• Mr. Steven J. Muehler

Steve Muehler's Plan to Eliminate the National Debt

Updated: Apr 23, 2020

The U.S. debt is $21 trillion. Most headlines focus on how much the United States owes China, one of the largest foreign owners. What many people don’t know is that the Social Security Trust Fund, aka your retirement money, owns most of the national debt. How does that work, and what does it mean?

The Debt Is in Two Categories

The U.S. Treasury manages the U.S. Debt through its Bureau of the Public Debt.

The debt falls into two broad categories: Intra-governmental Holdings and Debt Held by the Public.

Intragovernmental Holdings. This is the portion of the federal debt owed to 230 other Federal Agencies. It totals $5.6 trillion, almost 30 percent of the debt.

Why would the Government owe money to itself? Some agencies, like the Social Security Trust Fund, take in more revenue from taxes than they need. Rather than stick this cash under a giant mattress, these agencies buy U.S. Treasuries with it.

By owning Treasuries, they transfer their excess cash to the general fund, where it is spent. Of course, one day they will redeem their Treasury notes for cash. The Federal Government will either need to raise taxes or issue more debt to give the agencies the money they will need.

Which Agencies own the most Treasuries? Social Security, by a long shot. Here's the detailed breakdown as of December 31, 2016.

  • Social Security (Social Security Trust Fund and Federal Disability Insurance Trust Fund) - $2.801 trillion

  • Office of Personnel Management Retirement - $888 billion

  • Military Retirement Fund - $670 billion

  • Medicare (Federal Hospital Insurance Trust Fund, Federal Supplementary Medical Insurance Trust Fund) - $294 billion

  • All other retirement funds - $304 billion

  • Cash on hand to fund federal government operations - $580 billion.

Debt Held by the Public. The public holds the rest of the national debt ($14.7 trillion). Foreign governments and investors hold nearly half of it. One-fourth is held by other governmental entities. These include the Federal Reserve, as well as State and Local Governments. Fifteen percent is held by mutual funds, private pension funds and holders of savings bonds and Treasury notes. The remaining 10 percent is owned by businesses, like banks and insurance companies. It's also held by an assortment of trusts, companies, and investors.

Here's the breakdown of holders of the public debt as of December 2016:

  • Foreign - $6.004 Trillion

  • Federal Reserve - $2.465 Trillion

  • Mutual funds - $1.671 Trillion

  • State and local government, including their pension funds - $905 Billion

  • Private pension funds - $553 Billion

  • Banks - $663 Billion

  • Insurance companies - $347 Billion

  • U.S. savings bonds - $166 Billion

  • Other (individuals, government-sponsored enterprises, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, and other investors) - $1.662 Brillion.

This debt is not only in Treasury bills, notes and bonds but also Treasury Inflation Protected Securities and special state and local government series securities.

As you can see, if you add up the debt held by Social Security and all the retirement and pension funds, nearly half of the U.S. Treasury debt is held in trust for your retirement. If the United States defaults on its debt, foreign investors would be angry, but current and future retirees would be hurt the most.

Why the Federal Reserve Owns Treasuries?

As the Nation's Central Bank, the Federal Reserve is in charge of the country's credit. It doesn't have a financial reason to own Treasury notes. So why did it double its holdings between 2007 and 2014?

That's when it ramped up its open market operations by purchasing $2 Trillion in Treasuries. This quantitative easing stimulated the economy by keeping interest rates low. It helped the United States escape the grips of the recession.

Did the Fed monetize the debt?

Yes, that's one of the effects. The Fed purchased Treasuries from its member banks, using credit it created out of thin air. It had the same effect as printing money. By keeping interest rates low, the Fed helped the government avoid the high-interest rate penalty it would usually incur for excessive debt.

The Fed ended quantitative easing in October 2014. As a result, interest rates on the benchmark 10-year Treasury note rose from a 200-year low of 1.442 percent in June 2012 to around 2.17 percent by the end of 2014.

On September 29, 2017, the Federal Open Market Committee said the Fed would begin reducing its Treasury holdings in October. Expect long term interest rates to rise as a result.

