Don't forget the mechanism by which government spends money - it issues a bond, which gets converted to dollars. The bond comes with interest, and the interest payments go to rich people (banks).
This poorly represents where the US national debt goes.
About 30% of the debt is owned by federal agencies ... that is the government owes itself that money. Social Security is the easiest (and largest) example. It owns about $3 trillion of the federal debt which it is saving (for now income>expenses for SS) for when it is needed as the population ages.
40% is owned by foreign governments. Being indebted to foreign countries isn't so bad. It means they have faith in you and are rooting for your success. It supports peace and cooperation.
The federal reserve owns about $3 trillion. This is the institution that creates dollars out of thin air. The interest paid to the fed goes right back into the treasury – the fed uses this as a control mechanism to keep the currency stable growing and shrinking the money supply. Lots of mildly ignorant people really hate the idea of the fed, but few of them have even the slightest understanding of how it works.
State and Local governments own another trillion – interest paid here is just like a different route to funding state and local governments, not something you can complain about all that much.
As for "rich people" mutual funds and banks own together about $1.5 trillion. A lot of those are pretty average folks. Even then this is only ~%10 of the $18 trillion debt.
There are a few other owners of us debt... Saving Bonds and insurance companies account for another few hundred billion together. The rest are odds and ends significantly smaller than anything mentioned above.
To summarize, the majority of the US debt is owned domestically, much of it by domestic government. Only a small minority of the interest goes to "rich people".
"40% is owned by foreign governments. Being indebted to foreign countries isn't so bad. It means they have faith in you and are rooting for your success. It supports peace and cooperation."
"As for "rich people" mutual funds and banks own together about $1.5 trillion. A lot of those are pretty average folks. Even then this is only ~%10 of the $18 trillion debt."
Ok so still that's 9 trillion in debt owed to people who get to collect money from the U.S taxpayer. A trillion here, a trillion there, pretty soon you're talking about real money! The annual payment of interest on the debt is 430 billion dollars[1]. So rich people get roughly 43 billion a year totally risk free for doing absolutely nothing courtesy of the tax payer. Meanwhile, in China, whenever the government needs some money they just print it up at the PBOC and hand it out, usually to bail out bad debts to state owned enterprises, but at least they aren't sticking it to the taxpayer like we are.
The "rich people" you're talking about includes pretty much every Average Joe with a 401k or IRA.
For instance, of that $1.5 trillion, $50-$100 billion is held in Vanguard's investor shares (by definition, retail investors with less than $10k in the fund). These people (mostly regular people saving for retirement) aren't "doing absolutely nothing"—they're helping fund the US government!
People are also missing the basic fact: with inflation and interest rates on par and both so low ... government bonds aren't profit centers. They store value and gain just enough interest to beat inflation. It's about your savings not evaporating over the years more than big greedy profits.
If you look at the interest payments for the US debt over the last 25 years ... despite the recent debt bubble... the actual interest paid when accounting for inflation is flat.
Adjusting for inflation we paid less interest in 2014 than we did in 1988 or 2000 (these are two random years I checked). America does not have a debt problem. The people who obsess over it or yell about the gold standard almost exclusively have absolutely no idea what's been happening or how it works. That's not to say that we should _aspire_ to borrow endlessly, but when times are down and people have faith in you, there's nothing better than borrowing. With the fed pushing the interest rates so low, (and buyers elsewhere running to the Dollar for security in uncertain times) there's just no reason to be afraid of a little more debt. We're far _far_ away from the territory when it starts being a problem. (and the same people who complain about the debt now want tax cuts instead of paying off debts when times are good – fools)
I absolutely agree. I was mostly replying to the uninformed belief that the benefits of investment accrue only to the "rich" (a loaded term I'm loathe to use).
The amount owed to SS is really just an accounting artifact.
SS works by promising future taxpayers will fund today's taxpayers' retirement benefits. The fact that all of the "saved" money was actually "loaned" back out to the taxpayer (while current taxes fund current beneficiaries) is a perfect demonstration of this facet of SS's internal workings.
>Meanwhile, in China, whenever the government needs some money they just print it up at the PBOC and hand it out, usually to bail out bad debts to state owned enterprises, but at least they aren't sticking it to the taxpayer like we are.
And when PBOC prints up that money to bail out state owned enterprises it devalues existing currency by the same amount. Inflation by this manner is functionally indistinguishable to a tax.
Well, ok, so some of that debt does go to things like retirement funds and mutual funds, which help individuals that are not the mega-rich (like middle-income folks) but still the very poor in this country are not being helped by this.
Just printing money is not a good solution. Inflation (despite what Paul Krugman says) is very bad for the poor. One: If it weren't bad for the poor, why is there a need to periodically raise the minimum wage? Two: The common refrain is that the poor are indebted and benefit from nominal devaluation while the rich will stuff their matresses full of bills if we had deflation, but the rich do benefit from quasi-loans, like leveraged investments. Leveraged investments get very favorable interest rates, and the poor, typically are not offered low interest rates. I will be impressed if you can find an urban money lender that offers an interest rate below inflation, but if you have access to IMF funds (which sometimes are below inflation!), you're probably not in the 99%.
That's the mechanism by which government borrows money; the mechanism by which government spends money is that it takes money out of the pile which it has either borrowed or received in revenue (taxes, user fees, proceeds of government-run enterprises) and spends it. (This ignores the possibility of government receiving grants directly for the particular spending, which also happens, more for some governments than others...)
Marginal increases in spending once revenues are completely used may be, in effect, equivalent to increases in borrowing, but spending in general is not equivalent to borrowing, so the mechanism for government borrowing money should not be presented as the mechanism for government spending money.
AFAIK, concerning the interest payments sent to the Federal Reserve, if any profits are made they are given to the US Treasury, after operating expenses. And all the staff at the federal reserve make ~$250k/year or less.
