Total outstanding public debt now exceeds $30 trillion, according to data released by the U.S. Treasury Department on February 1. The outstanding public debt is actually the debt owed by the U.S. federal government, which is the U.S. national debt.
Although the US media says this is a milestone, what impact will 30 trillion have on the US? In fact, it can’t be said to be a milestone, because this is something that everyone knows very well. It is coming soon, and we are all mentally prepared for it. From its founding to 2008, the United States did not owe more than 10 trillion in debt, but from 2008 to now, it owed 20 trillion in 13 years. Let me show you a picture. Before 2008, the growth curve of the U.S. national debt was just over ten degrees. It went up in the twenties and thirties. After 2008, it became 45 degrees. In 20 years, it will almost become a straight line and go up. .
We won’t go into the reasons anymore. There are too many places where money needs to be spent. It needs to send money internally, to save the financial market from collapsing, but also wants to build infrastructure, and is waging war externally. What to do if you have no money? Then the only option is to borrow money by issuing national bonds.
Is it possible to borrow it like this? Even any fool knows it won’t work. But when the time comes, you have to borrow when you should. If you don’t borrow, you won’t be able to get through now.
However, now the media has begun to soften the atmosphere. In the past, it was always emphasized that the ratio of public debt to GDP would be healthy if it did not exceed 70%. I dare not talk about this concept now. It must be more than 100%. In Japan, it is more than 200%. They are still doing well. Therefore, more and more emphasis is being placed on the percentage of GDP that interest payments account for. Although the national debt in the United States is now at a record high, interest payments only account for 1.5% of GDP, which is still lower than in the early 1990s. Well, at that time the interest payments on the national debt accounted for 3% of GDP.
emphasizes this concept, which is to tell you clearly that I definitely don’t plan to pay back the principal. Isn’t it okay as long as I can still pay you the interest? I borrow new debts to repay old debts. As long as I can still afford the interest, you must have confidence in me and continue to lend me money.
Is this concept correct? Can't say it's wrong. As for the government's public debt, I have no intention of paying you back the principal with interest. As long as I can still afford the interest, the government's credit will not collapse. This is true for any government, let alone the U.S. government.
Government borrowing actually means perpetual debt, because the government theoretically exists forever. No matter whether the Democratic Party comes to power or the Republican comes to power, it is the US government. The Democratic Party and the Republican Party don't owe you any money, it's the U.S. government that owes you money. The U.S. government theoretically exists forever. Of course, this is theoretical. So it’s impossible not to give it back to you.
But if it goes up like this, will one day not even be able to pay back the interest? Of course, this also exists in theory, and the United States is also having a headache now. The Peterson Foundation in the United States has made a prediction that if things continue at this rate, interest costs alone are expected to exceed US$5 trillion in the next 10 years, accounting for nearly half of total federal revenue by 2051. That would be difficult. Half of the government’s revenue must be used to pay interest, so what else can you do? If you take away the expenditure on military and personnel agencies, the government will be unable to accomplish anything.
So now the United States is also worried about the issue of interest rate hike and . If you don’t add it, inflation and have already exploded. Let's raise interest rates. Let's not talk about the impact on the economy. The interest expenses will also go up.
The U.S. interest rate hike will have no impact on the existing debt of 30 trillion yuan, because this is debt owed in the past, and the interest rate was low at that time. But you have to borrow new debt to repay the old debt. When you issue new debt, the interest rate is not that low. Because you have raised interest rates, the interest rate on your newly issued national debt must also increase accordingly. Otherwise, how would you issue it? In the next few years, the United States will replace low-interest Treasury bonds with high-interest Treasury bonds. Just like when we used to pay a credit card, the handling fee was only RMB 1,000, and the combined annual interest rate was more than 7%. Later, we paid more, what should we do if we still can’t get enough? If you borrow an online loan, the interest rate on the online loan is 18%. It went upside down and finally exploded on the spot, the game was over. A truth.
But we can’t always watch other people’s jokes about the United States. The United States is not that bad. It’s okay to laugh and talk, but the United States is really not that bad. The economy is doing well now. We need to analyze the changes and compare them with our national debt. What lessons does it have for us?
In the past ten years, the United States has issued more than twice the national debt than in the previous 200 years combined. Who bought it? We need to analyze this issue, it is very interesting.
We often mention that China and Japan have bought a large amount of U.S. Treasury bonds. In fact, investors outside the United States hold not many U.S. Treasury bonds, less than 8 trillion, and the total money the United States owes the world is less than 80,000. 100 million.
