Snap Fact #351 - Another Economic Myth Exploded; Interest Payments on National Debt Under President Obama is Near 40 Year Low!

Post date: Oct 23, 2012 2:3:54 PM

Snap Fact #351

Another Economic Myth Exploded; Interest Payments on National Debt Under President Obama is Near 40 Year Low!

The biggest holders of US debt are American individuals, institutions, and Social Security. We own more than 2 out of every 3 dollars of US debt — about over 67%. Hence, we depend far less on the kindness of strangers than you might imagine….

The chart below is from last year but if anything the Chinese have been net redeeming their holdings and their share is a bit lower today.

With another tip of the hat to the Motley Fool for pointing this out, today’s SNAP-CAP will examine one of the lesser known aspects of today’s steadily across-the-board growing economy. Among the ocean of red herrings that the Republican opposition keeps fishing for, is their self-created myth that the interest payments on our national debt is breaking the bank. The truth is that although China is a substantial investor in America, they are a relatively minor player in the scheme of things, holding about 7.5% of our National Debt. In 2009 the total percentage of U.S. debt held by china was about 8%. It has come even further down since, reaching about 7.5% last year and approximately 7.1% in 2012.

Probably 1 out of 100 people are aware of these statistics. Many of us have been led to believe that the Chinese hold 30% – 40% - even 50% or more of our debt. Along with all the other myths and lies the opposition has scared the public with, so loud and for so long, that we all feel the hair on our necks rise when anyone talks about how much of America the Chinese own.

Republican candidates, Super Pac ads, and the entire right wing publicity machine keep repeating that our borrowing from China is funding US deficit spending. The perpetrators know better, but they understand that if they demagogue this issue it creates mob flop sweat and that turns into votes.


U.S. Treasury Department:

There is another important and interesting dimension to this subject. Here is what the Motlet Fool has to say:

“Interest payments on the national debt are near the lowest levels in more than 40 years. The national debt exploded over the past three decades (or have you heard that?), from $1 trillion in 1982 to nearly $16 trillion today.”

“But something else happened during that time: Interest rates fell through the floor. So much, in fact, that the amount of interest paid on the national debt as a percentage of the economy is now at the lowest level since the 1970s.”

Sources: Office of Management and Budget, Federal Reserve.

“Think about this: In 1995, the national debt was $4.8 trillion and interest payments were about $230 billion. In 2011, the national debt was $15 trillion and interest payments were about ... $230 billion. We tripled the national debt without paying a penny more in annual interest. For perspective, if the interest rate on the national debt were at 1995 levels, annual interest payments would be about $500 billion higher than they are now. That's more than we currently spend on Medicare.”

“Of course, interest rates will rise one day. When they do, it will be ugly. But the Treasury has taken steps to soften the blow by lengthening the average maturity date on the national debt, helping to lock in today's low rates. As of June, the average maturity on federal debt was 64 months -- the highest in more than a decade, and above the long-term average of 58 months. That won't solve the debt problem -- not by a long shot -- but don't underestimate how much low interest rates are saving taxpayers.”

What have we learned today? First, the American National Debt is owed mostly to Americans; China holds little more than 7%. Second, that the interest payments on the National Debt are the lowest today since 1970. Finally, we learned that an educated voter is a responsible voter. Stop listening to the lies and learn the truth. Tell your friends about The Rational Majority too.