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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The US government sells bonds to investors, most of whom are American citizens, American institutions (mutual funds, pension funds, insurance companies).
Say your Dad needs $50 to fix the car, but he doesn’t get paid for two weeks and he needs the car fixed now. He asks his kids to lend him money from their piggy banks. They won’t. So he offers them the deal that if they each lend him $25 now, when he gets paid, he will pay each one back $26. So they lend him the money. Now the family as a whole owes $52 … to itself.
So now the Dad is the US government, and the kids are the Citizens. The loan is bonds or treasury bills.
Debt is a little misleading when it comes to national fiat currency. America’s constant economic crises are a result of constantly exploiting the benefits of a fiat currency and blatantly ignoring the consequences. If this country was ever actually forced to fix itself, the country would quickly cease to exist as economic hardships caused the union to break and try to grab each others’ resources while outside influences manipulated the outcome. Modern civilization would come to a rather quick halt.
1). Government bonds
2). The government has also been borrowing from social security for decades.
It’s like when you’re too lazy to clean your room today and want to play video games instead, so you say you’re gonna do it tomorrow.
You got to play games today, but you’re gonna have to give up something tomorrow to clean your room.
But it’s not accurate that USA has debt to itself. It’s more like, US entities are owned X amount of debt from other US entities, but it all gets added up as “all debt in the US”.
It might also be possible that debt could net a total of 0 and there’s no debt, but no one followed the debt chain to show that.
Or it’s possible that there’s also debt that will never be repayed. Like in village, there’s a guy with a fishing rod. He gives to another guy who promises to bring a fish tomorrow. Tomorrow comes and there’s no fish and the guy broke the fishing rod. Now the village is in debt of -1 fishing rods.
I don’t know how to answer the main question but I do know how you can owe debt to yourself
I have a savings account. A small one. In my family, I’m revered as “financially intelligent” because despite making similar wages, I can save. ANYTIME something comes up, like my dentist appointment next week which after my insurance will cost $350 (I’m in canada) I have to take from my savings account. The savings account is meant for school and eventually, hopefully pooled with my partners savings, a home. I have a document where I keep IOU’s to myself all the time. I have to slowly repay myself by saving a little extra next pay check until it’s paid back.
Governments issue bonds. The US will allow you and anyone else to purchase treasury bonds. They yield low interest but unless you think the US is going *fully and completely* belly up, they’re pretty much the most stable and secure investment you could possibly own.
If I purchase a US treasury bond in the amount of $1000, the US is now $1000 in debt to me.
If Canada buys $1,000,000,000 in US treasury bills, then the US is $1B in debt to Canada.
In short, what you heard that the USA is mostly in debt to itself actually means that the USA is mostly in debt to its own *citizens and corporations*.
It means the state owes money to the people. Ever heard of a government bond? It’s essentially something you ‘buy’ from the government and then they promise to pay you back that sum plus some interest at a later point in time.
I buy the bond for $10, and the government promises to pay me back $12 in five years. It’s literally a loan with 20% interest.
That’s debt the government owes to you.
If your dad loans you $20, the family is in debt to itself.
America is actually a group of different people and not one congruous hivemind.
The US government sells bonds, which are basically micro loans. Pay the government $100 for a loan, 1 year later they’ll give you back the $100 + a little interest.
Anybody in the world can buy a bond, and since the US government & the US dollar is considered extremely stable, it’s basically a guarantee return on investment. Because of this they are used to diversify portfolios, so a 401k might be 25% government bonds, 25% corporate bonds, 50% corporate stocks, for example. This helps protect your retirement from recessions and what not.
However it’s mostly banks and other private companies that own the bonds, not citizens directly.
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