Mind and Destiny

“I make no pretension to patriotism. So long as my voice can be heard ... I will hold up America to the lightning scorn of moral indignation. In doing this, I shall feel myself discharging the duty of a true patriot; for he is a lover of his country who rebukes and does not excuse its sins. It is righteousness that exalteth a nation while sin is a reproach to any people.”- Frederick Douglass

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Location: Delhi, N.Y., United States

The author and his webmaster, summer of 1965.

Tuesday, May 17, 2016

American Creditors


Donald Trump has implied that he’d negotiate with America's creditors to get them to accept a lower rate of repayment, such as 85 cents for every dollar.

That sounded great, but he apparently didn’t realize that America citizens would be hurt under that scenario.  Of the over $19 trillion of our governments debt, China has become one of the largest holders of our debt.  China's share of our federal debt is about 7 percent, but it's not even close to being the largest holder of government bonds.

By far American citizens and entities, such as state and local governments, pension funds, mutual funds, and the Federal Reserve own 67.5 percent of the debt.  Foreign nations only hold 32.5 percent of the total debt.

Lenders have confidence that the U.S. Treasury will always make good on its payments.

Economist Doug Holtz-Eakin has recently explained: "If he (Trump) were to put a crack in that foundation, the global financial system would crater and we would have a global economic recession.  The global financial system is built on the notion that U.S. Treasuries are absolutely safe assets."

Renegotiating debt terms is a common practice among companies in financial trouble.  Creditors are willing to accept lower payments because that's preferable to getting nothing.  The U.S. government isn't a "junk bond" company.

Retirees buy bonds because they are safer than stocks and provide more stable monthly income.  Investors of all ages hold U.S. bonds to make their retirement and investment portfolios less risky.

Of the $12.9 trillion chunk of debt owned by Americans, $5.3 trillion is held by government trust funds such as Social Security, $5.1 trillion is held by individuals, pension funds and state and local governments and the remaining $2.5 trillion is held by the Federal Reserve.

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