Of the 30 trillion, the remaining 22 trillion is held by domestic investors and institutions in the United States. Among them, the U.S. government itself holds more than 6 trillion. In other words, the U.S. government owes itself 6 trillion. Does it sound awkward to you? It’s actually very simple to explain. For example, the Social Security Trust in the United States contains a large number of pensions for ordinary Americans. The Military Retirement Fund, the Office of Personnel Management and Retirement, are the pensions of those who rely on the financial system, as well as some cash balances in the hands of the government. There is no profit from leaving the cash, so the government bought its own bonds. This is what it is. Owe yourself money.
Domestic investors in the United States, especially large institutions, such as 401Ks operated in a market-based manner, are also pension funds. These institutions have too much capital and have nowhere to go, so they have also bought a lot of U.S. Treasury bonds. Therefore, about three-quarters of the national debt of the United States is sold to its own people, and the United States does not owe much to foreign countries.
Some people may want to ask, after talking for a long time, why didn’t you mention Fed ? This is change.
In the past, the Federal Reserve was not important among holders of Treasury bonds. Logically speaking, to whom should U.S. Treasury bonds be sold? Sold to foreign countries, such as central bank sold to China and Japan. Sold to domestic institutions. This will allow dollars in the market to flow back to the U.S. government. Take it out of your pocket and put it in my pocket. The total number of dollars in the market will not increase, and it will not cause inflation in and .
The Federal Reserve has gotten involved in bad things. Starting from 2008, the Federal Reserve will implement quantitative easing. What does that mean? Although domestic banks and institutions in the United States still buy U.S. Treasury bonds, the Federal Reserve collects them in large quantities. Give me all the Treasury bonds you bought, and I will give you money.
During the epidemic last year and the year before last, the Federal Reserve even went out of business in person. I bought it directly, without even having to go through a commercial bank. Just print the Treasury bonds, and then give them to me directly after printing, and I will give you the money. Nearly 50% of the newly increased debt in the U.S. fiscal year 2020 will be borne by the Federal Reserve.
Where does the Federal Reserve’s money come from? It's just something made out of nothing. How can the Federal Reserve have any money? Just print money directly. Then the number of U.S. dollars in the market has increased out of thin air, and it's not just an ordinary amount, it's a lot more. Anyway, the U.S. dollar is the world's currency and is used globally. When it flows around the world, it pushes up and pulls down inflation around the world.
The share of U.S. Treasury bonds held by the Federal Reserve now ranks third. The first is domestic investors in the United States, the second is international investors, and the third is the Federal Reserve, which holds 16% of the total U.S. Treasury bonds. This is actually not bad news for the U.S. Treasury Department. It means that the Treasury Department can pay less interest.
The Federal Reserve announced last year that it would return the interest income from holding U.S. Treasury bonds to the Treasury. This means that you can use the money I give you in vain. There is no interest cost for borrowing new debt to repay old debt. This kind of move is normal operation for central banks in other countries. It is not easy for the Federal Reserve. It can be said that the capitalists have good intentions.
Because most central banks are administrative agencies. The central bank itself can also make profits. For example, the money it lends to commercial banks earns interest income, and the foreign exchange investments it holds also earn investment income. After removing your own expenses, what if you make a profit? That all has to be turned over to the state treasury.
The central bank itself cannot have a surplus, and the balance sheet must be balanced, which means that the central bank's assets minus liabilities must equal 0. The central bank cannot have a surplus. What if there is a surplus? Turn it in.On the contrary, if there is a deficit, the finance department will be responsible for making up for it. A typical example of
is Taiwan in my country. In Taiwan, in 2010, how much money did the so-called central bank in Taiwan turn over to the government? If the fiscal revenue of Taiwan's entire province is 100 yuan, the profit handed over by the so-called central bank alone is 12 yuan. Accounting for 12%, the so-called central bank has become the most profitable company in Taiwan, paying more taxes than TSMC. This is a little bit of extra knowledge, everyone just needs to understand it.
This is not the case for the Federal Reserve. The Federal Reserve is essentially a private bank. Its shareholders are all private banks in the United States. What should I do if there is a surplus? It is absolutely possible to distribute dividends, just give them to the capitalists. Now that the Federal Reserve is voluntarily giving up interest income from national debt, it can be said that capitalists are showing good intentions. But I don’t know if this kindness is white-haired.
In other words, as the share of U.S. Treasury bonds held by the Federal Reserve increases, the corresponding share of U.S. debt held by international investors decreases. In recent years, there has been information that some countries have reduced their holdings of U.S. debt. Even Japan’s holdings of U.S. debt have remained unchanged for many years. Russia emptied, China did not increase, it decreased slightly. The total amount of U.S. debt is increasing, but the holdings of international buyers have not increased significantly. This shows that international interest in U.S. debt is declining.
