The explosion of US government borrowing over the past 15 years has been fueled not by loans from China and Japan, but by the purchase of Treasury bills by US financial institutions, state governments and other national entities.
Experts have said this drastic shift in borrowing patterns is one that poses a significant long-term threat to US economic growth.
Federal borrowing has more than tripled since the housing crisis in 2008. Before the housing crisis, the government had $9 trillion in debt, a figure that has soared to $31 trillion this year. But while new public debt is usually viewed in terms of foreign borrowing, most of the new debt seen since the housing crisis has been funded by domestic entities.
At the end of 2010, shortly after the housing crisis, federal debt held by the public stood at $7.8 trillion, nearly two-thirds of which was loans from Japan, China and other foreign countries. . In the summer of 2022, total debt held by the public more than tripled to $23.9 trillion – a $16 trillion jump that was mostly funded by US banks, mutual funds and pension funds, state and local governments, and other national entities, according to federal data. analyzed by the Committee for a Responsible Federal Budget (CRFB).
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Over the same period, the amount of US debt held by China and Japan has declined, and borrowing from other countries was only $3 trillion of the $16 trillion increase.
Of the $31 trillion national debt, foreign nations account for over $7 trillion, nearly $7 trillion more is debt created by the government borrowing from itself, $5.5 trillion is held by the Federal Reserve and more than $10 trillion is held by U.S. corporations, insurers, state governments and other national entities.
Analysts say the shift in who lends to the U.S. government partly reflects the waning interest foreign nations have in financing ever-increasing U.S. debt.
“Foreign governments are waking up to the reality that the United States government will never be able to repay all of this debt,” EJ Antoni, an economics researcher at the Heritage Foundation, told FOX Business. Antoni added that China, Japan and other countries now represent a much smaller proportion of US debt holders because their central banks are buying up their own domestic debt, which means there are fewer international market for Treasury bills.
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For these reasons, the United States has turned to domestic lenders, a move that analysts say will likely have serious repercussions for US economic growth. BFRC Chair Maya MacGuineas says freezing national funds to buy Treasury bills is a drag on growth that makes the idea of paying down federal debt through expanded economic activity even more daunting. .
“Now that domestic investors are primarily buying our debt, they’re not investing anywhere else in our economy, and the economy is growing slower as a result,” she told FOX Business. “In either scenario, our borrowing causes us to grow less or retain less earnings, and debt interest payments skyrocket.”
“As interest payments increase by hundreds of billions of dollars a year, you wonder when our lawmakers will stop their borrowing spree,” she added.
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Antoni, of the Heritage Foundation, agreed that the US government was now borrowing from US companies to stay afloat, reducing the amount of “productive activity” in the country.
“When the government borrows money from the private sector, there is less money available to provide to businesses,” he said.
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Antoni said the trillions of dollars added to the debt funded by US domestic companies could also pose risks to those companies if the US hit a debt crisis in which domestic and foreign lenders would no longer have the ability to meet government spending demands.
“It will be a very bad day for the global financial economy,” Antoni said.
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