The US Federal debt crisis

BusinessDaily.eu – By Mikkel Roland Egesberg – We hear a lot about the socalled “euro crisis”, but what about the “US fiscal cliff”, which is a different name for the same thing? In this article we will take a look at the US Federal budget, and how it has developed from 2000 to 2012.

The figure shows the US total receipts, outlays and the difference between these two, which is the budget surplus. As you can see, there has been a surplus in the year 2000 and 2001 of 236 and 128 billion US dollars. In 2012 the US budget shows a 1327 billion US dollar deficit, compare this to the TOTAL European budget of 191 billion US dollar (147 billion €).

Below the actual numbers we see the receipts and outlays as percentage of the total economy, the GDP. The figure shows that the deficit as % of GDP was largest in 2009 with 10,1%, falling to 8,5% in 2012.

Below the figure shows the US federal receipts by function from 2000 to 2012:

The figure shows that “individual income taxes” account for 1004 billion US Dollars in 2000, which is 50% of the income. In 2012 this has increased to 1165 billion USD, a 16% increase (as the index number 116 shows), but it now only accounts for 47% of total income. “Corporate income taxes” has gone up by 14%, but still make up 10% in both 2000 and 2012. “Social insurance and retirement receipts” has increased it’s share from 32% to 34%. “Social insurance” income receipts are charged to cover programs, where the risks are transferred to and pooled by the government, that is then legally required to provide certain benefits such as “Social Security”, “Medicare” and “Medicaid”.

Below the next figure shows the US Federal outlays by function from 2000 to 2012:

The biggest cost in 2000 is “social security” costing the Federal budget 409 billion dollars, increasing by 90% to 779 billion in 2012. Because the total outlays have gone up by 112%, social security’s relative share has fallen from 22,9% of the total outlays in 2000 to 20,5%  in 2012. The second largest expense on the federal budget is “national defence”, which has seen the cost go up by 143%, from 294 billion dollars in 2000 to 716 billion dollars in 2012, resulting in it’s share increasing from 16,5% of total federal costs to 18,9%. I’m not going to mention all expenses, but the figure also shows the US net interest expenses on loans, which is 223 billion dollars in 2000 and “only” 225 billion in 20012.

To sum it up, the development in the US receipts and outlays from 2000 to 2011 is shown in the next figure. These numbers can be seen in the first figure:

As you can see, the income is near an all time low since 1970, and the expenses are near an all time high. The budget surplus/deficit is illustrated in the next figure:

Since the US has had a budget deficit since 2002, one could guess that the US Federal debt has increased, and that’s exactly what it has. Below we see the development in the US federal debt since 1970:

As you can see, the debt as % of GDP has gone from around 40% in 1970, to around 60% in 2007 and then exlploded to 104,8% in 2012.

Lately there has been a lot of talk about the socalled debt crisis in Europe, but how does the US federal debt crisis compare to this? Is the US in a better situation? The next figure shows:

As you probably know, Greece is in a bad shape, which this figure also shows. Greece has a debt to GDP ratio of 150%, but what you should notice is, that Greece only make up 1,6% of EU GDP. Italy also has a high debt, and this economy make up 12% of EU GDP. But what may surprise you is that we find USA as number 5 on the list. The US has a debt of 104,8% of GDP and the US economy is almost as big as the EU’s. What may also surprise is, that even though we hear much about the socalled eurozone-debt crisis, the eurozone’s debt to GDP ratio is 90% and EU’s debt to GDP ratio is 20 percentage points lower than the US, at 84,9% of GDP.

Ok, so the US debt is bigger than EU’s, but who owns this debt? The next figure shows:

– As you can see, the “Federal Reserve and Intragovern-mental Holdings” owns the bigger part of the the US debt with 6,4 trillion US dollars (red part). 4 trillion US dollars are “Privatly hold” (green part) and 5,1 trillion USD of debt is hold by foreign holders (orange part). – If we take a closer look at who the foreign holders are (orange part), we get this picture:

As you can see above, China is the biggest foreign holder of US federal debt, with 1.154 billion US dollars in August 2012, down from 1.279 in August 2011. As number 2 China is closely followed by Japan, which owns 1.122 billion US dollars, up from 907 billion dollars in August 2011.

– So China has been selling US treasury securities over the year, but in the same period the total owned by foreigners has increased from 4,8 trillion USD to 5,4 trillion, an increase of around 666 billion US dollars, because other countries like Japan has been increasing their stock. But has this been enough to cover the huge US demand for debt? If we take a closer look at the red part, Federal Reserve and Intragovern-mental Holdings, we can see that FED has been increasing it’s holdings of US treasuries too:

From January 2009 to October 2012 FED’s holding of US treasuries has increased from 476 billion US dollars to 1.659 billion USD, an increase of almost 1,2 trillion US dollars.

As you can see from the debt development figure, the US debt as percentage of GDP is exploding. The US has a current debt limit of 16.394 billion USD, but Congress has been raising this limit 13 times since 2000, because of all the budget deficits. USA is about to hit the new limit, unless US Congress just agree to raise the limit one more time. In this article we saw who holds this debt. Since 2009 the US FED has been buying more than 1 trillion dollars in treasury securities, and foreigners have been buying 666 billion of treasury securities from August 2011 to August 2012. Should Japan or other countries decide to limit their exposure to the US debt, like China has done over the year, FED will have to print more than the 1,2 trillion USD, it has already printet. As it is right now, FED has decided to buy up 40 billion USD worth of bonds each month. It’s hard to say what will happen, but unless the US gets it’s budget in order, FED will have print more US dollars and buy up more US treasuries. Foreigners have helped so far, but what happens if this change? This will force FED to print even more, and sooner or later there should be an inflation preasure, some of which the US exports to the holders of US dollars around the World…

The last figure I will add is from the US budget, showing the US expectations to the future:

As you can see, from now and until the year 2022, the US central government expect budget deficits in all years. From 2013 to 2022 the US federal government expects a budget deficit of 6,7 trillion US dollars, in short a lot more debt!

BusinessDaily.eu – Less Talk, More Facts

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