Thread by @ProfPaulPoast

Should Americans be concerned about the US National Debt?

As I tell my students: No.

[THREAD]

This thread is inspired by seeing, in the wake of the $1.9 Trillion stimulus bill, much fretting over the size of the national debt.

https://twitter.com/laurenboebert/status/1372551408487129098

But as @mcopelov has emphasized time and time again: such concerns are largely misplaced

https://twitter.com/mcopelov/status/1372665474845134848

To be clear, the US does indeed borrow A LOT!

$28+ Trillion at the moment.

And the amount REALLY took off starting in the early 21st century

Source: fred.stlouisfed.org/series/GFDEBTN

Especially when compared to other countries (though the US is not the worst)

Source: data.oecd.org/gga/general-go…

BUT...the debt doesn't matter!

Why?

Three big reasons

Reason 1: The debt is mostly owned by...wait for it...Americans!

See for yourself. Go to the Treasury Bulletin...

fiscal.treasury.gov/reports-statem…

....scroll down to the "Federal Debt" link...

... and open the document. It gives a complete breakdown of how much debt is held by which entities

Two things to note.

First, the Federal Reserve is a pretty big holder of US debt. We'll come back to that.

Second, it is indeed the case that a non-trivial amount of the debt is held by foreign governments.

But WHO holds that debt?

You can find out straight from @USTreasury, as they maintain a monthly update on "MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES"

ticdata.treasury.gov/Publish/mfh.txt

According to the latest report, in January 2021, the largest holders were 🇯🇵 &🇨🇳, followed in a distant third by 🇬🇧, then 🇮🇪, etc.

One thing to notice about that list. It's true that China is a big holder of the debt (they hold a little over 10%) and, well, we aren't on the best of terms with China right now.
warontherocks.com/2020/10/compet…

But notice that a number of the top countries on that list, including #1, are key US allies.

Hmmm....seems to suggest that maybe, just maybe, there's something valuable about maintaining those alliances🤔

Something worth thinking about, as @CarlaNorrlof, @richardmaass, & @dandrezner did in this @Journal_IS correspondence
belfercenter.org/publication/co…

Reason 2: Dollar Hegemony.

💵 is the most widely held currency on 🌏

When we say that foreign central banks hold "currency reserves" what we really mean is that they hold "US dollars"...and the second most widely held currency, 💶, is not really close

Source: data.imf.org/?sk=E6A5F467-C…

Why does this matter?

If foreign banks want to hold dollars, how do you think they hold those dollars?

That's right, by holding US bonds (so they can make a return)

Why is the US$ the global key currency?
nytimes.com/2019/02/22/bus…

Lot's of reasons: legacy, oil, geopolitics.

@CarlaNorrlof, @Bree_Croteau, @aashna_114, @daniel_mcdowell, @whinecough, Hongying Wang, Benjamin J Cohen, & 🙋‍♂️ lay it all out in this @ISP_Journal symposium
academic.oup.com/isp/article/21…

Reason Three: The Federal Reserve.

Besides being a big holder of the debt, the Fed has the ability to hold more...and more...and more.

americanbanker.com/news/the-natio…

This is exactly what the Fed did during World War II...and during World War I (and what a LOT of other central banks have done)

cambridge.org/core/journals/…

In fact, we really don't know how much the Fed could hold (because, if you recall, they have the ability to create money by 🪄)

Do the above reasons apply to sovereign debt in general? Is it pointless for any government to worry about it's debt?

No. These arguments only apply to the US. It's what Giscard d'Estaing called "Exorbitant privilege"

So when it comes to the US National Debt, just don't worry about it.

[END]

P.S. While I'm at it: these arguments are also why you shouldn't compare the US government (or any government) to a business or household.

Addendum: For more details and specifics on this issue from the perspective of the Fed, definitely check out @dandolfa's discussion 👇

stlouisfed.org/publications/r…