I’ve once heard that the USA owns most of its debt to itself, how is that possible? How can you owe debt to yourself?
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It’s primarily issued as bonds and t-bills, etc. Most of those are held by American citizens. They’re particularly common as a portion of almost everyone’s retirement funds. Which is to say, people work and contribute to the GDP and loan some of that money to the government to get back in retirement. This debt is backed by the future economy of the country – the GDP. The U.S. expects that the economy will keep working and therefore it can repay the debts to itself with the higher amounts of future money.
National debt is very unlike personal debt for multiple reasons, but for the sake of simplicity, here’s two examples of owing personal debt to yourself:
Simple example: I took a loan from my 401k to buy a house. The 401k is my money, but the way 401ks work, you can’t access it until retirement (without penalty). However, I can issue myself a loan, which is paid back through my paycheck (just as 401k contributions would be) along with interest. This is, effectively, another investment in my 401k, only instead of being in a mutual fund getting some market-determined rate of return, it’s in a loan getting a specified interest rate. That’s debt to myself, that both provides me with necessary funds now and also provides a rate of return to future me. As long as I keep working, I can keep paying it back.
More complicated: I have credit cards, I put purchases on those credit cards, and at the end of the month I pay them back. Now, technically, that *will be* a debt to the credit card company. But if I always pay them back before that, then it functions as a temporary debt to myself. As long as my cash flow stays positive, I can keep paying myself back and using that to pay off the credit card company before it ever becomes debt to them – I never actually have to pay them interest.
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