government borrows more. They do this because it costs more money to run the country than

the country currently earns in taxes...This is called a budget deficit. The US deficit

for this year is more than 500 billion dollars. Yet, the US still regularly refers to itself

as one of the most prosperous nations in the world. How is that possible?

Well, National Debt isn’t like personal debt and in a lot of ways it is much less

dangerous. For example, the largest single owner of US debt is the Social Security Trust

Fund, which is run by the Department of the Treasury. So, the largest single chunk of

debt the US owes is to itself. And Social Security isn’t the only Federal Program

holding federal debt. One third of US debt is held by Federal Agencies. You might be

wondering how a Federal Agency can own debt?

Well, if an entity like Social Security takes in more money in taxes than they need to pay

out in benefits, they’ll use the excess money to buy US Treasuries, which are just

documents with an amount of debt that the US now owes you. That way the extra money

goes back into the general fund, social Security gets to keep a note worth the value of the

money loaned, and they start acquiring interest on that note. So long as the US pays the interest

every year, they avoid defaulting on the loan and everybody is happy.

And that’s the standard arrangement with US Treasury Notes and part of why it is a

safe investment. So safe that more than 30% of US debt is owned by retirement funds and

other risk averse investors. A lot a noise is made in the press about Foreign Countries

owning US debt. But they only hold about a third of the total debt and it doesn’t really

even matter how much debt they own. The interest on Treasury notes is incredibly low because

the US isn’t in serious risk of defaulting.

To quickly explain how that works. If you give someone a loan of a hundred dollars and

you are worried that they are going to default on the loan in 100 days, you would charge

them a dollar a day in interest in the hopes of getting your money back. If you loan someone

a hundred dollars and you’re not worried about them defaulting for hundreds of thousands

of days, if ever, you can charge them fractions of a penny in interest and still feel totally

secure. The idea now is that the US is never going to default and therefore pays a very

small interest rate.

So national debt is something to keep under control but it isn’t really all that scary.

Also, according to the most recent Credit Suisse Research Institute Report on World

Wealth the US’s current Net National Wealth is the top in the world. The US alone has

29.91% of the wealth, the EU has 29.05% and the next highest holder of Wealth is Japan

with only 9.38%. So, yes. The US has a lot of debt, but that doesn’t have as much of

an impact on their national wealth, as you might think.

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