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Thread: Question about the US debt

  1. #1

    Question about the US debt

    I wanted to know if anyone would want to explain how does the governmnet borrow money from the people. I find this a little bit complicated as I understand that public debt per family is $53k, any resources or explanations, thanks.



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  3. #2
    Congress- starting with the House of Representatives- writes all spending and taxation legislation. Those bills are either signed or vetoed by the President (a veto can be over-ridden with a two thirds majority but it is very rare for the President to veto a major spending bill). This determines how much the government is spending and taking in in revenues. On a regular basis, they need to pay the bills. If the money owed is (as is nearly always true these days) more than the money taken in, the government has to borrow the difference. Now the US Treasury gets involved. They are notified by the government how much money needs to be raised at this time.

    The Treasury then decides on what debt to raise- they determine the length of time for the debt (duration of the Treasury notes- from one month to 30 years. Most of what they have been issuing has been short- term lately (as a lender, I would be wanting to lock in those low rates by issuing longer term notes instead to keep future costs of borrowing lower). They determine the amount of money to be raised (actually Congress told them how much). They then post an "offering" of notes- say $10 billion worth of $10,000 treasury notes. $10,000 is the face value of the notes when they are mature.

    They then post an offer notice that they intend to sell the $10 billion and would- be buyers bid on them- submitting bids which include both the dollar amount they would like to purchase (say $10 million) and the amount they are willing to pay for each note (for example, $9,000 for a $10,000 note- the difference between the selling price and the face value is expressed as a percent return on the bond or its "yield"). The bidders can be individuals, companies, banks, or countries. The Treaury collects all of the bids and selects the ones which allow them to sell all of the notes they need to get rid of at the lowest price. If a bidder offered a higher price than the "clearing" price, they get to pay the lower one- but if their bid price was lower than the "clearing" bid, they don't get any.

    Once sold, the bonds can be resold in the open market at any price- they will still have the same face value. When the Federal Reserve purchases US Treasury notes, they buy from certified dealers in the open market. They don't buy directly from the Treasury.

    Some of the debt (a huge portion actually) is owned by the US government- called "intragovernmental" holdings- and the biggest chunk of that being held buy the Social Security system as well as government retirement programs in various departments. The Federal Reserve holdings are also part of this (the Fed holds about 11% of total US debt). About one third of the total US debt is in this category. That means that the money is owed to themselves basically.

    What is not held by the government is called the "public debt". Looking for figures but that is about $9- $10 trillion today. If you see a figure which says "your share of the public debt" is x- dollars, that is taking this public amount and dividing it by the US population of some 300 million people. It is an average of what each person would owe if taxpayers had to pay off the public portion of the debt today.

    Hopefully this answered your question.

    http://money.howstuffworks.com/perso...ment/debt4.htm
    Last edited by Zippyjuan; 12-11-2012 at 12:22 PM.

  4. #3
    Quote Originally Posted by Zippyjuan View Post
    Some of the debt (a huge portion actually) is owned by the US government- called "intragovernmental" holdings- and the biggest chunk of that being held buy the Social Security system as well as government retirement programs in various departments... About one third of the total US debt is in this category. That means that the money is owed to themselves basically.
    That was pretty good until that part. The government doesn't owe that money to itself - it owes it to future SS recipients. And since it has to be paid back out of future tax revenues coming in to the general fund, intragovernmental debt should not be substantially distinguished from public debt.

    Unless, of course, you expect Congress to cut SS. I don't.

  5. #4
    Quote Originally Posted by enoch150 View Post
    That was pretty good until that part. The government doesn't owe that money to itself - it owes it to future SS recipients. And since it has to be paid back out of future tax revenues coming in to the general fund, intragovernmental debt should not be substantially distinguished from public debt.

    Unless, of course, you expect Congress to cut SS. I don't.
    It has to be paid out either from future tax revenues or cash derived from the sale of those existing treasuries. This is an important distinction between the United States' public debt and the rest of the world's; we're one of the few nations that requires that we account for things like Social Security contributions in our public debt.



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