National debt of the United States: Difference between revisions

 

===Chinese holdings of U.S. debt===

 

A 2010 article by [[James K. Galbraith]] in ''[[The Nation]]'', defends deficits and dismisses concerns over foreign holdings of United States government debt denominated in U.S. dollars, including China's holdings.<ref name="james">: "...&nbsp;What about indebtedness to foreigners?&nbsp;... To acquire [U.S. gov't bonds], China must export goods to us, not offset by equivalent imports. That is a cost to China. It's a cost [[Government of China|Beijing]] is prepared to pay, for its own reasons: export industries promote learning, technology transfer and product quality improvement, and they provide jobs to migrants from the countryside. But that's China's business. For China, the bonds themselves are a sterile [[hoard]]. There is almost nothing that Beijing can do with them;&nbsp;... its stock of T-bonds will just go on growing. And we will pay interest on it, not with real effort but by typing numbers into computers. There is no burden associated with this; not now and not later." From [http://www.thenation.com/article/defense-deficits/ "In Defense of Deficits"] by [[James K. Galbraith]], ''[[The Nation]]'', March 4, 2010.</ref> In 2010, [[Warren Mosler]], wrote that "When[ever] the Chinese redeem those T-securities, the money is transferred back to China's checking account at the Fed. During the entire purchase and redemption process, the dollars never leave the Fed."<ref name="mosler">"...&nbsp;The Chinese buy U.S. T-securities by transferring U.S. dollars (not yuan) from their checking account at the Federal Reserve Bank to China's T-security account, also at the Federal Reserve Bank. When[ever] the Chinese redeem those T-securities, the money is transferred back to China's checking account at the Fed. During the entire purchase and redemption process, the dollars never leave the Fed." [http://moslereconomics.com/2010/09/23/what-policies-for-global-prosperity/ "What Policies for Global Prosperity?"] by [[Warren Mosler]], September 23, 2010.</ref> Australian economist [[Bill Mitchell (economist)|Bill Mitchell]] argued that the United States government had a "nearly infinite capacity...to spend."<ref name="mitchell">[[Bill Mitchell (economist)|Mitchell, Bill]], [[University of Newcastle (Australia)]]. [http://bilbo.economicoutlook.net/blog/?p=18813 "The nearly infinite capacity of the US government to spend"] (March 28, 2012); [http://bilbo.economicoutlook.net/blog/?p=25161 "The US government can buy as much of its own debt as it chooses"] (August 27, 2013)</ref> Against the backdrop of escalating Sino-U.S. tensions in 2020, Yuzo Sakai, a manager at Ueda Totan Forex Ltd., said that if China undertakes a massive sales of U.S. bonds, investors may flock to the [[Japanese yen]] as a safe-haven currency. Since 2018, China had been gradually decreasing its holdings of U.S. federal debt, bringing the total to $1.07 trillion in June 2020, behind Japan who became the biggest foreign creditor of the United States. Stephen Nagy, a professor at the [[International Christian University]], said a sell-off by China "might damage the United States in the short term" but also cause "critical economic instability" in the Chinese and global economy. [[Jeff Kingston]], a professor and director of Asian Studies at [[Temple University, Japan Campus|Temple University, Japan]], echoed the view, adding that dumping would lower the price of U.S. bonds, making it more attractive to other countries. According to an [[institutional investor]], however, it may be difficult for Japan to boost its already large holdings of U.S. government debt, as such a move could be seen as "currency manipulation".<ref>{{Cite web |last=Tachikawa |first=Tomoyuki |date=Aug 20, 2020 |title=Fears grow over China's possible massive sales of U.S. debt as weapon |url=https://english.kyodonews.net/news/2020/08/fb165250518a-focus-fears-grow-over-chinas-possible-massive-sales-of-us-debt-as-weapon.html |website=Kyodo News+}}</ref>

The [[COVID-19 pandemic in the United States]] impacted the economy significantly beginning in March 2020, as businesses were shut-down and furloughed or fired personnel. About 16&nbsp;million persons filed for [[Unemployment benefits|unemployment insurance]] in the three weeks ending April 9. It caused the number of unemployed persons to increase significantly, which is expected to reduce tax revenues while increasing [[automatic stabilizer]] spending for unemployment insurance and [[Supplemental Nutrition Assistance Program|nutritional support]]. As a result of the adverse economic impact, both state and federal budget deficits will dramatically increase, even before considering any new legislation.<ref>{{Cite news |last1=Cohen |first1=Patricia |last2=Hsu |first2=Tiffany |date=April 9, 2020 |title='Sudden Black Hole' for the Economy With Millions More Unemployed |newspaper=[[The New York Times]] |url=https://www.nytimes.com/2020/04/09/business/economy/unemployment-claim-numbers-coronavirus.html}}</ref>

 

 

CBO provided a preliminary score for the CARES Act on April 16, 2020, estimating that it would increase federal deficits by about $1.8&nbsp;trillion over the 2020-2030 period. The estimate includes:

The [[Committee for a Responsible Federal Budget]] estimated that the budget deficit for fiscal year 2020 would increase to a record $3.8&nbsp;trillion (~${{Format price|{{Inflation|index=US-GDP|value=3800000000000|start_year=2020}}}} in {{Inflation/year|US-GDP}}), or 18.7% GDP.<ref name="CRFB_CARES1">{{Cite web |title=NYT-Reuters-U.S. Deficit to Soar to Record $3.8 Trillion in 2020, Budget Watchdog Group Says-April 13, 2020 |url=https://www.nytimes.com/reuters/2020/04/13/us/13reuters-health-coronavirus-usa-budget.html |website=[[The New York Times]]}}</ref> For scale, in 2009 the budget deficit reached 9.8% GDP ($1.4&nbsp;trillion nominal dollars) in the depths of the [[Great Recession]]. CBO forecast in January 2020 that the budget deficit in FY2020 would be $1.0&nbsp;trillion (~${{Format price|{{Inflation|index=US-GDP|value=1000000000000|start_year=2020}}}} in {{Inflation/year|US-GDP}}), prior to considering the impact of the COVID-19 pandemic or CARES.<ref>{{Cite web |date=January 28, 2020 |title=The Budget and Economic Outlook: 2020 to 2030 &#124; Congressional Budget Office |url=https://www.cbo.gov/publication/56020 |website=www.cbo.gov}}</ref> CFRB further estimated that the national debt would reach 106% of U.S. GDP in September 2020, a record since the aftermath of World War II.<ref>{{cite news |last1=Lynch |first1=David J. |date=18 April 2020 |title=Record government and corporate debt risks 'tipping point' after pandemic passes |language=en |newspaper=[[The Washington Post]] |url=https://www.washingtonpost.com/us-policy/2020/04/18/record-government-corporate-debt-risk-tipping-point-after-pandemic-passes/ |access-date=19 April 2020}}</ref>

 

 

==Appendix==

===Foreign holders of U.S. Treasury securities===

{{main|United States Treasury security#International}}

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