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After exceeding $33 trillion... Who owns the American debt? How does it affect the economy?

The US federal debt topped the pages of the global media last week, after it reached a new record level.

تصدر الدين الفيدرالي الأمريكي صفحات وسائل الإعلام العالمية خلال الأسبوع الماضي، بعد أن وصل لمستوى قياسي جديد.

The record rise in US debt coincides with mounting concerns about the government shutdown, amid the continuing dispute between the Republican and Democratic parties over the federal budget for the fiscal year that begins next October.

Record high debt

The US national debt exceeded $33 trillion on September 18, for the first time ever.

The national debt represents the total amount of money borrowed by the US federal government to cover required spending.

The US national debt is equivalent to the size of the economies of China, Japan, Germany, India, and the United Kingdom combined, with the fact that these countries constitute the world's largest economies after the United States.

Each American family’s share of the national debt amounted to about $252,000, equivalent to $99,000 per person in the United States.

A 50% increase in federal spending between fiscal years 2019 and 2021 contributed to the national debt reaching this record level.

Decisions to cut taxes, stimulus programs, and a decrease in tax revenues during the height of the “Corona” epidemic also caused the US government’s borrowing to rise to unprecedented levels.

The US federal budget deficit in the first 11 months of fiscal year 2023 reached about $1.524 trillion.

The fiscal deficit between October 2022 and August 2023 is 61% higher than the same period last fiscal year, amounting to $946 billion.

- The national debt reaching this level coincides with the US Congress’ attempts to avoid the fourth government shutdown in a decade.

Republicans and Democrats are seeking to reach an agreement that prevents a government shutdown before the deadline of September 30, as the dispute continues over spending.

Republicans are pushing to reduce government spending, while Democrats support President Biden's programs, which include an inflation-reducing project, the cost of which is estimated to exceed one trillion dollars over the next decade.

Last June, President Joe Biden signed a law to suspend the government debt ceiling of $31.4 trillion until January 2025.

The development of American religion

Over the past 100 years, US federal debt has risen from $408 billion in 1922 to $30.9 trillion by the end of fiscal year 2022.

Just four decades ago, the US national debt was only $907 billion.

- US debt jumped from $16.7 trillion in September 2013 to more than $33 trillion now, an increase of nearly 100% in less than 10 years.

Michael Peterson, CEO of the Peter Peterson Foundation, said that every year since 2001, the US government's spending has exceeded its total revenues, which means it must borrow money to make up the difference.

The Corona epidemic contributed to accelerating the pace of the rise in the US federal debt, with the fiscal deficit rising as a result of declining revenues and rising spending to stimulate the economy and support families and companies in facing the challenges of the virus.

The US national debt has increased by more than 89% since the beginning of the Corona epidemic in 2020, with increased spending and a decline in revenues.

As of September 2022, Biden has approved borrowing worth $4.8 trillion, including $1.8 trillion linked to stimulus measures to deal with the repercussions of Corona and $370 billion to the infrastructure bill.

Although the volume of borrowing during the Biden era is considered less than the total recorded during the Donald Trump era, which amounted to $7.5 trillion, it remains much higher than what the former president approved during the same period of his term.

The US national debt reached the announced ceiling of $31.4 trillion last January, before continuing its sharp rise to $33 trillion within a few months.

- The US national debt reached 124% of GDP at the end of fiscal year 2022, down from the record peak recorded in 2020 at 128%.

But debt remains historically steeply high, standing at about 56% of GDP in 2000.

Estimates from the US Congressional Budget Office indicate that public debt will nearly double over the next three decades.

The office expects the US public debt to reach 181% of GDP by 2053, compared to 97% by the end of 2022.

Who owns American debt?

The US national debt is divided into public debt, amounting to $26 trillion, and intra-government debt, amounting to $7 trillion.

Public debt is debt held by individual investors, institutions and foreign governments.

- While debt within the government represents what is held by institutions such as the Federal Reserve, government funds, and other government institutions.

The Federal Reserve owns federal debt worth $5.5 trillion as of September 1, equivalent to about 16% of the US debt.

While foreign governments owned about $7.6 trillion in US government debt at the end of last July.

Japan tops the list of countries that own the most US debt with about $1.112 trillion, followed by China with $821 billion, then the United Kingdom, Luxembourg, and Belgium with about $662, 349, and 318 billion dollars, respectively.

How does debt affect the economy?

The rise in federal debt raises controversy about the potential repercussions on families, the financial situation, and the economy in the United States.

Interest payments on US federal debt have risen strongly, with interest rates being raised by the Federal Reserve over the past year and a half.

Higher interest payments would reduce money for other uses, including health care, education, and others.

Interest payments are set to rise from $475 billion in fiscal year 2022 to $1.4 trillion by 2032, before reaching $5.4 trillion in 2053.

It is estimated that within 10 years, the US federal government will spend more on debt interest payments than on research and development, infrastructure, and education combined.

The repercussions of the sharp rise in American debt were also evident in the United States losing its excellent credit rating earlier this year.

Last August, Fitch announced that it downgraded the US sovereign rating from “AAA” to “AA+,” justifying this by the deterioration of the country’s financial situation and concern about the government’s ability to address the ballooning debt burden amid a clear political division.

Sean Snaith, an economist at Florida State University, believes that the US government cannot spend trillions of dollars more than it generates in revenue each year without expecting bad consequences.

On the other hand, US Treasury Secretary Janet Yellen believes that the federal debt is still under control.

Yellen said she prefers to look at the net interest-to-GDP index to judge the country's fiscal position, which refers to the net payments the federal government makes to service its debt relative to GDP.

Federal government interest payments amounted to about 1.86% of US GDP in 2022, which is considered consistent with the historical average since 1960, which is less than 2%.

But the Congressional Budget Office warned in a report issued last June that net federal debt payments could reach 6.7% of domestic product by 2053.

- The office indicated that rising debt may lead to a slowdown in economic growth and higher interest payments to foreign holders of US debt, and will also lead to significant risks to the economic and financial prospects, while reducing Congress’ ability to determine policy options.

Sources: Figures - US Department of the Treasury - CNBC - Reuters - Fox News - Fitch Ratings - Peter Peterson Foundation - New York Post



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