The U.S. National debt is about to cross $34 Trillion and is growing at a faster rate than anytime in U.S. history.
Treasury bonds are a critical component of the National Debt and if the U.S. Treasury cannot continue to sell Bonds, it’s game over for the World’s Reserve Currency.
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But exactly is this debt? And, more importantly, who owns it?
The U.S. National Debt is a complex accumulation of borrowed money resulting from ongoing budget deficits. Its composition includes various types of government securities held by a diverse range of investors, both domestic and international.
The management of deficits, budgetary choices, and political decisions play crucial roles in the trajectory of the national debt.
What the U.S. National Debt is Made Of
The U.S. National Debt is the cumulative amount of money that the federal government owes to various entities.
United States government bonds are considered the safest investments globally. Investors trust that the U.S. government will honor its commitment to repay the borrowed money with interest.
However, given today’s unprecedented debt level, and it’s accelerating growth rate, the “safe haven” status of U.S. Treasury Bonds is evaporating.
It is the result of the government consistently running budget deficits, meaning it spends more money than it collects in taxes.
The debt has historical roots, dating back to the Continental Congress issuing bills of credit in 1775, and has been exacerbated by events like wars, economic recessions, and inflation.
The Types of National Debt
The primary way the government borrows money is by issuing bonds. These bonds are essentially IOUs that promise to repay the borrowed money with interest at a later date.
The government issues various types of securities, including Treasury bills (T-bills), notes, and bonds, as well as U.S. savings bonds.
Ownership of the U.S. National Debt
The U.S. National Debt is owned by both domestic and foreign entities. Individuals, corporations, foreign governments, and financial institutions buy these government bonds as investments.
As of September 19, 2023, the largest portion of the debt, approximately $26.23 trillion, is held by the public, which includes individuals, institutional investors, and foreign governments.
Intragovernmental holdings make up the rest, totaling around $6.86 trillion. These are funds that the government owes to different government accounts, such as the Social Security Trust Fund.
The Impact of Debt Ownership
United States Government bonds are considered some of the safest investments globally. Investors trust that the U.S. government will honor its commitment to repay the borrowed money with interest.
The interest payments on these bonds do not require yearly approval by Congress; they are automatically made available by law, contributing to the perception of U.S. federal debt being the most pristine, safe and guaranteed Sovereign Bonds in the financial world.
However, given the unprecedented levels of U.S. National Debt, and it’s dramatically increasing growth rate, the safe haven status of U.S. Dollar government bonds is quickly evaporating.
The Role of Deficits and Budgetary Choices
Running a deficit, where government spending exceeds tax revenue, contributes to the growth of the national debt. The size of the deficit reflects policy choices related to tax revenue, federal spending, and decisions about the debt ceiling.
The federal budget and the debt ceiling must be approved by Congress, and the debt ceiling has been a subject of political negotiations and continuous increases to avoid a U.S. government default and a collapse in the global credit markets.
