Sunday, November 17, 2013

Who Owns The National Debt?

An interesting new analysis of the US national debt. Read carefully.
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Treasury ownership marks wealth divide
By Gillian Tett

Who owns America’s ever-swelling pile of government debt? This is a question that has provoked considerable angst among US politicians recently; or at least it has in relation to national identity.
Little wonder. Half a century ago, the share of US public debt held by foreigners was less than 5 per cent; but in 2008 that ratio breached 50 per cent. And while it has since fallen back slightly (because the Federal Reserve has been gobbling up bonds) the shift in ownership is nevertheless stark – along with the new power of creditors such as China.

But there is a second important point about America’s debt that has hitherto received surprisingly little attention: the shifting nature of bond investors who hail from inside the US. In past decades, it has often been assumed that Treasury bonds were widely held by the public. Indeed, since the days of Alexander Hamilton, who founded a strong central US Treasury, many politicians have thought (or hoped) that a broad involvement in the bond market – be that among widows, orphans, middle-class citizens or oligarchs – would be a source of common civic identity and social glue.

However, Sandy Hager, a postdoctoral research fellow at the London School of Economics, has recently crunched through the historical data. This research suggests that if you look at the “publicly held” US government bond markets (ie the parts not held by another US government agency, such as the Fed), foreign ownership of federal bonds has risen from around 5 per cent in 1970 to 55 per cent today, at the expense of US households and business.

More specifically, the ratio of the bond market held by corporations during this period has declined from around 40 per cent to 30 per cent, while for households it has fallen from around 30 per cent to almost 15 per cent.

Concentrated ownership
But what is most interesting is the picture inside the “household” category. Contrary to the usual assumption that government debt is widely held, Mr Hager’s data suggests ownership has become far more concentrated recently, echoing a wider concentration of wealth in the US.

Back in the 1970s, for example, the richest 1 per cent of Americans “only” held 17 per cent of all the federal bonds that were in private sector hands. This was partly because during the second world war and in the immediate aftermath there was a strong attempt to distribute Treasuries widely. But since the 1980s, the proportion of debt owned by the top 1 per cent started to rise sharply, hitting 30 per cent in 2000 and 42 per cent in 2013. The last time it was this high was in 1922, when the ratio was 45 per cent.

Now, this picture may not be entirely complete. Mr Hager himself admits that the historical data are often patchy, and it could be argued that modern citizens are also indirect owners of government debt through public agencies and pension funds, in ways that do not show in the data. But, if nothing else, this pattern gives new significance to the questions that Hamilton and other historical figures first grappled with three centuries ago: namely, is public debt a potential source of civic cohesion? Or merely a subtle way for elites to entrench their power?

Skin in the game
Mr Hager, for his part, takes the latter perspective; after all, he points out, this pattern means the richest are collecting more and more interest income, but not paying a proportionate increase in taxes.
“Over the past three decades, and especially in the context of the current crisis, the ownership of federal bonds and federal interest has become rapidly concentrated in the hands of dominant owners, the top 1 per cent of households and the 2,500 largest corporations [while] the federal income tax system has done little to progressively redistribute the federal interest income received by dominant owners,” he writes.

“Public debt has come to reinforce and augment the power of those at the very top of the social hierarchy,” he adds, concluding that “[Karl] Marx’s notion of a powerful ‘aristocracy of finance’ at the heart of the public debt is . . . a very real feature of the contemporary US political economy.”
No doubt most bond investors would disagree; the name “Marx”, after all, is taboo on dealing floors. But even if you disagree with Mr Hager’s leftwing political bent, the data certainly casts a new light on the political dynamic in the current fiscal rows.

To the wealthy elites in the US who hold government bonds, it seems self-evident that the government needs to preserve the sanctity and value of Treasuries; this group has a strong incentive to ensure this happens via fiscal reform (particularly if this entails budget cuts, rather than higher taxes.) But what is rarely debated is that millions of poor Americans have far less (or no) skin in the Treasuries game. Little wonder, then, that the fiscal debate is so polarised, and unlikely to become any less so any time soon.
gillian.tett@ft.com


15 comments:

Anthony Rocco said...

