Our National Debt Matters, Part 2

After reading my post about why our national debt matters, two astute readers pointed out that Americans do not actually own the vast majority of U.S. debt. There are different ways to count how much debt the United States owes. Depending on the method used, foreigners hold between 33% and 50% of the total. Anyway you cut it, it's a big number. The United States will have to send that money abroad. This inconvenient fact casts further doubt on Krugman's thesis.

To his credit, Krugman does acknowledge that foreigners have sizable holdings of U.S. Treasuries. But he suggests that because private Americans have been investing in higher yielding stocks and bonds overseas, this does not matter much. Taxpayers may have to send money overseas, but overseas corporations have to send money back to private citizens in the United States, the thinking goes. The truth is that foreigners own at least 2.3 trillion more American assets than Americans own overseas. And the number continues to grow. More importantly, the American government uses the money it borrows to fund wars and pay for entitlements. Foreign companies use American capital to improve their productivity and future competitiveness.