Who Owns the US National Debt?
There&#x27;s a lot of misunderstanding about what is currency and what is debt.<p>All modern currency is debt. All of it. The amount of debt created and the amount of new money created is equal, because x=x for all x. It&#x27;s just that simple - there isn&#x27;t a difference.<p>There are the printed bills (that everyone has access to), there&#x27;s the digital base money printed by the Fed that you keep hearing about, it&#x27;s the liabilities side of their balance sheet (that only select large financial institutions have access to), then there are govt bonds and govt-guaranteed bonds (Mortgage-backed securities) (which again everyone has access to, but they&#x27;re impractical for day-to-day conduct of business; they&#x27;re extremely liquid though, you can convert them by the hundreds of millions to bills&#x2F;base money by a single phone call). But all of this is money, just different types &#x2F; quality of money.<p>Operations such as QE are just a means of conversion between the types of money. For example since 2008 we have continuous conversion of high quality bonds (govt and govt-guaranteed) into base money (the top quality money). All of it is still a government liability, since the Fed is a part of the government.<p>Similarly, the Social Security buying Treasury bonds is just an internal government operation. Pension liabilities are just like government bonds (it&#x27;s a promise to deliver money at a later point in time), if you fund a pension liability with tbonds you&#x27;re just doing some internal reshuffling within the federal government books. No actual funding takes place, i.e. no one is delaying their personal (or corporate or nonprofit) consumption in exchange for a future payoff.<p>If you don&#x27;t believe me then please try to explain why hasn&#x27;t Japan experienced a double or triple digit inflation. They are so much more advanced in the &quot;central bank money magic&quot;.<p>PS. I&#x27;m using &quot;quality&quot; to refer to types money to simplify a bit, the more accurate first order approximation term would be &quot;duration&quot;. Then there are further technicalities such as coupon structures, whether or not the coupons depend on the CPI (TIPS), whether or not they exist at all and maybe you just get a lump base money sum at the end, etc.<p>PS2. I&#x27;ve skipped the (actually larger) private credit. Yes, bank credit and the bond market also create money, though definitely lower quality than anything discussed above. Private credit is allowed to disappear at any given point in time. The Fed is currently not allowed to touch private credit whatsoever (this might change if the Congress decides so), they very briefly violated their own rules in March of 2020 by doing a weird type of deal with the Treasury (which is allowed to deal in the private credit, as the Treasury is allowed to spend; buying a bond that later defaults is effectively spending). And by the way: their announcement of an intervention in the non-govt guaranteed credit markets was the exact bottom of the covid market panic.