“Is the United States really on the verge of insolvency? »

2023-11-03 13:00:08

With a level of over $31.4 trillion [près de 30 000 milliards d’euros] At the end of 2022, the United States’ federal debt is causing concern. It exceeds the combined GDP of China, Japan, Germany, France and the United Kingdom! But is the United States really on the verge of insolvency?

According to Federal Reserve data from December 2022, the $31.4 trillion in debt securities are held by the US private sector (15,600), by foreign investors (7,400), by the federal government (6,800) and by U.S. state and local governments (1,600).

A little more than a fifth of the American federal debt is therefore held by the federal government. But this debt is offset by an asset held at the same federal level. The Federal Reserve holds in particular debt securities worth $5.1 trillion, which it uses as one monetary tool, among others, to influence US and international macroeconomic conditions. On a smaller scale, the Treasury Department is mandated by law to hold Social Security funds in the form of U.S. Treasury bonds.

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But the largest share of federal spending is financed by the private sector, either through the issuance of Treasury bonds or through taxes. In the first case, there is a nominal increase in debt, but not in the second. It is therefore a choice of the government. However, in both cases it is a conversion of private capital into public capital. From the private sector perspective, the purchase of vouchers is voluntary, the tax is not. And if the private sector holds such a quantity of debt securities, it is because it is a low-risk investment. The State benefits twice because the interest it pays to the American private sector is in turn taxed, and the repayments of capital improve the balance of payments by keeping significant liquidity within the borders.

Compensation

U.S. local governments and states have similar reasons for holding U.S. federal debt: diversification of risk management, often due to statutory mandates to minimize the investment risk of public money. It should be noted that at the same time as it borrows from local and state governments, the federal government grants them more than $1,000 billion per year in subsidies.

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