eli5: Who does the US owe almost 32 trillion dollars of debt too? If it’s the most powerful nation in the world, can’t it just get rid of it?
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Most of the debt is owed to the US government.
Medicare and Social Security collect payroll taxes from workers, which it will later pay back for medical care and pension payments. The money during the period between when it’s collected and paid out is held in US securities. Basically our Social Security and Medicare programs buy most of the federal debt. After that, other retirement funds and corporations buy a lot of that debt. Most of of the assets that Silicon Valley Bank held were government securities. Most of the cash that Apple holds is in US Treasuries.
Some is owned by individuals, and some is owned by other nations. US treasuries had been considered the safest investment in the world. After we had our debt rating downgraded the last time Republicans pulled this default stunt, that changed a bit.
One big question regarding a US default is who would and wouldn’t get paid. The concern being that the federal government would preferentially keep paying Medicare and Social Security, being part of the federal government, and not pay individuals, foreign countries, and corporations that hold that debt.
So could we get rid of it? Sure. The US would also alienate every ally it has on the planet in doing so. The economy would be destroyed. Better to carry the debt. It’s not really *that* much debt. The top 10% of the US population have total assets of about $100T. A small annual wealth tax would pay off the debt pretty damn fast.
It owes most of it to its own citizens.
At some point in the past, the government needed to borrow money. Your grandma (for example) loaned it money with the promise it would pay her back in 10, 20, or however many years plus interest.
Loans to the government are very safe for the same reason you mentioned: it’s the most powerful country in the world and the chance it is still here to pay you back in 20 years is pretty damn high.
As such, loans to their own government are a huge part of citizens’ retirement plans, college funds, pension programs, insurance programs, you name it. It doesn’t pay very well, but it’s an extremely “safe” investment.
US citizens hold about 70% of all the federal debt in all these various forms. Theoretically, they could vote to forgive the debt and just never pay it back to themselves. Poof. Gone.
But good luck convincing grandma to agree to never get that money back. Especially when grandma votes. A lot.
Most of it is owed to us – the American taxpayers.
Between the 2008 Great Recession and the Covid stimulus, more than $15Trillion was added to the US debt. Throw in a few wars and underfunded federal budgets, and you quickly get to $32T.
We basically just print all that money to maintain a comfortable standard of living. Eventually it will come due… whether it’s your kids, or your kids’ kids… somebody will eventually have to pay it.
Most of the debt is owed to the US government.
Medicare and Social Security collect payroll taxes from workers, which it will later pay back for medical care and pension payments. The money during the period between when it’s collected and paid out is held in US securities. Basically our Social Security and Medicare programs buy most of the federal debt. After that, other retirement funds and corporations buy a lot of that debt. Most of of the assets that Silicon Valley Bank held were government securities. Most of the cash that Apple holds is in US Treasuries.
Some is owned by individuals, and some is owned by other nations. US treasuries had been considered the safest investment in the world. After we had our debt rating downgraded the last time Republicans pulled this default stunt, that changed a bit.
One big question regarding a US default is who would and wouldn’t get paid. The concern being that the federal government would preferentially keep paying Medicare and Social Security, being part of the federal government, and not pay individuals, foreign countries, and corporations that hold that debt.
So could we get rid of it? Sure. The US would also alienate every ally it has on the planet in doing so. The economy would be destroyed. Better to carry the debt. It’s not really *that* much debt. The top 10% of the US population have total assets of about $100T. A small annual wealth tax would pay off the debt pretty damn fast.
About your last question, people look at the risk, when lending someone money. If you always pay your debts, you can get away with paying less interest. In the last 10 years there have even been countries that had a negative interest rate.
If you decide to stop paying interest or stop paying your debt altogether, others will try and get that money back and will never really trust you again. So financing in the future will become very difficult
The idea of “powerful” is complex and sophisticated. In today’s global situation – power is both soft (influence, economic power, building alliances and dependencies) and hard (military, threat of force).
It is also crucial to know what government debt means on a macroeconomic level rather than trying to gain an intuition of it through personal debt. Although it sounds the same “borrow and pay back”, the nature and how debt works at a national level versus personal level is not even vaguely comparable.
None of this is really even approachable as an entire topic in a reddit post. Suffice to say that if there is a default on national debt, a nation loses soft power very quickly. A large part of the notion that the US is powerful is the fact that other countries/people want to hold US debt because it is safe and the US is seen as a reliable economic power. The US has used this power to build a global economic order consisting of trade. Threatening the functioning of this order diminishes the US significantly and defaulting on US debt is a very sure way of destabilizing the global order.
About your last question, people look at the risk, when lending someone money. If you always pay your debts, you can get away with paying less interest. In the last 10 years there have even been countries that had a negative interest rate.
If you decide to stop paying interest or stop paying your debt altogether, others will try and get that money back and will never really trust you again. So financing in the future will become very difficult
The idea of “powerful” is complex and sophisticated. In today’s global situation – power is both soft (influence, economic power, building alliances and dependencies) and hard (military, threat of force).
It is also crucial to know what government debt means on a macroeconomic level rather than trying to gain an intuition of it through personal debt. Although it sounds the same “borrow and pay back”, the nature and how debt works at a national level versus personal level is not even vaguely comparable.
None of this is really even approachable as an entire topic in a reddit post. Suffice to say that if there is a default on national debt, a nation loses soft power very quickly. A large part of the notion that the US is powerful is the fact that other countries/people want to hold US debt because it is safe and the US is seen as a reliable economic power. The US has used this power to build a global economic order consisting of trade. Threatening the functioning of this order diminishes the US significantly and defaulting on US debt is a very sure way of destabilizing the global order.
The idea of “powerful” is complex and sophisticated. In today’s global situation – power is both soft (influence, economic power, building alliances and dependencies) and hard (military, threat of force).
It is also crucial to know what government debt means on a macroeconomic level rather than trying to gain an intuition of it through personal debt. Although it sounds the same “borrow and pay back”, the nature and how debt works at a national level versus personal level is not even vaguely comparable.
None of this is really even approachable as an entire topic in a reddit post. Suffice to say that if there is a default on national debt, a nation loses soft power very quickly. A large part of the notion that the US is powerful is the fact that other countries/people want to hold US debt because it is safe and the US is seen as a reliable economic power. The US has used this power to build a global economic order consisting of trade. Threatening the functioning of this order diminishes the US significantly and defaulting on US debt is a very sure way of destabilizing the global order.
About your last question, people look at the risk, when lending someone money. If you always pay your debts, you can get away with paying less interest. In the last 10 years there have even been countries that had a negative interest rate.
If you decide to stop paying interest or stop paying your debt altogether, others will try and get that money back and will never really trust you again. So financing in the future will become very difficult
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