Who is holding the bag? The future US taxpayers, right? As my friend, Brian, at the Frankenstein Government Blog , has often said : Debt is always paid. Either the borrower pays or the lender pays. So, will future generations of US taxpayers really pay-off our ever-increasing debt or will the lenders (the bond holders) write off their loses?
The US debt is currently over $15 trillion. The debt ceiling is $16.4 trillion and you can bet that our government will spend every penny of that.
CNBC.com recently ran an article that tells us who are holding the majority of these US Bonds. Let’s take a look.
- #15 Switzerland _ $113.9 billion
- #14 Taiwan _ $149.6 billion
- #13 Caribbean Banking Centers $185.3 billion
- #12 Brazil _ $206.4 billion
- #11 Oil Exporters _ $232 billion
- #10 Insurance Companies _ $250.1 billion
- #9 Depository Institutions _ $284.5 billion
- #8 United Kingdom _ $429.4 billion
- #7 State and Local Governments _ $484.4 billion
- #6 Mutual Funds _ $653.5 billion
- #5 Pension Funds _ $842.2 billion
- #4 Japan _ $1.038 trillion
- #3 Other Investors/Savings Bonds _ $1.107 trillion
- #2 China _ $1.132 trillion
- #1 Federal Reserve and Intragovernmental Holdings _ $6.328 trillion
So, the claim we often make that every time the government wants to spend more money we have to go cap-in-hand to China is a bit exaggerated. In round numbers, China holds about 7.5% of our debt.
The Federal Reserve, however, holds about 42% of the debt. Does that mean that 42% of the debt is debt we owe to ourselves? Not so fast. The Fed is not a government entity. The Fed is a private corporation owned by its member banks (think Wall Street Bankers) which are owned in part by the big European banks. In other words, 42% of our debt is held by what we like to call banlsters.
So, let’s get back to the question of who is going to get left holding the bag. There was a buzz in the MSM and the internet a while back that someone had calculated that to pay off the debt by raising taxes the current tax rate would have to double. That of course, that would destroy the economy so that ain’t going to happen not even if Obama is re-elected. The other option to pay down the debt is for government to spend less than they take-in. We are currently spending close to $1.5 trillion more than we take-in. That will clearly not happen if Obama gets a second term. If Romney or Santorum or Gingrich were to get elected, the best they are offering is to some day balance the budget. Assuming a Republican president actually pulled off that trick. we still wouldn’t be paying down our debt. Even Ron Paul believes the most he could do in the first year is to cut spending by $1 trillion. But Ron Paul is not going to be our next president. If a Republican controlled government really did cut spending sufficiently to start paying down the debt, they all be thrown out of office in the next election cycle. Although Americans are much more responsible than the Greeks, I fear Americans would see those cuts as too Draconian.
It appears then that there is no way we are going to pay down our debt. So, what is going to happen when the s**t finally hits the fan? The answer is that the markets will crash, including commodities like gold and silver. There will be world-wide panic. Whoever is the Treasury Secretary and whoever is the Fed Chairman at the time will be screaming: ” The sky is falling, the sky is falling. Quick turn-on the printing presses so we can pay off our debts!” Now this is exactly what the banksters want. They will be first in line to get these new dollars which they will use to buy gold and silver and anything else of intrinsic vale at rock bottom prices. Gold and silver will then skyrocket in price before those in groups 3,5,6,and 7 of the above table are able to react.Hperinflation will sweep the world but the banksters will be fat and happy because they will have more than secured their wealth, which is no longer in useless dollars but in fold and silver and other things of value.While the world is floundering in hyperinflation, the bankster will lay out a plan to save the world. They will present their plan for a New World Order with them in charge. They will create a new money system and the will begin making loans. Gradually new wealth will be generated. And, as always, this new wealth will eventually flow to the bankers again.
Yes. Yes. You are right! The old man has his tin foil hat screwed on good and tight. Yes I do. And I believe that something similar to what I just described will indeed happen. There is,in my opinion, one way to avoid the above scenario. We must elect politicians that will take control of the Treasury and the Fed BEFORE the s**t hits the fan. When the s**t hits the fan and America and the rest of the world are standing in a pile of ashes, we must resist the temptation to turn on the printing presses and instead America must declare bankruptcy just like Greece will do in the very near future. But, unlike Greece America can rebuild. We can restore our government based strictly on the constitution. We can create a new and sound monetary system. Please go to this CNBC.com site and click-through the pages. You will that the United Stated has by far the greatest gold reserves of any country or institution.. We can rebuild America if we have the courage and if we are willing to suffer a lot of pain in the process.
Well, that’s what I’m thinking. What are your thoughts?
Asylum Watch 
I follow you up until the point that Silver and Gold will crash. “The answer is that the markets will crash, including commodities like gold and silver.
Ay Bunker! You landed on the one point I am least qualified to explain. On this point, I am repeating what tin-hatters much smarter than I am are saying. They believe that the European Union will come unraveled and the markets everywhere will crash bringing on a deflationary period where even gold and silver prices will collapse and cash will be king. However, even if they are wrong, whatever price gold and silver have at the time the printing presses are put into overdrive, those prices will then skyrocket and the effect will be the same. I don’t know if my response helps you. But that’s the best I can do.
