Understanding debt held by the public, and what a big problem it is

Today on the radio show we talked about the fact that the U.S. national debt has reached $18.2 trillion. But another number, perhaps even more important but not widely understood, is the portion of this called debt held by the public. That is now over $13 trillion.

So what is this and why does it matter? In a nutshell, debt held by the public is money we've borrowed from individuals, non-governmental banks or foreign governments. It's basically any debt the government owes to someone other than itself. My excellent researcher Clark Barrow explains in detail:

What is the Debt Held by the Public?

• The Debt Held by the Public is all federal debt held by individuals, corporations, state or local governments, Federal Reserve Banks, foreign governments, and other entities outside the United States Government less Federal Financing Bank securities. Types of securities held by the public include, but are not limited to, Treasury Bills, Notes, Bonds, TIPS, United States Savings Bonds, and State and Local Government Series securities.
• Since most of these debt instruments can be freely bought and traded by anyone, the Treasury calls them Debt Held by the Public. It does not, however, mean that all of these securities are held by members of the American public. The bulk is held by institutional investors and by foreign central banks which keep dollars as reserve currency. The top foreign holders of these securities are China, Japan, and the oil-exporting states.
• The current outstanding amount U.S. federal debt held by the public is more than $13.05 trillion, which is roughly 74 percent of U.S. GDP.

What are Intragovernmental Holdings?

• Intragovernmental Holdings represent funds that the federal government has borrowed from various government accounts that have net surpluses.
• Trust funds are the means by which the federal government administers benefits to various categories of recipients. The trust funds run surpluses when the amount of money that comes in is more than the amount paid out to current beneficiaries.
• Although there exist more than 200 hundred such trust funds, the government only borrows from a handful of them. The largest and best known of these are the Social Security and the Medicare trust funds.
• The current outstanding amount of U.S. federal intragovernmental holdings is more than $5.098 trillion.

DEBT FACTS

• According to the U.S. Bureau of Economic Analysis, total U.S. GDP in current U.S. dollars in the first quarter of 2015 was $17.71 trillion.
• According to the U.S. Treasury Department, total U.S. federal debt (including debt held by public and intragovernmental holdings) currently stands at $18.15 trillion.
• So, total U.S. federal debt (including debt held by public and intragovernmental holdings) is currently 102 percent of U.S. GDP.

It's obviously not insignificant when the government borrows from Social Security and Medicare, because they're ultimately borrowing from the recipients of those entitlement programs. But there is a distinction to be made between borrowing from one of your own accounts and borrowing from someone else. If you own a business and you personally lend the business money, your business still carries debt, but you owe it to yourself. The portion of the debt that's held by the public is the most troublesome part - and remember the "public" here includes foreign governments - because the government has to meet the terms of that debt, or continually refinance it, which is what it regularly does. Debt held by the public today has risen to 74 percent of our entire GDP. The higher that percentage gets, the more difficult it becomes for the economy to generate the type of capital that would permit the government to ever pay back the debt. This is one of the reasons our pathetic economic growth record under Obama is such a big problem. If GDP was greater, the percentage of it represented by debt held by the public would be smaller and more manageable. But with Obama's hostile-to-wealth policies suppressing growth, we're getting into dangerous territory. By the way, Greece was looking at a similar percentage when people starting sounding alarms there, but the government and the unions didn't want to listen. They just kept right on borrowing and spending until they had to go to the European Union for a bailout. Who do you think is in a position to bail out the U.S.? Who has enough wealth or a big enough economy? And if anyone could, what do you think the price would be? We need to get this under control now, and it starts with people understanding what all this means, how it works and why it's such a big problem.

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