Federal Government Spends As Much on Interest to Chinese and Japan Bondholders as on Higher Ed
I don't generally worry too much about deficits or about U.S. debt held by foreigners. But in writing a post earlier today about interest on the debt, it occurred to me to investigate just how much money the United States pays out to China and Japan (our biggest economic competitors) every year in interest.
According to the Treasury, China and Japan holds $2.3 trillion in U.S. securities. While Treasury doesn't provide details about those bonds, and their interest rates, it does estimate that the average interest rate on all publicly held debt is 2.043. That's a very low figure by historical standards; ten years ago the average rate was twice as high.
Still, these numbers suggest that the Treasury is sending a huge amount of money to China and Japan every year, even as the federal government cuts spending on investments we need to compete with those two countries.
A little quick math reveals that 2 percent of $2.3 trillion is $46 billion. Again, given the diversity of interest rates on U.S. securities, it's hard to say whether this is actually what the U.S. sends to Chinese and Japanese bondholders every year in interest, or will eventually pay out on an annualized basis. But it's a good ballpark figure.
And, as it happens, this total in interest payments is almost exactly what the Federal government spent last year on higher education ($45.2 billion).
These aren't good numbers. They stand as more evidence that we need to curb our long-term deficits -- not through counter-productive spending cuts now (in fact, we still need more stimulus spending), but mainly through higher taxes and a much bigger drawdown of the U.S. military posture than anyone in Washington is now discussing.
In a geoeconomic age, you don't want to be sending more money to your overseas creditors than to your universities.