In Part 33, we got even angrier about 0% backed fiat currencies because of the hidden transfer of wealth to bankers and governments that they induce, all facilitated by using intangible assets as reserves.
This week, let’s talk about the U.S. government debt!
Now that we understand that any government with a central bank at its disposal has three primary ways to get money (tax, borrow, create) and that the usual method of creating money involves the government giving the central bank an IOU in return, we now have all the tools we need to understand modern government debt.
So, how much of our U.S. government debt is owned by actual people who lent money that already existed, and how much is owned by the Federal Reserve (which means it was created for the purpose of lending to the government)?
According to fiscaldata.treasury.gov, the U.S. government’s debt is currently at approximately $31,460,000,000,000. For simplicity, let’s round down to a cool $31 trillion. [Update: That was originally written in March 2023. Now, in July 2025, just over 2 years later, the debt has increased to $37 trillion.]
The way the debt breakdown is reported, there are two categories: “intragovernmental holdings” (20%) and “the public” (80%).
Intragovernmental holdings is kind of weird. This explanation will be slightly oversimplified, but it will be accurate overall. When an agency takes in more revenue than it needs to immediately spend that year–such as social security, which collects taxes that it won’t need to pay back out in benefits until years later–the money immediately gets sent to the Treasury in exchange for an IOU that says, “You sent money to the Treasury. Thanks! But since that money still belongs to your department, we’ll pay you X% per year on that money while we borrow it from you. And when you need that money back, we’ll give it to you back and destroy this friendly IOU.” And what does the Treasury do with that money that was immediately sent to it? Yep, it spends it on other things almost immediately. So the intragovernmental holdings portion of the debt will have to be paid back (plus interest) with future taxation. It’s money the government shouldn’t have spent yet but did.
Now getting to the portion of the debt owned by “the public,” my first question is, Why are the Federal Reserve’s loan holdings lumped into that category? Because the Federal Reserve is not owned by the government. It’s owned by private regional banks. The implications of this will be made clear later. So let’s ignore that for now and be astounded at the fact that if the Fed holds around 20% of the total debt, that means that (in 2025 numbers) about $7.5 trillion was created by the Fed for the government to spend. How does an organization go through that much more money than it’s earning in taxation? It’s crazy.
Anyway, the majority of the rest of the “the public” category is owned by foreign investors (like foreign governments) and private individuals (especially through mutual funds). Commercial banks own about 5% of the total debt.
I can’t help but share one other detail from this fiscaldata website. Remember when I talked about societal defaults, and the big contributors to that were bank leverage, government leverage, and individual leverage? Let’s see how we’re doing with each of those categories: the current required reserve ratio is 0% as of 2020 (which means banks will be around 100% leveraged), the federal government’s percent of revenue that goes to servicing its debt is 19%, and our average household percent of income that goes to debt is 11%. Does all of this put us at particularly high risk of a societal default (i.e., another great depression)?
The reserve ratio is certainly scary, but the percent of income going to debt for the federal government and for households isn’t quite as scary. Although, regarding the federal government finances, when you consider that 60% of its spending is mandatory spending, that means debt payments are already eating up 35% of discretionary spending (and that number is rising quickly), it’s worrisome that debt payments will soon eat up all of the government’s discretionary spending.
Overall, looking at a snapshot of the current state of things, I don’t think the United States overall is at an alarmingly high risk of a societal default. But when you look at the trends, the outlook gets worse. At the rate the U.S. federal government is accumulating debt, it’s like a locomotive speeding faster and faster downhill toward a chasm with a broken bridge. And that, combined with the bank debt, does make me worried about our future. If things continue to go the same direction, I think the risk of a societal default is incredibly high in the next 20-30 years.
Part 35 here.
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