Foreign Ownership of U.S. Debt

In December 2017, China owned $1.2 Trillion of U.S. debt. It's the largest foreign holder of U.S. Treasury securities. The second largest holder is Japan at $1.1 Trillion. Both Japan and China want to keep the value of the dollar higher than the value of their currencies. That helps keep their exports affordable for the United States, which helps their economies grow. That's why, despite China's occasional threats to sell its holdings, both countries are happy to be America's biggest foreign bankers. China replaced the United Kingdom as the second largest foreign holder on May 31, 2007. That's when it increased its holdings to $699 Billion, outpacing the United Kingdom's $640 Billion.

Ireland is third, holding $326 Billion. The Cayman Islands is fourth, at $270 Billion. The Bureau of International Settlements believes it is a front for sovereign wealth funds and hedge funds whose owners don’t want to revel their positions. So are Luxembourg ($218 Billion) and Belgium ($119 Billion).

After the Cayman Islands, the next largest holders are Brazil and the U.K., Switzerland, Hong Kong, Taiwan, Saudi Arabia, and India. They each hold between $144 and $257 Billion.

Though I was not (am still not) a Trump or Clinton Supporter, I agreed with on of Trump’s forgotten promises, which was to begin eliminating the National Debt through the liquidation of a large number of the Government’s Real Estate and Energy Holdings.

The federal government owns or leases 5,066 bathrooms, occupying nearly 1.7 million square feet of the government’s 1.9 billion feet of total office space.

Uncle Sam also controls 16,570 parking lots and garages, more than 1,500 prisons, nearly 17,000 warehouses, 766 hospitals and 2,427 schools.

The public database, required by a 2016 law, provides the locations, uses and square footage of nearly every office, facility, park, checkpoint, research lab and communications tower used by the feds.

Now that the government and the public know what’s out there (for the first time), we can start looking for ways to get rid of some property (a ton under my Administration).

Billions of dollars are wasted on unused and unneeded federal property, and this will be a major portion of my effort to reduce the federal footprint.

The 2016 data show that civilian agencies own or lease more than 308,000 assets. Of those that are labeled, recreational facilities, roads and bridges, and reclamation projects are the most common.

But the government also counted more than 16,000 parking lots and nearly 17,000 warehouses, 3,200 public monuments and 419 parks or historic sites, nearly 1,000 border outposts and 421 land ports of entry.

On a smaller scale, the feds owne or lease 122 museums, 80 non-Defense Department weapons ranges, 19 child care centers and 18 grazing plots.

Of the more than 5,000 bathrooms, most of them are on federal land held by the Interior Department. Forty-five of them are listed as national historic landmarks, and hundreds more are on, or eligible for, the National Register of Historic Places.

Yet some 20 other bathrooms are listed as not needed now, but are being held for a “future mission need.” Several dozen others were in the process of being disposed of.

The government was also holding onto more than 100 parking facilities it said it didn’t need now but would need in the future.

THERE is plenty of upside if the government were to get serious about selling off properties.

We are spending billions of dollars in upkeep and maintenance costs, and I’m sure some of these buildings are empty so those costs are just waste. Some 15 properties are listed as “vacant” in the government data. Some of those are being held for “future” needs, while others are still listed as part of a mission.

The data also gave a brief snapshot of military properties. Combined, the military’s branches and the Army Corps of Engineers own 15.9 million acres of property and lease another 1.2 million acres.

Civilian agencies, meanwhile, reported owning 9.3 million acres. But perhaps the more stunning figure was the total usable space, which came to 1.1 billion square feet.

Government’s rules tend to push agencies to hang on to property. Under my Administration, we will be looking to slim down these holdings.

Again, not being a Trump supporter, I do though support the Trump idea of sell off $16 trillion worth of U.S. government assets in order to begin to eliminate the national debt. I am aware that the Feds holdings in Real Estate is only around $3 Trillion, but I am accounting for a future post that deals with the selloff of Federal National Resource Holdings. This selloff of assets, along with my previously stated intent to selloff and privatize the U.S. Post Office, would be a nice dent in the National Debt.

Steve Muehler is the Founder & Managing Member of the Private Placement Markets:

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