The United States’ debt has been a current event for several decades now. Rumors continue to circulate about how China will own the United States or about how the government is going to collapse because of the national deficit.
But as citizens, we have a duty to look at the facts, not trust rumors on the Internet.
National debt can be confusing, but there are some basic facts that informed voters need to know.
Most elected officials agree that in order for the United States to find a way out of the financial crisis, the deficit needs to be reduced.
The national deficit is the gap between the total amount of money that the government takes in and the total amount of money that it spends.
The national debt, which currently sits just north of $16.74 trillion, is the total amount of money the government owes to other entities. The national debt rises at a rapid rate, and the current amount can be found at usdebtclock.org.
It is true that the United States government owes money to China. This is because the Chinese government purchases the United States’ debt. China’s economy is based, in large part, on exports.
By buying the United States’ debt, China keeps its currency at a lower value, which keeps its exports at a lower cost. With low export costs, more companies are likely to do business in China to cut costs.
While the methods of calculating debt vary, China likely owns more than $4.1 trillion of the United States’ debt. In other words, 25 percent of our debt is owed to China.
Other big U.S. debt owners include Japan and various oil-exporting countries.
The largest portion of the United States’ debt is owed to citizens through social service programs like Social Security.
This debt held by the public accounts for more than $10 trillion and has accumulated through government programs’ inability to pay out what they owe.
The most confusing part of the national debt is the money that the United States government owes itself. As illogical and counterintuitive as it may sound, this accounts for the third major chunk of the United States’ debt.
Take the Office of Personnel Management as an example. This office handles the retirement, life insurance and other unforeseen expenses that federal employees may have.
Its costs are unforeseen, so it has money that it has to sit on just in case something happens that requires it to dole out the cash.
In the effort of making money, the Office of Personnel Management does something similar to what China is doing: investing in the U.S. debt.
There is only a fixed amount of money in the world, and with the way interest on loans and debts is piling up, it will not be possible for countries to pay anything off. There simply isn’t enough wealth in existence.
This interest has a compounding effect because countries do not forgive debts that they owe each other.
In other words, if Mexico owes Panama $1 billion, and Panama owes Mexico $900 million, the countries don’t combine that to make it so Mexico only owes $100 million.
Each country generally holds on to what it is owed for the sake of earning the interest that will add up on top of what is owed to them.
The national debt is a confusing topic that few fully understand, but the basics are simple.
There will be no United States of China, and the government won’t collapse under the weight of its own debt.
Financial systems are so intertwined that the world would not allow the United States to do that.