How did the United States end up owing so much money to the rest of the world?

Uhhh, honestly, we don’t owe that much money.

Our national debt at the moment sits just under 14 trillion dollars (our GDP is just over 14 trillion). Of that national debt, OVER HALF is owned by US citizens. The remaining amount is owned largely by Japan and Europe, with China being the biggest up and comer and purchasing the most in the last decade or so.

This debt is sold in the form of treasury bonds, and was a practice put in place by the founding fathers at the very start of our nation. You see having A national debt is actually a good thing for your economy. The government sells you a bond (which is basically a stock, so you’re buying “stock” in the country), and gets the money up front for spending on whatever it needs. On the back end when you cash that bond in you get interest on it. Usually the interest is really low (compared at least to most real stocks), but if you buy a lot of bonds or wait long enough it will be worth a good amount of return on investment (more than most savings accounts typically, I think I cashed some out given to me in 1985 at birth for like 1.5 or 2% annual interest a couple years ago).

National debt is usually measured against the nations GDP (the amount of money we make in a single year). A “healthy” national debt is arguably considered to be about 75% of GDP. As you can tell by my first paragraph, our national debt is ALMOST at 100% GDP right now. But its been far higher than this. During and after WW2 and the Civil War our national debt was in excess of 150% GDP. It has NEVER Been lower than 50% GDP.

The real thing that should make you not worry, is that the government can’t force countries like China to buy our bonds. China is doing it of their own free will, and banking on the US continuing to succeed and be a thriving nation, hence giving them a good return on investment. You’ll want to start worrying when China and other countries STOP buying our bonds.

It’s what happens when the government’s eyes are bigger than its wallet.
A lot of the national debt is inter-departmental, and as such doesn’t exist in the same way as does our debt to foreign governments.

@tedd Your post is impressive but you may want to update your ideas on what China is doing.

@missingbite That article is dated almost a year ago, and China has continued to purchase our bonds since then. Furthermore the primary holders of our debt, US citizens, Europe, and Japan, have not sold it off at all.

China’s monetary policy has a lot to do with the impact of the debt as well.

Well, pretty much what @Nullo said.

We have a national debt of around 14 trillion bucks because our federal government has grown way beyond it’s original intended scope. Of course everyone wants fantastic social programs and a guaranteed cushy existence from cradle to grave, but most people get annoyed any time the government talks about raising taxes to fund it.

The bottom line is very simple: If you spend more than you bring in you have to go into debt to make up the difference.

@tedd When you say most of the debt is held by US citizens, Europe….Do you mean private US citizens?

http://www.usdebtclock.org/

I think a part of it has to do with their unique ability to borrow money and then print money from thin air and then use that to pay off their debt (and they’ve been doing this since March of 2009!)

@rawrgrr I may be mistaken, but money is printed when the Fed sells bonds or securities to the private sector or other gov’ts. It isn’t just some random, senseless thing.

Buys bonds, not sells them. Couldn’t edit in time. I think what happened was the Fed wanted to prevent deflation and bought bonds to increase the money supply.

What a loony system! I would like to go back to the day when you could take your old dirty fifty dollar bill and trade it in for “gold monies”. or was that just a fairy tale?

There isn’t enough physical gold to back all the money needed for the world economy. One of the first questions I asked on Fluther was “What is the purpose of the gold in Fort Knox?” Gold hasn’t backed the dollar since 1971.

Here’s a breakdown of where the money goes

@ladymia69 That is a fairy tale. You were never able to take your money to the treasurer and exchange it for gold. You COULD do the other way around, but never could you get gold out of the US government. There was a point when we used gold coins, but thats not really the type of thing you’re talking about.

@missingbite US citizens and to some degree different departments of the US government. Social Security for example has a pretty big “stock” of bonds.

@tedd You mean the Social Security that is almost bankrupt?

@missingbite Social Security is not almost bankrupt, despite what the propaganda you’ve clearly been listening to tells you. Social Security has needed to be reworked about every 10 years since its inception. If they DON’T rework it, it will go bankrupt in about 15–20 years. If they do, it will likely continue on unhindered. But yes, THAT social security system, holds somewhere well into the billions in government treasury bonds.