This article talks a lot about public debt and bonds. The first staggering fact is that the US Public debt has reached about 50%. That is a significant amount, half of our debt is held by foreigners, and we are paying for it here. But beside that, an overlooked fact of up our economy. the debt is the shifting nature of bond investors. Over the last few years the bond market held by corporations has declined from around 40 percent to 30 percent, for households it has fallen from around 30 percent to almost 15 percent. The article also explains how the government debt is more concentrated now rather then it being spread out as thought before.

Joanna Pizzurro said...

The U.S. debt is more than $17 trillion. Most news headlines focus on how much the U.S. owes China. And, in fact, China is the largest foreign owner of U.S. debt. However, the biggest single owner of national debt is the Social Security Trust Fund. The U.S. Treasury manages the U.S. debt through its Bureau of the Public Debt. The Bureau has broken out the debt into two main categories: Intragovernmental Holdings, and Debt Held by the Public. If you add up debt held by Social Security, and all the retirement and pension funds, nearly half of the U.S. Treasury debt is held in trust for people's retirements. China has increased its holdings, from $1.147 trillion, in the last year. It's obviously not too concerned that the U.S. will default on its debt. China wants to keep the value of the dollar high. This makes its own currency, the yuan, relatively cheaper by comparison. That helps China's exports to the U.S. seem more affordable, which helps its economy grow. That's why, despite China's occasional threats to sell its holdings, it's happy to be America's biggest banker, and largest foreign owner of U.S. debt.

Ashleen Ulysse said...

This article states that the US Public debt has now reach 50% which is a subatantial amount. Half of this debt is held in the hands of foreigners. I remember in a recent article it stated that foreigners were less than 15%, and this article was not too long ago. So the jump is pretty serious. The bonds held by corporations has declined from around 40% to 30%, for households it has fallen from around 30%to almost 15%.

Mary O'Shea said...

This article discusses about public debt, and how it is presently reached 17 trillion. In class we discussed how social security was the largest contributor to national debt, and this article also restates this theory. The main foreign country that loans us money is China. Due to the fact that the US can always print more money, China is not afraid that the US will default on its debt. It actually benefits their economy by helping us out, because the dollars keep their currency low, therefore making their products to seem more affordable to export to other countries. It was also discussed in the article about bonds, and how they have regressed from 40-30 percent for corporations and 30-15 percent for households in the matter of only a few years, which is not good for the United States at all.

Colby Stover said...

The article mainly discusses how bonds have contributed to the public debt. The US public debt now hit 50% and half of that is because of foreigners. We the people are actually paying for the foreigners through taxes which have increased over the years. The rich are collecting more and more interest and not paying a proportionate amount from tax increases. Since the 1980's,the portion of debt owned by the top 1% of the wealthy has sharply increased. It jumped to 30% in 2000 and increased to 42% in 2013. This shows an increase in wealth among American households. Bonds held by households has even fallen from around 30% to about 15%.

Nicholas Beato said...

This article talks about how the public debt is affected by bonds. I was I shock to find out that the U.S. Public debt held by foreigners was more then 50%. Although that percentage is shrinking because the Federal Reserve is buying up all the bonds. The article also states that the shift of ownership has moved to new creditors such as China. Foreign ownership of bonds have actually risen to 55% today compared to 5% in 1970. Not only are the bonds being taken up by foreign creditors, but the bond market held by corporations has declined from 40 to 30% and for the households it had fallen from 30 to 15%. I also found it interesting how the article talks about how in the 1970s the richest 1 percent of Americans only held 17 percent of Federal bonds while today the proportion of debt owed tot he top 1 percent of Americans is 42% today.

Alexa Piccoli said...

This article talks about the national debt and the groups in the united states that are held accountable for it. In the beginning of this article I was very surprised to see that foreigners contributed to 50% of the national debt not too long ago. Another shocking point in this article is how the wealthy 1% of Americans contribute to a very large part of the government debt due to ownership of bonds and such. They account for 42% of the debt and are not paying taxes on interest collected. This to me is insane. Like the article states they have no redistributed the interest income and I believe it would be very helpful in circulating wealth and helping the economy.

