FUZZY MATH
In an article titled "Who Owns U.S. Debt" (Global Post, July 20, 2011) Global Post editor Thomas Mucha states:
Truth is elusive. But it's a good thing we have math. Here's the big idea:
Many people — politicians and pundits alike — prattle on that China and, to a lesser extent Japan, own most of America's $14.3 trillion in government debt.
But there's one little problem with that conventional wisdom: it's just not true. While the Chinese, Japanese and plenty of other foreigners own substantial amounts, it's really Americans who hold most of America's debt.
Citing figures from Business Insider Mucha concludes: "So America owes foreigners about $4.5 trillion in debt. But America owes America $9.8 trillion."
It is, indeed a "good thing we have math." Now if only Mucha knew how to use it. The figures cited in Mucha’s article are fallacious and misleading:
“So America owes foreigners about $4.5 trillion in debt. But America owes America $9.8 trillion.”
Nonsense. By Mucha’s own calculation $4.3 trillion is money the government owes itself:
The U.S. Treasury: $1.63 trillion
Social Security trust fund: $2.67 trillion
In both cases, the government is both borrower and lender, consequently, these figures should not be counted as government debt and should be excluded from the calculation. (Do you list money you owe yourself as a debt?).
If we exclude the government debt owned by the government itself, the corrected statement should read:
“So America owes foreigners about $4.5 trillion in debt and America owes Americans $5.5 trillion." (45% foreigners, Americans 55%)
Moreover Mucha assumes that no foreigners own mutual funds, money market funds or interests in U.S. commercial banks, which is clearly not the case. He further assumes that no foreigners living in this country have private pension plans, again, not the case. In fact, by counting all U.S. households as “American” Mucha further assumes no foreigners live in this country. Here are his numbers (taken from Business Insider) fallaciously listed as totally "American-owned":
Commercial banks: $301.8 billion
Money market mutual funds: $337.7 billion
Mutual funds: $300.5 billion
U.S. households: $959.4 billion
Private pension funds: $504.7 billion
If foreigners own more than 500 billion (20.8%) of the $2.4 trillion included in these categories, then the politicians and pundits are correct that foreigners own more than half the government’s debt.
Even if foreigners own less than 20.8%, but nonetheless own a significant portion of these categories, the notion that foreigners own a disturbingly high proportion of the U.S. government debt is a valid cause for alarm. Uncle Sam, in effect, is surrendering financial sovereignty to foreigners, a process begun on Ronald Reagan's watch, when America went from being the world's largest creditor nation to becoming the worlds largest debtor.
Until Mucha issues a correcting article, "the truth will remain elusive."