We have a debt problem here in America, and it's probably not going to go away. In the fiscal year, the fed is expected to borrow $955 billion compared to $519 from last year. The number is expected to rise. While inflation does play a role, it is still a large increase in the debt. To put things in perspective, the U.S. is now $20.6 trillion in debt. That's a lot of money. Here's the debt clock if you want. Now before you go on ripping China or Mexico for trade imbalances, let's look at those numbers in more detail.
- Social Security (Social Security Trust Fund and Federal Disability Insurance Trust Fund) - $2.801 trillion
- Office of Personnel Management Retirement - $888 billion
- Military Retirement Fund - $670 billion
- Medicare (Federal Hospital Insurance Trust Fund, Federal Supplementary Medical Insurance Trust Fund) - $294 billion
- All other retirement funds - $304 billion
- Cash on hand to fund federal government operations - $580 billion.
About 2/3 of this debt is actually held by the public in the form of bonds, etc. Now, of course, those bonds are held by people, companies, and foreign entities like governments and companies. Then you have intragovernmental debt. Social Security owns a lot of the debt (you can imagine, right?), and then you have the Treasury. So not that bad right?
No, not really. It's bad. America has the largest debt in the world for one country. Even the EU, with 28 countries, is less. Now the question is, why is it so bad? What caused it? Factors point at the new GOP tax bill causing this spike, but it's not just that. There are three main factors though:
1. Federal budget deficits. Those new programs you like so much? That adds debt. You can thank the Obama administration for the most debt accumulation. He added the ARRA stimulus, the tax cuts, military spending, and of course, Michelle's school lunch program that makes every U.S. student cringe. Then you have Bush with his $700 billion bailouts, tax cuts for the 2001 recession, and his War on Terror. Then we have Reagan with his tax cuts, defense spending, and Medicare expansion. Don't get me wrong, I'm not saying that these are necessarily all bad, as most of them were necessary and unavoidable.
2. Social Security Test Fund. The fund actually received more than it needed to help the baby boomers. The excess money should have been reinvested, but it was instead loaned to the government for increased spending.
3. Countries buy treasuries to keep their respective currencies low in comparison to the dollar. Countries like Mexico, China, Japan, Vietnam, all want to lend to America and want foreign investment, so they will dock their rates and will keep buying Treasuries. China has lowered American debt holdings because it anticipates a bubble. As of December 2017, China owns $1.2 trillion, with Japan at $1.1 trillion.
Now here's an interesting thing. Ireland is third with $326 billion, and the Cayman Islands are fourth at $270 billion. What? The Cayman Islands? Yep. That's where people hid their money and have hedge funds. Since the introduction of the Mutual Funds Law in 1993, which has been copied by jurisdictions around the world, the Cayman Islands has grown to be the world's leading offshore hedge fund jurisdiction. In June 2008, it passed 10,000 hedge fund registrations, and over the year ending June 2008, CIMA reported a net growth rate of 12% for hedge funds. The largest sectors are "banking, hedge fund formation and investment, structured finance and securitization, captive insurance, and general corporate activities".
So is the debt good? In the short run, absolutely. Deficit spending improves the economy and drives growth. The government buys defense equipment, invests in healthcare, helps construction companies, you name it. It pays private companies that then hired new people. That's more jobs people. Then those people have more money to spend on products and goods. Yay!
Here's the bad part, with more debt, debt holders can demand larger interest fees, which would suck. They want compensation because they're worried the U.S. government can't pay it all back. This then slows down the economy. Basically, you enjoyed it soo soon that you spoiled it. Then the government will have to pay so much more money just to cover interest. Where does that money come from? Well, lowered taxes won't help so much...
People predict that the SSTF won't completely cover retirement benefits, meaning Congress may have to either drop benefits or raise taxes, both of which are terrible.
https://www.thebalance.com/the-u-s-debt-and-how-it-got-so-big-3305778
https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124
https://www.cnn.com/2018/02/05/politics/treasury-borrowing-ballooning-problem/index.html
https://www.gao.gov/new.items/d08778.pdf
https://www.hedgeweek.com/2005/10/01/bringing-caymans-mutual-funds-law-speed
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