Matthew Ramos said...

Who owns America’s ever-swelling pile of government debt? According to the London school of Economics the answer is foreign governments. The article states that foreign marketplaces own fifty-five percent of U.S. Federal bonds. In 1970 the foreign market only owned five percent of U.S. Federal bonds. This explains how reliant the United States has become on foreign markets, but at what cost? The cost is the investment opportunity costs of households and small businesses throughout the United States. The investments that our households and businesses should be benefiting from are now shipped overseas for foreign markets to benefit from. Unfortunately, the individuals that are mostly affected by the increase in foreign ownership of U.S. Debt are those who need it the most, the small business owners, and middle class households. Technically speaking, the wealthy have also experienced a decrease in the attainment of savings bonds, but at a small rate that is irrelevant.

Christina Sassone said...

In the article, the author states how the US debt has reached 17 trillion, and this is about 50%. The article explains how most of this debt is due to social security funds. The US borrows money from other nations, such as China, in order to provide the social security funds. The US has the power to print more money if needed, which is why other nations are willing to lend US money. This idea has fault because if the US prints more money, they value of the dollar decreases, which is why the US borrows it. Borrowing money is beneficial to other countries because it helps keep their currency low, which makes their products affordable. The article discussed bonds and how the percentage is decreasing over time. This will have a negative impact on the US economy because this is an effect of lack of investment, and we need investment in order to grow.

Tiffany Pabon said...

This article states the change of who holds the public debt and bonds in the U.S. Its presents that in 1970 foreigners held about 5% of U.S. bonds and public debt although now they own about 50%. The foreigners have bumped the ownership of bonds of household and corporations down a substantial amount in the last few decades. A major contributing foreigner to the U.S. deficit is China. China has continued to eagerly take ownership of American debt because they rather lend money and have us import their product because it keeps our dollar value strong compared to theirs.

Kenneth Reilly said...

This article opens the eyes of readers to a huge problem with our national debt. Most people believe that it is all owed to China and other countries, but in reality it is not. Granted, as the article states, debt owed to foreign nations is extremely high at around less than 50 %, a vast majority that most people are unaware of is the amount of debt that is held by the top 1% of our nation.Us Public debt is increasing at an alarming amount. I was a little shocked when i read that the last time the economy was in a condition like this was during the 1920s. That is never a good sign.

Kristoff Kolodko said...

What i found shocking about this article was how fifty percent of the debt was owned by foreigners. I always knew that they bought up a lot of debt but i thought it was between 25 and 35. This could be bad because if those country every decide to sell it off, if they think America is going to fail, then it could make our countries financial situation twice as bad. With the bonds i found it shocking that households investors fell from 30 percent to 15 percent. I guess with a bad economy less people are willing to invest money into bonds for the future even though if they do it could help our economy pick up faster. Along with these thoughts the article also mentions about concentrated ownership which is basically talking about how the top 2500 corporations and the top 1% have been the dominant for helping federal bonds and federal interest.

Kenneth Belle said...

This article talks about the debt reaching about 50% and how in can steadily increase. Some of the blame goes to the fact of foreigners, bonds, and also the social security. The rich also help with the debt that we are in. The fact that we are 17 trillion dollars in debt is horrible because like we discussed in class there is no way we could pay that off even if we took all the income from everyone in the U.S. That fact is horrendous.

Maria Biondi said...

This article talks about the national debt and how it's changed over the years. Such as foreigners held only a few percent of our debt years ago and now hold over half of our national debt. With this being said the public debt is now an astonishing 17 trillion dollars. Also foreigners have decreased their ownership in bonds the last few decades. China is also a major factor in the debt that the United States will need to repay them and get larger and larger each day. Nations such as China are willing to let us borrow money because they know we can always print more. Yet, we don't want to have to resort to this because it will make our dollar value less the more we print.

Bakhoya Mangoli said...

The article questions who owns the U.S. national debt and why people are not paying attention to it. The debt has raised from 5 percent to 50 in recent years. Most for the debt is owned my foreigners taking over our household and coparations . Most known about is china, where most of what is in the U.S. is made in china