America owes itself and that is the problem |
The US debt debate often focuses on foreign creditors, but the real issue lies within America’s own political and economic system.
The standard story about America’s debt is that foreigners are financing a declining empire. China, Japan, oil exporters: these are the usual suspects in the popular imagination. The implication is melodramatic but clear. The United States has overreached and now lives at the mercy of others.
But that is not what the numbers show.
Of America’s roughly $39 trillion gross federal debt, the largest share is not held by Beijing or Tokyo. It is held domestically by mutual funds, pension funds, banks, households, trust funds, and the Federal Reserve. Domestic investors hold about $17.7 trillion, foreign holders about $9.3 trillion, and another $7.6 trillion sits in intragovernmental accounts such as Social Security and other trust funds. The Federal Reserve alone holds around $4.4 trillion in Treasuries, more than Japan, the United Kingdom, and China combined.
So the real story is not that America is owned by foreigners. The real story is that America is financed by its own system and that its own system has become addicted to debt.
That should shift the argument immediately. The US debt problem is not fundamentally one of external dependence. It is a problem of internal political economy. It reflects a state that spends lavishly on military power, tolerates chronic tax weakness, protects entrenched wealth, and repeatedly postpones structural reform.........