Wow, thanks for the link @BarnacleBill!

I took a look at the per capita spending and darned near fell out of my chair when I saw that our government currently spends $20,967 PER PERSON per year, and that number does not include the $4067 per person deficit.

So… that means that if you are not currently personally paying in around $25,000 per year in taxes, your share of the budget is being subsidized by “the rich” that many love to whine about being under taxed.

Hmmm… Perhaps it’s time to reduce the size of the federal government and limit it’s scope to national defense and regulation of inter-state commerce as was originally intended?

@tedd Actually I watch and read a variety of news so I know that I get propaganda from both sides. I hope you realize that too. some people believe everything Beck and Maddow say is correct. After looking at the numbers for SS, I believe your 15–20 years is a little overstated. To each their own.

We currently have 46 out of 50 states that are currently in the red with no good idea of how to get out. Let’s first see how we get these states out of trouble before we decide the US isn’t in trouble.

When you say “rework”, what do you mean? I’m sure our ideas of that term are completely different. There are a lot of baby boomers getting ready to get a check.

Regarding “re-working” social security. Here’s an idea, why not give people the option to opt out and invest the money that they are currently paying into this bankrupt dinosaur of a system in private tax-deferred retirement accounts.

Sure, we can invest in IRAs currently (and you would be pretty foolish not to). However, we still are forced to continue paying into a system that it is very unlikely anyone under the age of 35 will ever see a penny from when they reach retirement age. I would just as soon take personal responsibility for those funds as well as my own retirement rather than be forced to had it over to “Uncle Sugar” on the outside chance I will be given some joke of a monthly stipend after working my ass off most of my adult life.

@YoBob you make too much sense. Cut it out.

@YoBob Because people with the means to completely support themselves would pull out, and you’d be left with millions upon millions of elderly people with zero means to support themselves after they retire (if they ever do). Its easy to say well they should’ve been smarter with their money…. but its harder to set up the soup kitchens and bread lines to feed them, and the “hoovertowns” that would begin to litter our cities as crime skyrocketed. Social “Security” is just that, Security… and not just for those who are lucky enough to have a pittance check to feed themselves every month.

And lets clear up a huge misconception about social security. When it reaches a point of no longer being able to pay back, that point simply means it will no longer be able to give you back every dollar you paid in. In 15–20 years its not going to suddenly be out of money… its going to only have enough to give you 99 cents for every dollar you paid in… and then progressively down from there.

Re-working it, if anything like the last half a dozen times it has been done, would likely involve increasing the age you can begin to collect, increasing social security taxes, reorganizing the organization to cut costs, or more “investment” factors with the money the organization has (they invest a ton of money to increase their funds). More than likely some mixture thereof. The real problem with Social Security is that it was enacted at a time when most people didn’t live past their 50’s. The initial rate was 15 people paying into SS for every ONE taking out. When medicine and healthcare improved dramatically, and people started living into their 70’s…. that rate dropped… and today is at around 3 people paying in for every one taking out. Raise that age just a half a year… and suddenly its 5 people paying in for every one taking out.

(and no need to worry for those about to be taking out, it would likely be grandfathered, and not take effect until some years from now).

@tedd, Erm, excuse me, isn’t the social security system supposed to use the funds that were entrusted to it by those who already paid in to pay them back now that they are drawing benefits?

How would my opting out in any way effect the money available to pay for those who are already drawing benefits, presumably on the money they entrusted to “Uncle Sugar” to manage properly? Unless, of course, you are suggesting that our government has mis-managed that money and doesn’t have enough to pay those already drawing unless it gets a whole new crop of young suckers to foot the bill…Hey, wait a minute….Isn’t that known as a Ponzi scheme?!?!?!?

@YoBob Because if you’ve got 3 people paying in for one person taking out, and one of those 3 people opts out, suddenly the other two have to pay more or it doesn’t work.

Ponzi scheme or not (which btw to be a ponzi scheme, someone at the top of the “pyramid” would have to be getting rich… which isn’t happening), or whatever you want to call it….. if we didn’t have Social Security, our country would be in SIGNIFICANTLY worse shape than it is now.