Thanks!
I think you have painted a horrible but very plausible picture.
I have long thought that it will all end with a crash, and a crash will be what it takes to get everyone’s head screwed on straight. However, as you bring up, the most likely post-crash scenario is that the same bastards who did this will have everyone so scared that they will convince the huddled masses to trust them with the fix, and we are right back on the same road again. *sigh*
The truth is purposely being withheld from the public. Someone needs to put the fear of God in the American electorate. But, I see no leader on the horizon who is capable of doing it. Very, very sad.
What’s “oil exporters”?
Oil Exporters
U.S. debt holdings: $232 billion
Big oil means big money … and big investment into U.S. debt. Included in the group of oil exporters are Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates, Algeria, Gabon, Libya and Nigeria. The group holds a total of $232 billion in U.S. debt, within the range of the $204 billion to $236 billion it has maintained during the past year.
Think OPEC-
Jim I am glad to have you back and obviously I agree with your points. All of them.
Tonite I read where gasoline consumption has absolutely fallen off a cliff. The author believes this is due to discretionary driving and I agree. Each time that has happened in the past (although it has never been this severe) has marked the beginning of a recession.
Can you have a recession within a depression?
Thanks, Brian!
I don’t know if it’s possible to have recession in a depression; but, I am sure we can have a depression in a recession. 🙂
I wish I could find somewhere to argue with your conclusion, Jim. I can not. Our government and the general public have both been willing to let the status quo stand for much too long. I fear what it will take to straighten this mess out.
It pains me to say it, Larry, but I am beginning to take comfort in the fact that I am old and will probably not have to witness what is going to happen to our America.
As you know Jim, I wrote a novel describing what happens to America when it happens.
But, there actually is a flaw in the article. Technically debt does not have to be repaid. Other than a few pennies in the late 90s, we haven’t repaid a penny since the 1830s, the last time we had zero debt. We just roll it over and over and over. The problem is when debt service costs get out of control. That’s why our massive deficits are so scary – the rate that we are adding new debt is shocking. And if interest rates ever go up (which won’t happen ever if Bernanke has his way), then the debt service costs skyrocket.
The reality is we don’t know when the doo doo will hit the fan. That will happen when the parties on the list above get scared. That’s what happened to Greece.
Nor do we know what will happen, because the response of policy makers will be crucial in how it plays out. But we can all rest easy knowing that they will make sure they aren’t the ones who feel the pain.
You are, of course, right, Ted. The entire monetary system set up by the bankers is based on an ever expanding debt bubble. It was supposed to be able to go on forever. But, then came the 2008 financial crisis. Since the, the GDP in the US, Europe, Japan and, other places are recovering fast enough. The eventual problem of interest on debt, that you pointed out, is already taking Greece down and Portugal, Italy and Spain are going to feel that pain very soon. IMO, the EU will not survive. The only reason the US hasn’t already seen the interest on their debt raise is because the dollar is the international reserve currency. These investor/lenders have no other safe haven for their money. But, there is a serious problem. Those investor/lenders that are holding US debt are receiving negative interest on their money when real inflation is taken into account. Again, IMO, they will either demand a higher interest rate as they see the EU coming undone or the BRICs will replace the dollar as the reserve currency with a new currency. I think time is running out.
Well then, if debt is not repaid…then the lender is paying.
Jim, It is true what CT says, “technically debt does not have to be repaid”,…………that is as long as his second premise is also valid, “we just roll it over, and over, and over.”
However, what is bringing the debt crisis of Greece come to ahead is the failure of CT’s second premise in their case. They are facing the threat of not being able to “roll it over again”. One important difference from Greece – among many more – to the USA is the important singularity that America can print his own money and that that money is the unit of exchange and reserve currency of the world. This single characteristic, among many others, makes the default of Greece possible and the default of the USA much more unlikely.
Of course, America, if it persists in this road, can eventually lose these prerogatives. This would be the first big and definitive warning. Naturally, this is a super simplistic argument on a complex subject that needs more space and time.
John, please see my response to Country Thinker.
I believe a crash is coming. If you can’t stock up on precious metals, invest in land.
Yes indeed. That is what I would be doing if I had any money I didn’t need to live on.
It’s a complex issue, particularly when it comes to a technical default. What is often overlooked is the fact that we never even need to reach the point of a debt default to have extremely adverse effects. If the Fed has to expand its printing in order to roll the debt, it comes with a price. The debt service issue will be an issue before a default ever is, but even that is years away with the latest Fed forecast keeping near zero rates until late 2014.
The debt bubble will continue to inflate. If we ever lose our position as the reserve currency, it bursts. If somehow Congress stopped increasing the debt ceiling, it bursts. Otherwise, the Treasury and the Fed have enough accounting tools to extend it a long-time.
However, they can’t stop the effects of monetary devaluation and the loss of buying power while doing so. If they try to go the other way and raise rates, servicing our debt would soon do us in. Pick your poison.
