be mistaken. Of course they can! But I doubt that anyone that anyone who wins a Noble Prize in economics is "an idiot" about economics. ;-)

brianluce

Krugman doesn't seem to be expressing *how* the US paid off its war debt. That's nothing to do with the point he's making.

onion

He writes in the third to fifth paragraph of the article why he believes the WWII debt being owed to US meant it didn't matter how much they spent. This is false. America thrived because of other economic conditions (the productive capacity of the World being massively reduced but America remaining intact). This was a big reason why the Depression ended. In a few years or less when Japan collapses, they will learn why having internally denominated debt still matters.

Nobel prize-winners can be fools. The founders of LTCM were brilliant if their Nobel prizes were anything to go by - yet they made spectacularly bad bets on Russian bonds, directly causing a systemic crisis. I hate Krugman because he provides cover for global financial policies that are kleptocratic by design and are directly impoverishing me and future generations.

The whole profession of mainstream economics is in disgrace with the failure to spot an obviously insolvent banking system and biggest credit bubble in history. Nobel prizes tend to go to Keynesians or neo-Keynesians. Many 'leading' economics universities are similar. It is like having medical schools run by doctors who believe in leeches.

B3Guy

Trust us, he is trucking mothers. Most obvious because he is a Keynesian economist. I prefer the Austrian school of economics. Most of those guys seem to have some common sense.

Vincent_Pereira

@onion: A bit off topic, but leeches are still used in modern medicine :)

Vincent

brianluce

It seems perfectly reasonable that an America that owes debt to itself is in a better situation than an America owing debt to China. That's what Krugman says in paragraphs 3 to 5. And that in no way would exclude the other points you make about WW2 increasing America's industrial capacity etc which led to economic dominance. And Krugman has been harping about precisely the kind of social injustice that has you, me, and a lot of other people pissed off. I don't think he's the demon you imagine him to be.

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