But persistent debt increases during an economic expansion leaves fiscal policy with very little power to fight a recession. Even the Federal Reserve’s ability to lower interest rates will fight against risk premiums generated by more debt.
. Why does it matter? Markets didn’t move and the holders of the $22 trillion in national debt didn’t utter a peep of worry that the U.S. government wouldn’t pay its interest or redeem its bonds. The government is now taking temporary measures to pay its bills—delaying intragovernmental transfers and probably looking for coins in the couch cushions. The U.S. loses its legal authority to pay out cash in fall 2019.
The Federal government, Social Security, Medicare, Military and the Federal Retirement system own 27% of the debt. Social Security, Medicare, the Military and the Federal Retirement System, all government agencies, hold a surplus and invest in U.S. government bonds. Foreign governments and investors hold 30 percent of it. Individuals, banks and investors hold 15 percent. The Federal Reserve holds 12 percent. Mutual funds hold 9 percent. State and local governments own 5 percent.
In December we endured a government shutdown and after 6 weeks Congress and the President agreed to a budget bill that included paying its debt. You might remember that bill hammered out in February only extended the debt limit to—you guessed it—March 1, 2019.
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