@tedd

The definition of a Ponzi scheme:

A Ponzi scheme is an investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors.

Can you please explain how a system that relies on 3 new investors to pay in in order to provide funds to pay out the money promised to each individual previous investor does not meet the definition of a Ponzi scheme?

I agree that we need a social safety net. I take issue with the fact that I am being forced to participate in the current system for which the method of funding is at best broken and at worst criminal.

@YoBob Would you feel less angry about social security if you were one of the elderly who depended on it? I paid over $4,100 to social security in 2010, and over $4,800 in 2009, and I am only 27 years old. I know that I may never see the money that I put into the system, but I believe it is a well-intended system that helps many who need help desperately. I know a few of those people myself…. I’m not angry about having to pay a small portion of my money into the social security system because I don’t mind having a government that tries to help those who need help. I believe the thing to be angry about is the people who play the system and get money when they do not really need it.

@BBSDTfamily since you know that you may never see any of it, what are your plans if you need it at 77? Lots of people well off today won’t be in 40 years? Thought that far ahead?

@BBSDTfamily No, in fact I would feel more angry if I were one of the elderly and compared the amount I paid in over a lifetime to the pittance that is doled out, and I would have to ask myself if I would have been better off if I had taken that same money and invested it in a private retirement account.

As I stated, I believe in social safety nets, what I object to is the shell game that our social security system has become.

@missingbite Yes I’ve thought that far ahead. My husband and I invest up to what is matched by our companies for our 401K’s, we max out our IRA contributions every year, have several investments, and we have an impressive liquid savings account. We’re responsible with our money, and we’ve been fortunate enough to be able to be that way. Especially at our young ages. I also understand though that not everyone has the means or education to stabilize their future and I don’t mind at all helping them. Like I said, I despise people abusing the system but I am glad it is there for the ones who do need it.

@YoBob Then what is your proposition for a better social safety net?

@BBSDTfamily As stated, offering individuals the opportunity to choose private options for funding their own retirement rather than quietly removing money from each of their paychecks to continue funding the current Ponzi scheme.

@YoBob Funding their own retirement would only work for those who are still young enough to do that. If your proposal were put into place right now and some of the youngsters pulled their money out and invested it, what do you want to happen to the elderly and the 40+ year olds? Investments need time in order to grow into anything, that’s how compound interest works and that is how investing usually works. Just let those people “fend for themselves” for now because YoBob’s new plan is now in place? Remember that alot of them also paid into this “ponzi scheme”, so don’t they deserve some money???

@BBSDTfamily I’m glad you have thought ahead. As I have too. I’m older than you by a few years and in great financial shape. I have several friends that were in great shape as well but now in their mid to late 60’s. Some of these people lost over 60% on their nest egg in the last recession. They are scrambling now trying to figure out how to live.

My point to this is that as you stated, you don’t expect to see the money you are putting in back, and I agree, you probably won’t. The social nets that we are speaking about are broken and need to be overhauled. Blindly giving in because it helps those in need today does nothing for those in need tomorrow. Just because you and I are smart with our money and have what we believe to be enough for tomorrow, doesn’t necessarily mean it will be.

We are off topic now so I will end with…..Good luck!

@missingbite Good points and well stated.

@BBSDTfamily, I’m not suggesting that we just pull the plug on those already drawing funds. I am suggesting owning up to the fact that in it’s current form Social Security is broken and allowing the option for people to opt out, thus allowing us to bring this whole monstrosity in for a soft landing over the next few decades.

@YoBob I don’t think I made clear that I agree we need to change how the system operates, and I’m not saying your’re wrong for wanting it to change. I just wonder how you think that could happen because I actually wanted to know. I’ve read many of your posts and know you have logical thoughts, so I was just pointing out a problem I saw with that plan.

Oy- did we get a bit off-topic here?

Social Security faces a tremendous challenge in the aging (and more frequently, as the years pass, retiring) Baby Boomers. There are lots and lots and lots of them, and not nearly so many of the younger working generation. Something’s gotta give.

The Fed offering cheap money to consumers.

And consumers buying more products than they can afford.