Who Owns Public Debt in Advanced Economies?

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From the course by IE Business School

Understanding economic policymaking

624 ratings

IE Business School

Understanding economic policymaking

624 ratings

Course 1 of 3 in the Specialization Globalization, Economic Growth and Stability

This is the first of the three courses part of the Globalization, Economic Growth and Stability Specialization. This course will employ a non-technical approach to analyze how governments use policy to influence a country's economy. Upon completing the course you should be able to discuss national debts and deficits, examine fiscal and monetary policy and their appropriateness to the situation of an economy, and anticipate the results of fiscal and monetary policies and structural reform on a country. These concepts will give you the tools to develop your own position in many current economic debates, such as fiscal stimulus vs. austerity, the merits of quantitative easing, the need for higher interest rates or the future growth path of many modern economies.

From the lesson

Deficits, Debts, Myths and Realities

Welcome to Module 3! Now we know how fiscal policy is supposed to work in the economy, to close recessionary or inflationary gaps. In this module we will get into the nuts and bolts of deficits and debts in the real world and I am sure we will have some interesting follow-up discussions! How is it really used? What are government deficits and debts? When governments run deficits and need to borrow money, how and where do they do it? When are these deficits and debts more of a problem? This module will look at the US and other leading economies in recent years to answer these questions, clear up some common misconceptions, and point to what the most important concerns are with deficits and debts at the present time. Good luck and see you online!

Who Owns Public Debt in Advanced Economies?6:08

How Much Deficit is Too Much?8:53

Meet the Instructors

Gayle Allard
Professor
Economics

[MUSIC]

At this point, it might be interesting for us to look and

see what the US public debt Or government debt, or national debt.

Fiscal debt.

Any of the terms you want to use, actually looks like.

And, I've got figures here from the

US Department of the Treasury in September 2013.

So you can see in this first graph, as we break it down.

Now, the US public debt is More than $15 trillion right

now, and you can see that there are different groups, okay?

We can see the different people that enter into that secondary market.

You see state and local governments, for example, buying U.S. debt.

There's other investors.

There are mutual funds, which one of those may be yours.

You've got private pension funds.

You've got banks and credit unions, insurance companies savings

bonds, some of the groups that we've been talking about.

And then you have that big chunk on the right, which is close

to half of the total, about 48% of the total, which is foreign investors.

Again, remember this is not foreign debt, because it's all in US dollars.

But foreigners have come in.

And actually, this number has risen

pretty sharply, since the Eurozone crisis started.

Because foreign investors have said, wait a minute, get me out of Eurozone debt.

Maybe the Euro will break up.

Maybe, I have a major currency risk here.

Let me go into US debt, even though interest rates are low.

Because I feel safer.

Now, if we take that foreign investor piece, and I want

to be really clear with you that what we're taking is

that 48% of the total, and we break it down and

we see who actually owns it, which foreigners actually own it.

And I know this chart is a little bit difficult

to read because there's a lot of foreigners in there.

But anyway.

What you can see is that China owns 23% of that 48%.

Okay.

So do the math.

China owns about 11% of U.S. debt.

And you can see that they are followed very

closely by Japan which has 20% of that 48%.

Okay?

And then you go on around you see who else, what other foreigners own U.S. debt.

Well.

Surprisingly though, the next one are Caribbean banking centers, and

then we have the oil exporting countries with about 5%.

Then we go on to Brazil, Taiwan.

Switzerland has about 3%.

Belgium, the U.K. has, about 2 to 3% as does Luxembourg.

And then there are other smaller, proportions.

So Again, what I want to emphasize, this is not technically called foreign debt,

this is external US public debt would probably be the best way to refer to it.

And you can see that it makes up a little less than

half of US debt, and is owned by a lot of different countries.

Now if we look at this same picture, and this is a little

bit older so the, the U.S. number doesn't exactly match the previous slide.

If we do the same thing with a group of countries.

First of all there's a bar showing how big U.S.

public debt or excuse me, how big national debt is.

For the different countries, alright.

This is what we were looking at on the Google public data explorer.

So the total bar goes out, you can see with Japan, to more than 225% of GDP.

But then we have a black zone which is which shows you

how much of that 225, 230% of GDP Is owned by foreigners.

Okay?

You can see in the case of Japan, very few foreigners have bought Japanese debt.

They own most of it themselves.

But if you go down to Greece, the next long bar, you can

see that a little more than half of their debt, is owned by foreigners.

This is why Greece has had so much

difficulty in the Euro zone crisis because it was

foreign countries That were selling their debt and causing

lots of movement in that secondary market, all right?

Because countries perceived a risk, a sovereign risk with Greece.

A lot of that is owned by Germany and France, so the

currency's the same, but they are worried that the government won't be

able to pay, so you can see that the Euro Zone countries

are in kind of a A gray area in terms of this debt.

It's not foreign debt, but, the Greek government does

not control the supply of Euros in the world.

Okay?

It's jointly controlled by the Euro Zone countries.

Talk about that in the next session.

If you look at Italy, you can see they are the third largest debt as we saw

On the Google data, and you can see that

a little less of that is owned by foreigners.

We go down to Ireland and Portugal, lots of foreign ownership of that debt.

Those black lines are about half.

Again, this helps us to understand why there was

so much crisis with these countries in secondary markets.

And then you come down to the United States.

You can see foreign ownership of US debt was actually not that high at that time.

As I just mentioned, it's gone up, up to 2013.

It's about half now.

And then you go on down.

You can see Britain, which owns most of its own debt.

Germany is about half and half.

Canada actually owns most of its own debt domestically.

And Spain foreign ownership is a little bit smaller than the other countries.

Again, these black bars do not represent foreign

debt, they are in the issuer's own currency.

But it does mean that foreigners are more active

in those markets and have bought more of that debt.

And sometimes they are more prone to sell on fears of What the country is going to

do in the future and this may cause interest

rates to be more volatile in the secondary market.

[MUSIC]

[BLANK_AUDIO]

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