So the debt default chickens will come home to roost one way or another. Of course, we could always grow the economy and alleviate the issue the proper way, but we all know that option is not on the table with the leadership we have.
You are exactly right, A-F. Please read the response I just left for Country Thinker on why I think the debt service issue will raise its ugly head sooner rather than later.
You’ll be happy (not really happy, I don’t suppose) to know that I go to great lengths to explain the threat of debt service costs in The Eagle Has Crashed. I hope the message gets through to people who aren’t aware.
That’s why I was dumbfounded by Professor Alan Blinder’s WSJ editorial a few weeks ago. He advised that we take on another $500 billion in debt for stimulus because at negative interest rates, the federal government is actually makin money on its debt. And when that situation reverses, Professor? It sounds like nothing more than justifying an unsustainable “goosing” of short-term GDP with a teaser rate. Eventually our kids and grandkids will get stuck with the debt service costs.
I will be listening to your pod casts every Sunday without fail.
Just catching this discussion today…sorry to be late. But in all of this re: debt, as I read this..my concern is for the assets backing the debt. The Federal government and the States already own over a third (if not quite a bit more than that) of sovereign land within the U.S. When they take out a loan and use the “full faith and credit of the U.S. government,” are they not putting all of that land including the mineral rights, farming rights, etc. up as collateral? Making this even worse is the increasing assumption by Fannie and Freddie of more gov. backed mortgages…which then become assets against which to borrow (more debt)? (now we have government ownership in car co’s, so they, too, are on the block.) So, have we not mortgaged huge assets of America in this picture? While we are selling out our assets to prop up the $16 T debt? ….we lose more and more sovereignty? Simplifying my assertion here…this is why the federal government is determined to own everything…global bankster control of all American assets?
You know this banking issue is not my forté, but I just described what I fear most. The loss of sovereignty and the loss of free men to own assets. The stated goal of Agenda 21 (the UN) is there will be no private property rights. I’m sure the appetite of the banksters is no less than that. Continuing to “roll over” and increase these debts is literally the loss of our ability to survive on our own will. All this “roll over” and increased debt ceiling does is cause the federal government to pursue more assets to back it up…and voilá…we are sold down the river.
The government is already giving away FTZ’s (Foreign Trade Zones) within the country. We have already allowed the UN to come in and take “Biosphere Project” lands out of our sovereignty. And who in our government is stopping this? And since, as you state, there is no buying our way out of this debt with taxes, it is our assets that will be taken…more and more.
Depressing thoughts …will stop there. But the consequences, in my mind, have more to do with freedom than gold or silver. You can’t eat those or run engines with them. It is the rest of American assets I’m very worried about. Land and resources.
No, it is I who owe you an apology for being so late in responding to your comment. Some how I missed it. My bad!
I think you can relax as far as worrying that the government has put up any assets as collateral. When Greece finally goes bankrupt, no one will have any claims on Greek assets and the same holds true for us. I don’t know that the federal government has had anything to do with the FTZ. The only one I have read about is the one in Boise, Idaho and that was approved by the governor. It appear to me to be a great deal for China but Idaho is going to get next to zip from what I can tell.
Bottom line, I think we have more to fear from our own government (Agenda 21) than from any of our bond holders
Sadly I think you are right and there really isn’t anything that we can do about it because on the off chance we actually do elect people who will make the tough choices they will be voted out of office by the people as soon as possible, just as you said.
Most people do not realize how dire the situation is and are unwilling to do what is needed to stop our downfall, and I think Wisconsin is a perfect example. Walker did what was needed and it worked but now the people are trying to recall him because they are not interested in doing what is right, they are only interested in what the government can give them.
“Most people do not realize how dire the situation is…”
That is what really scares me, Steve, and I don’t know what more we bloggers can do.
Hello,
Fascinating article, enjoyed the insight and opinion even given the seriousness of our situation.
I’m not an expert by any stretch of the term, so I’m concerned about your statement saying that the only hope is for us to elect those who can take “control” of the Fed.
The Fed. is not an actual “federal” agency…but I confusingly read that the President appoints the Fed. Chairman (Bernanke)…
So it would seem to me that those that make up the Fed. (apparently a majority of European Banks at the root) would not allow policy changes that would go against their own self-interest.
So I guess my question is, is the Chairman position a figurehead following the dictates of the Board or would the “right” man in the position actually be able to succeed in helping our debt situation, not forgetting our massive unfunded liabilities.
Or was your answer, that the right Fed. Chairman would allow and help orchestrate a US bankruptcy?
And I’m not 100% sure that the amount of gold claimed to be being held by the US is actually still there. When’s the last time a full and complete audit has been done. I believe that is something that Ron Paul has been attempting unsuccessfully to accomplish thus far.
Thanks for any clarification…I’m still in the process of trying to learn 🙂
Stu
“Or was your answer, that the right Fed. Chairman would allow and help orchestrate a US bankruptcy?”
I’m inclined to believe the Fed would want to monetize the debt in the worst case. That is what the banking interests would want him to do.
You are right not to trust the Fed.