First things first. The United States is never going to “pay back” its debt.
With an exception of a few years in the 1830s when the government was able to expropriate enough native American lands and sell them off at inflated prices, the US has been in debt since day one and will remain so.
But the debt is big. Some $16.4 trillion, when measured most broadly. That’s about 100% of economic output. A debt this large could very easily become problematic.
Luckily, we think we’ve found one small part of the solution: America’s beleaguered Postal Service.
Allow us to explain.
It exposes the US to the risk that foreigners essentially dump US government debt if they start seeing things they really don’t like—like, say, an ongoing inability to accomplish basic government tasks such as finding sensible agreements on taxing and spending. True, US government debt is still the pre-eminent destination for the world’s savings. But a buyers’ strike isn’t impossible. (Until about two years ago, Italy—the world’s third-largest bond market—was considered a completely safe place to stash money. That changed and Italy’s economic fate has essentially been at the mercy of financial markets over much of the the last couple years.)
Countries can mitigate the risk of a buyers’ strike. One thing they can do is shift their borrowing to longer-term debt. This changes something known as the “weighted average maturity” of the debt load. Essentially, it gives the government the ability to refinance its debt load over a longer time, rather than being forced to do it sometime soon. The chart below shows the US has been doing that, ever since being forced to borrow a lot of short-term cash during the financial crisis.
Take Japan for instance. More than 90% of Japan’s government debt is held domestically. Only 5% is held by non-residents, according to this IMF paper.
Just as a reminder, if investors were dumping government bonds in a market selloff, bond yields would spike. And they haven’t spiked; they’ve been low and stable for a long, long time. Just look.
Yes, in fact we did. You’ll notice that in the pie chart above roughly 29% of outstanding Japanese debt is held by something called Japan Post Group. The Japan Post Group represents the various entities that were once part of Japan Post, the postal savings system that was, at its peak, the world’s largest financial institution. Japan made moves to privatize the post office in 2007. But the vast pool of savings built up by Japan’s postal system from citizens continues to help fund Japan’s debt. A range of other countries have postal savings, including Korea, France, Israel, Ireland, and India.
“Wait wait!” you shout again. “That is downright un-American to have the government involved in the financial system like that.”
Starting in 1911 this system of postal savings accounts provided an easy, safe place for consumers to build up their savings. Following the banking crises of the early 1930s—when many Americans lost their savings in bank busts—money poured into postal savings accounts. Postal savings peaked in 1947, when there was about $3.4 billion on deposit. That would be about $34 billion in today’s dollars.
Well, yes. But with banks increasingly turning to fees to generate income in recent years, small savers have felt far from welcome. Take a look at the growth in income from fees on deposits at large US banks over the last 20 years, before the Dodd-Frank financial reform bill essentially forced them to knock it off.
But the government should seriously think about using some elements of the far-flung, consumer-facing Federal presence that is the US Postal Service to help build a healthier pool of savings among Americans.
That’d be a welcome departure from recent years, when the US government has appeared to all but give up on tapping into consumer savings to fund the debt. For example, it stopped selling paper versions of savings bonds, driving would-be lenders to the US government to the Treasury Department’s electronic platform. (Because the grandparents just love e-commerce.) It’s high time the US turned this around and provided US consumers with a safe simple way to save. A partnership between the post office and the US Consumer Financial Protection Bureau could help the US make its debt load safer and perhaps turn around the fortunes of the Post Office. Oh, and it also may help the US remedy its egregious lack of savings.
Worth a thought, anyway.