Friday, September 20, 2013

U.S. Federal Debt: Who Holds it, Who is Buying it?

Since 2007:Q4, over the last 21 quarters, U.S. Federal debt has gone up by about 7.5 trillion dollars.  Three of the most common misconceptions Corrections has heard have been:
  1. The Federal Reserve is buying all the debt!
  2. Foreigners are buying all the debt!
  3. Banks and the public are buying all the debt!
All three are incorrect.  U.S. debt purchases  have been fairly balanced.  Below, Corrections depicts the three owners of U.S. debt (click to enlarge):
It can be helpful to see the proportion of U.S. debt held by each of the entities (click to enlarge):
Neither of these is particularly helpful.  Instead, we depict how the three entities have changed their holdings since 2007:Q4 (click to enlarge).  Of the new debt, the public has purchased 41%, the federal reserve has purchased 14%, and foreign entities have purchased 45%.  
Any dramatic stories you hear about U.S. debt eschew the facts in favor of hyperbole: disbelieve them. Debt has risen sharply, but none of these three entities has purchased more than 50% of new U.S. bonds.

Note: Millions should read billions in the relevant graphs!  (E.g. U.S. debt has been in the 16 trillions range recently.

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