The national debt hits $16 trillion: where is the debt coming from and who is it affecting?

On Tuesday, September 4th, the Department of the Treasury reported that the national debt has topped the $16 trillion mark. After a series of debt auctions near the close of business on Friday, August 31st, the gross debt rose from $15.991 trillion to $16.016 trillion. What does this number, once imaginably enormous and now alarmingly tangible, mean for American citizens and the economy?

Taking a closer look at where exactly our debt had been auctioned off to is an important first step

to answering this question. A breakdown of our current debt reveals that about 70% of the $16

trillion (about $11.273 trillion) belongs to both foreign and domestic investors and the Federal Reserve, representing an increase of almost $60 billion in a single day. The remaining 30% is inter-governmental transfers. Specifically, a little less than $5 trillion is owed to the trust fund for Social Security and federal pension systems.

Of the over $11 trillion owed to foreign investors, China owns $1.16 trillion but is closely followed by Japan with $1.12 million. In fact, though China has been vilified as the largest foreign holder of US debt, their holdings have decreased from $1.31 trillion in June of 2011. Other world powers including Russia, the United Kingdom, and Brazil together hold significant portions of the national debt as well.

Now that the debt has been categorized, we can see possible implications for American citizens. So much of the debt is held by American institutions and American citizens who require the services of those federal funds. Borrowing $5 trillion from Social Security’s trust fund may have a significant effect on the future functioning and stability of the pension system, and therefore a powerful impact on care for coming generations. Pension funds could see cuts if borrowing options are restricted in the future,impacted by the downgrading of US credit. In the presidential debate and current political arena, obtaining the financing for enacting policies like the Healthcare Reform through deficit-spending remains a major controversy and fault-line between the Democratic and Republican parties.

Another potential effect of this is the strong possibility of a changing, for better or for worse, our relationship with our foreign investors. How much influence on America does the Republic of China have as it reigns as the largest holder of US debt? Will our policy decisions in the future favor not necessarily who our friendly relationships are with, but with which nations hold the biggest shares of our deficit?

These questions and many more remain to be answered. Perhaps we will find the answers before meet the next trillion dollar marker.

Posted by Sophia Higgins

Sources: US Department of the Treasury,Washington Times ,CNN

Photo Credit courtesy of Flickr user Photo Gallery



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