Aug 10, 2009

America’s Biggest Creditor

Todd Strandberg
By Todd Strandberg

This past week I received a shock when I read a report on the various groups that have been helping the United States government fund its massive $12 trillion national debt. Most troubling was the entity that topped the list as our largest creditor.

The buzzword in the market for U.S. debt of recent has been China. The world’s most populous country is an important buyer of U.S. debt. China's holdings now stand at $739.6 billion as of January. Oddly enough, that nation is not the largest holder of U.S. debt.

It's not Japan. Another major U.S. trade partner, Japan carries a huge amount of the country’s debt, with a stunning $634.8 billion; it currently holds the #2 spot.

It's not oil-rich states. Big oil means big money and big investment into U.S. debt. As a group, these states don't even come close to being a major creditor. Included in the group of oil exporters are Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates, Algeria, Gabon, Libya, and Nigeria. Together, they hold a total of $186.3 billion of our debt.

It's not retirement funds. One example is pension funds. They control large amounts of money, reserved for personal retirements, and thus are obligated to make relatively safe investments. This group includes both private and local government pension funds totaling $456.4 billion.

It's not insurance companies. According to the Federal Reserve board of governors, insurance companies hold $126.4 billion in Treasury securities. This group includes property, casualty, and life insurance firms.

It's quite a mystery when you consider that none of these debt holders are over the $1 trillion mark.

Drum roll please...The biggest holder of U.S. government debt is the United States itself. The Federal Reserve and other U.S. intergovernmental holdings account for a stunning $4.806 trillion in U.S. Treasury debt. This amount is six and a half times larger than that of the Chinese. I read that the Fed plans to add another $1 trillion to its tab. About a decade ago, total government holdings were "only" $2.5 trillion.

It's absurd to simply declare the Federal Reserve a separate body, with the power to gobble up debt. We are basically printing money to cover our obligations, which is probably the reason the Treasury has stopped reporting on the growth of the money supply.

The Fed holds a lot of debt that is of questionable value. It has purchased $800 billion in bad assets from banks, lenders, and insurance companies just from the recent financial crisis. These agencies are still losing money. Fannie Mae said it plans to tap $11 billion in new government aid after posting a massive $15 billion quarterly loss.

Our government leaders have no plans to rein in this flood of red ink. One of the clearest examples of how ridiculous our spending has become is the so-called “Cash for Clunkers” bill. Under the program, car owners receive $3,500 if they trade in an 18-or-fewer-miles-per-gallon vehicle for a new car getting at least 22 mpg. Vouchers of $4,500 are available for owners who trade in a car that gets 18 mpg or less combined for a model that gets at least 28 mpg. Congress has pledged $3 billion for this popular program.

Why stop at cars? We could have “Bucks for Boats” or “Cash for Computers.” I understand the idea is to stimulate the auto industry, but that debt has to be accounted for at some point in time.

The president and Congress are planning on a major expansion of health care. This new program will add trillions to our future debt load. I already know there will be no Social Security or Medicare when I reach retirement age. This new plan will bankrupt the system all the sooner.

One reason for the massive amount of deficit spending is the lack of money coming into the government coffers. The recession is starving Uncle Sam of tax revenue. The situation could not be more stark: Tax receipts are on pace to drop 18 percent this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion.

Our whole financial system is based on blind faith in paper. Modern man is no better than the pagans who prayed to gods made of stone. Once people lose confidence in the almighty dollar, economic Armageddon will ensue.

The question is: Why haven't we seen a collapse? I'm amazed to see that we have gone from one extreme to another. I guess God is the determining factor here. He is the only explanation I can come up with for why our debt bubble has gone beyond every other benchmark history can provide.

The rapture could be the pin that pops the bubble. As I've said before, America has the highest percentage of Christians than any other nation on earth. The loss of such a large portion of the population during the rapture would cause this nation to collapse into total chaos.

End-time Christians already have a good reason not to be fixated on the cares of this world. The perilous state of our financial system should only add to the urgency of being focused on promoting the kingdom of God.

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