Who’s buying the debt?

Date posted: August 23, 2010

The federal government has issued over $2 trillion of new debt during the past two years. Who bought it? N.C. Cooperative Extension economist Mike Walden answers.

“First of all … federal debt is not hard to sell. Our federal debt is actually been well sought after. It is viewed as very safe. You do earn a very modest interest rate but you don’t have to be worry about losing the amount that you have invested, unlike if you put your money in the stock market.

“In terms of who has bought this debt that has been issued over the last couple of years, the $2 trillion, it’s about a 50-50 split … between domestic buyers and foreign buyers. So foreign buyers, and this could be buyers all over the world, have bought about half of that — about $1 trillion. And then folks here in the U.S. have bought the other trillion.

“Now, among domestic buyers the biggest purchasers have actually been individual households — people like you and me who have decided that, gee, we want to put some of our money in government debt. It is safe we don’t have to worry about losing it. So those folks have been among the biggest purchasers — mutual funds, banks, pensions and insurance companies. Now the Federal Reserve has actually directly bought very little of this debt, although they have facilitated the ability of banks to buy it by the fact that they have pumped money into the banking system. And I might also say … if you look at the total holdings of all the national debt, it actually splits along the lines very close to what we just mentioned for the new debt.”

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