> Many Americans have heard that they should worry about the staggering size of the national debt. For the first time in modern history, America is paying more interest on its debt, now more than $30 trillion, than it spends on national defense. And there is no end in sight, with our deficits running larger than we’ve seen outside a crisis.
> Sadly, the size of the debt is not the only thing Americans need to be concerned about. Who is lending us money also matters, and the characteristics of our creditors have changed over the past decade, leading to higher and more volatile interest rates, which raise mortgage, student loan and other borrowing costs. The shift could also increase the fragility of the U.S. financial system during times of stress.
> America has long enjoyed an exorbitant privilege as the world’s dominant economic and financial power. As the United States returned to deficit spending in the 2000s, foreign governments were building up their currency reserves. They stockpiled dollars and Treasuries, prized as the safest and most liquid assets in the world. This gave the United States a structural advantage: These governments bought our debt and were largely indifferent to price, driven by policy mandates rather than profit. It was as though America had a broad and growing base of loyal customers who showed up no matter the cost, rather than shoppers who were ready and willing to walk away for bargains elsewhere. This helped the United States borrow vast sums at very low rates.
> By the early 2010s, these foreign governments made up over 40 percent of Treasury holdings, excluding those the Federal Reserve held. That was up from just over 10 percent in the mid-1990s. The Fed — another policy-driven buyer — deepened this cushion through rounds of bond buying during and after the 2008-2009 global financial crisis. At the peak, over half of U.S. debt was financed by institutions that kept borrowing costs artificially low.
Zeta8345 on
So hedge funds are buying our debt? Our debt that’s increasing because of tax cuts for rich people? Rich people who invest in things like hedge funds? And hedge funds are charging the government more interest on this debt? Sweet!
2 Comments
Gift link. Excerpt:
> Many Americans have heard that they should worry about the staggering size of the national debt. For the first time in modern history, America is paying more interest on its debt, now more than $30 trillion, than it spends on national defense. And there is no end in sight, with our deficits running larger than we’ve seen outside a crisis.
> Sadly, the size of the debt is not the only thing Americans need to be concerned about. Who is lending us money also matters, and the characteristics of our creditors have changed over the past decade, leading to higher and more volatile interest rates, which raise mortgage, student loan and other borrowing costs. The shift could also increase the fragility of the U.S. financial system during times of stress.
> America has long enjoyed an exorbitant privilege as the world’s dominant economic and financial power. As the United States returned to deficit spending in the 2000s, foreign governments were building up their currency reserves. They stockpiled dollars and Treasuries, prized as the safest and most liquid assets in the world. This gave the United States a structural advantage: These governments bought our debt and were largely indifferent to price, driven by policy mandates rather than profit. It was as though America had a broad and growing base of loyal customers who showed up no matter the cost, rather than shoppers who were ready and willing to walk away for bargains elsewhere. This helped the United States borrow vast sums at very low rates.
> By the early 2010s, these foreign governments made up over 40 percent of Treasury holdings, excluding those the Federal Reserve held. That was up from just over 10 percent in the mid-1990s. The Fed — another policy-driven buyer — deepened this cushion through rounds of bond buying during and after the 2008-2009 global financial crisis. At the peak, over half of U.S. debt was financed by institutions that kept borrowing costs artificially low.
So hedge funds are buying our debt? Our debt that’s increasing because of tax cuts for rich people? Rich people who invest in things like hedge funds? And hedge funds are charging the government more interest on this debt? Sweet!