Debt in USA

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Last Updated: Tuesday, 18 October 2022 00:09
Published: Wednesday, 24 October 2018 17:39
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Debt in USA:

From the article in "Banks and CU", we see that total assets combined for banks and CU is about $20T (as od 2018). Total deposits=$13.4T, while total loans=$10.8T. This loan only includes loans that are sitting on banks books. There are many loans that banks/CU have sold to other investors, via bundling them as mortgage security with certain interest payments to holders of such securities. Most of these securities are sold to govt backed agencies (explained below) which in turn sells them to other investors. So, $11T bank/CU loans only shows part of the loan that is owned by consumers. A lot of debt held by consumers has been securitized and is hed by people like you and me when we buy such bonds.

Total debt is comprised in 2 parts:

1. Consumer debt => Debt taken by consumers to buy house, cars, etc.

2. Government debt => Debt taken by the government if it ends up spending more than what it collects in taxes, then it has to take debt to fund it's operations.

We'll see at both of these categories.

 

 

Consumer debt:

Total debt of consumers in USA is about $16T as of Q2, 2018. $10T of that is mortgage related, $4T is consumer credit (revolving+non-revolving), $2T is others

  • Mortgage debt = $15T. $15T includes not just consumer mortgage debt, but also mortgage debt made out to corporations, builders, etc. Only $10.7T is for 1-4 family residence (house, condo, etc). Non residential= $2.8T (offices, buildings,tec), while Multifamily residence(apartments) = $1.3T.  Banks/CU have about $5T, Life insurance companies = $0.5T, Federal National Mortgage Association (FNMA aka Fannie Mae)=$3.2T, Federal Home Loan Mortgage Corp (FHLMC, aka Freddie Mac)=$1.9T, Mortgage pool/trust=$3T (out of which, Govt National Mortgage Association(GNMA aka Ginnie Mae)=$1.9T, private mortgage conduits=$0.8T), individuals/others=$0.8T. Thus govt agencies own about $7.1T (50% of total mortgage debt), 90% of which is in 1-4 family residence. Ginnie Mae is the only govt owned corp, while Fannie Mae and Freddie Mac are govt sponsored entities (GSE). However, securities issued by all 3 of these are considered to be backed by US govt (same guarantee as on govt issued treasuries). Most of the consumer debt that we talk about is the mortgage for 1-4 family residence which is $10.7T. Banks/CU have only about $2.6T of it, govt agencies have about $6T, private=$1.5T. Consumers have about $10.2T of it, while remaining might be on book of builders temporarily?
  • Revolving credit = $1T (credit card loan). This is called Revolving credit as this loan is hold only temporarily, since most of the consumers pay their credit card debt either wholly or partially every month. Banks are holders of $0.9T, CU $50B, while financial companies about $25B. So, most of credit card business is owned by banks, where 90% of money is loaned out by banks.
  • Non revolving credit = $2.9T (student loans=$1.5T, auto loan=$1.2T). Of this banks are holders of $0.7T, CU has $0.4T, fed govt has $1.2T (mostly student loans), and finance companies about $0.5T

 

 

Government debt:

Treasury department (a branch of governemnt which deals with issuing debt for govt) issues Treasury securities (debt) that pays you interest and also gurantees your prinicpal. Principal is guaranteed by the govt of USA, as the govt can always print money (or give itself a credit for that amount in it's account) and pay the principal back. Since this money is 100% risk free, it carries the lowest interest rates. Banks/CU can raise money thru their own debt offering, but it will always be at a higher rate than Treasury rates, since ther's risk of losing principal if the bank goes bankrupt. But since deposits in banks/CU is guranteed via govt up to $250K for single owners, those can also have deposit rates close to those of treasury. However, what we see today, that deposit rates for 99% of the banks/CU is actually lower than those for treasury. In that case, just buy a treasury directly from governemt. You will need to open an account on treasurydirect.gov, and then you can buy as much as you want (except for few exceptions). Even better news is that the interest on this is exempt from local state income tax (not the federal tax), so you may save some money if you live in a state with high state income tax.

Treasury dept sells Bills, notes, Bonds, TIPS, FRN, etc. US govt has lot of debt ($22T as of Dec, 2018), and growing by $1T every year (or 5% every year, same rate as GDP). Of this, $16T is debt held by public, while $6T is intra governmental holding (money sitting in Social security accounts). $6.3T of public debt is held by foreign countries (china=$1.2T, Japan=$1T, Brazil=$0.3T, Ireland=$0.3T, UK=$0.3T). It paid $0.5T in interest on all this debt for fiscal year 2018 (implying an effective interest rate of 2.5%). See this link for details: https://www.treasurydirect.gov/govt/reports/pd/mspd/2018/opds122018.pdf

  • Public debt = $16T: in form of securities issued => Bills=$2T, Notes=$10T, Bonds=$2T, TIPS=$1.5T, FRN(Floating Rate Notes)=$0.4T, GAS (Govt Account series)=$0.3T, US Savings=$0.2T (of this $16T, $6.3T is held by foreign countries, while $2.2T is held by federal Reserve). So, only half of the total public debt is actually held by public ($7.5T of securities is in accounts of US public, i.e insurance companies, mutual funds, business accounts, public company, pension funds etc).
  • Intra governmental debt = $6T. Of this SSA (federal old age and survivors insurance fund, aka social security fund)=$2.8T, OPM(Civil service Retirement and Disability fund)=$0.9T, DOD(Military retirement Fund)=$0.8T, and remaining from 100's of other funds.

More reports can be found here: https://www.treasurydirect.gov/govt/reports/reports.htm

Current Interest rates for treasury can be found here: https://www.treasurydirect.gov/GA-FI/FedInvest/todaySecurityPriceDate.htm