We are not saying this to belittle U.S. debt. No matter how bad U.S. debt is, it is currently the safest investment target in the world. The ten-year U.S. bond is still the anchor of global asset pricing . Although the proportion of U.S. debt held by foreign investors is now declining, it is still as high as 25%. What about China’s national debt? How much does foreign capital hold? Only 11%.
Some friends may want to ask, why are you comparing this? Feeling a little frustrated? No, not only is it not disappointing, but it is also very hopeful. We are rising, rising to 11%, and we are still on an upward channel. U.S. debt is on a downward path, and it is expected to continue to decline. Would you say there is hope? Because after all, there is no point in being alone. If you can go out and borrow other people's money, and others are willing to lend you money, then that is your ability.
Some people may say that foreign investors hold 25% of U.S. debt while you only hold 11%, so you still can’t compare with them. This is good, but how do you compare it? China has its own hands tied to compare with U.S. debt. We all know that the RMB is not freely convertible. If foreigners hold Chinese government bonds in RMB, the liquidity is very low. Not to mention comparing with the US dollar and the euro, you are comparing with the Japanese yen and Canada. Yuanbi’s liquidity is unmatched by you. With such low liquidity, it's great to achieve such results.
itself has not issued many RMB-denominated Chinese government bonds, but once it is issued for the international market, the subscription rate is very high, basically one to five. That is, I found out how much money I want to buy a 100 yuan government bond. ? 500 yuan. In comparison, U.S. debt is 1:2 to 1:3, which is pretty good.
At the same time, China is also very cautious in issuing government bonds, because it will cause the appreciation of the RMB. Let me give you an example. The RMB appreciated sharply last year. One reason is that in October last year, Chinese government bonds were included in the FTSE World Treasury Bond Index . Many institutional investors in the world, such as pension funds, are investing in this index. . Investment funds linked to the index reach US$2 trillion to US$2.5 trillion. The allocation ratio of China's government bonds is 5 to 6%, which means that about 150 billion US dollars of funds have poured into China's government bonds, and there will be more in the future, putting pressure on the appreciation of the RMB. Last year, most of the world's currencies depreciated against the US dollar, while only the RMB appreciated against the US dollar. Our heads are a bit big after rising. When we don't want the RMB to appreciate so quickly, we naturally don't want foreign capital to hold too many Chinese government bonds.
For these two reasons, we have tied our own hands to compare with others. The 11% rate is already very good, and it will get higher and higher in the future.
Some people may think that borrowing money is bad. In fact, from a macro level, borrowing money is not a bad thing. It can promote development. Isn't there a joke that goes like this: At the end of the Ming Dynasty, the court had no money.If it was possible to issue bonds and borrow money, the Ming Dynasty might not have perished. It's actually a good thing for the government to borrow money. There are many things that only the government can do where money is spent. If you don't have money, it can't do it. As long as it is healthy borrowing and maintaining a suitable ratio, it will be fine.
Speaking of ratios, we have to talk about the difference in the national debt ratios of China and the United States. As mentioned at the beginning, the United States no longer mentions how much debt accounts for GDP, but emphasizes how much interest payments account for GDP. Because it can no longer be raised, the U.S. debt now accounts for 133% of GDP. How much is China? Only 20.6%, that is to say, the ratio of central government debt to GDP is very low. There is still a lot of room for improvement.
However, we have to see that although the finances at the central level are healthy, the debt ratios of local governments, residents and enterprises are already very high. Some local governments are almost unable to survive, and the leverage ratio of residents has almost reached 70%. How many of them do not have mortgage loans?
Our situation is exactly the opposite of that in the United States. Moreover, one characteristic of the situation in the United States is that its problems are exposed in the open, and everyone can see these problems. Whether and how it can be solved is another matter, but the problem is obvious.
And what about our problem? Many problems are underwater. They are not put on the surface. You can't see them at a glance, but it doesn't mean that they don't exist, and it doesn't mean that they won't break out.
So in the next step, I personally think that the central level may increase its debt a little bit more, because the central government still has room to add more. The purpose of the central government adding these liabilities is to replace the debts of local enterprises and residents. For example, if the central government cuts taxes, the burden on enterprises can be reduced. The central government's income is less, but the expenses are still the same, so it will take on debt. This is called leverage shifting. It is shifting. Some problems that are under water may be solved before everyone notices them. That's it. Something happened.
