Who would be hurt the Most if the U.S. were to default on its debit holdings?

The Real Owner of the U.S. Debt Will Surprise You

The U.S. debt is $20 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?

 From article, (The U.S. debt is $20 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: Intragovernmental 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. Treasurys with it.

By owning Treasurys, 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 Treasurys? 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 trillion. 

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.)

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