Who Owns America’s Debt? – Bob Pollin Pt. 2/2

Talia Baroncelli

Hi, I’m Talia Baroncelli, and you’re watching theAnalysis.news. This is part two of my discussion with economist Bob Pollin on the causes of inflation. If you enjoy our work and would like to support us, you can go to our website, theAnalysis.news, hit the donate button at the top right corner of the screen, and make sure you’re on our mailing list. That way, every time we publish new content, we can send it straight to your inbox. You can like and subscribe to this show on YouTube or on other podcast streaming services such as Apple or Spotify. See you in a bit for part two with Bob Pollin.

I’m very happy to be joined by Professor Bob Pollin. He’s an economist and professor at the University of Massachusetts, Amherst, and he’s the co-director of the Political Economy Research Institute, or PERI. He served as a consultant to the Department of Energy during the first Obama administration, and he also advised Bernie Sanders, as well as progressive Democrat Pramila Jayapal, on their Medicare for All policies. He co-authored the book Climate Crisis and the Global Green New Deal with Noam Chomsky. Thanks so much for joining us again, Bob. It’s great to have you.

Bob Pollin

Very happy to be on. Thank you, Talia.

Talia Baroncelli

Well, now that we’re talking about history, how much of the current petro-dollar system that we have comes from the 1970s because the global economy essentially is tied to the reserve currency of the U.S. dollar, and you have 89% of global transactions executed in U.S. dollars? When Republicans talk about, oh, China owns the debt, China owns the U.S. debt, and that could undercut the entire global economy, what do you say to that? I was just thinking recently about Republican Newt Gingrich, who was speaker of the House in the ’90s. In ’95, he said, “We can’t possibly raise the debt ceiling and all this fear-mongering around China owning the debt.” How do you weigh in on that?

Bob Pollin

Most of it, or maybe all of it, is complete nonsense. China owns about 2% of U.S. debt, meaning China does not own 98% of U.S. debt. They do own some, and they use their holdings of U.S. debt to try to, yes, support their own trade policies. They try to keep the value of their currency, the Yuan, low so that the products they want to sell in the U.S. are relatively cheap. If the value of their currency relative to the dollar were to go up, and the things that they try to sell, whatever they may be, what you can get in Walmart, computer programs, or solar panels, the price would go up. China does strategically utilize its holdings of U.S. debt, but they do not hold most of the U.S. debt. Whatever happens with China’s holdings of U.S. debt will not have a significant impact on the overall management of U.S. debt and, more generally, what we think about. What are the factors that we should care about when considering U.S. debt?

Talia Baroncelli

Well, U.S. government forecasts, when you look at the fiscal year of 2024, show that publicly owned debt is somewhere around 29 trillion U.S. dollars, and I think the entire debt, or correct me if I’m wrong, is 36 trillion U.S. dollars. What does that mean, and is that a high number? Is that something to actually be worried about? When the fiscal Conservatives say that the debt is too high, is that significant in any way, or is it just a number thing?

Bob Pollin

It is. Well, it’s significant in a couple of ways, obvious ways. One is that it’s, first of all, you can’t just say the number. You have to scale it to something. What makes it big? One way to scale it in a relevant way is, what is it as a share of the overall GDP? The debt held outside the U.S. government, as you said, about 28 trillion, is roughly equal to GDP, so it’s 100% of GDP. That has gone up sharply. Before the great recession of 2007-2009, U.S. debt as a share of GDP was in the range of 40%, so it’s gone up from 40% to 100%.

Now, why is that? Is that something we should really be worried about? The more useful way to scale it and to think about its importance is, how much are we actually paying in interest on this debt? That’s where the rubber hits the road, really, because that’s how much goes out every year. That’s money that could be spent on education, health care, and environmental protection, and instead, it’s going into the pockets of the U.S. government’s predators. Now, that ratio, the payment on interest of the U.S. government debt prior to COVID, was about 2% of GDP. Not nothing, but not a serious matter.

By comparison, at the end of the Ronald Reagan/Bush one regime of the 12 years, the U.S. government interest payments as a share of total GDP was 5%. It’s two and a half times higher. You did not hear Republicans, you did not hear Newt Gingrich say, “Oh, my God, this is a disaster.” They paid it because you could pay it. It did squeeze the government budget, but it didn’t collapse anything.

Prior to COVID, we were at 2%. The reason we were at this low level was because interest rates were low. You can borrow a billion dollars, and if the interest rate is zero, guess how much you pay in interest? You pay zero. The real important variable here is what the interest rate is. Now, because interest rates went up post-COVID because of the Fed’s attempt to control inflation by raising unemployment and weakening the bargaining power of workers, we pay about 3.5% of GDP in interest. That’s an increase. That’s something to be concerned about. It is not anything that is going to cause an immediate collapse. It does mean that we have to pay more in interest.

We’re paying about 14% of the government budget that goes to cover interest payments. That’s money, again, that could be spent on useful things. That is the real concern. If we are concerned it is not any kind of immediate crisis. The global financial system is not about to collapse. The U.S. government bond remains the safest and most desired asset in the entire global financial system. All of that is true, but at the same time, if you really want to cut back on how much the government is spending on interest payments, well, then raise taxes on rich people.

Trump did the opposite. Trump lowered taxes on rich people and is promising to do more. That’s what causes the debt to go up above and beyond what happens as a result of a recession.

Talia Baroncelli

Right. Trump increased military expenditure as well as cut taxes on the rich, so that will obviously decrease the amount of revenue that the U.S. government then…

Bob Pollin

That was what Reagan’s formula was also. Reagan did that in a world in which you also had very high interest rates. Much higher than today. That’s why U.S. government interest payments were up at 5%, more than two and a half times what they are now as a share of GDP.

Talia Baroncelli

But just going back to the numbers. We were saying that something like 36 trillion is the amount that the U.S. has in debt, and around seven trillion of it is held by the government, and then 28.2 or so trillion is held by the public, but who is the public in that figure? Are these rich people who then have offshore accounts, or is this money that’s also invested in real estate? Can you explain what that debt actually is?

Bob Pollin

Sure. We take out the share that is held by the Federal Reserve itself and other federal government agencies. So that gets us down to, as we said, 28 trillion. The state and local governments in the United States are also holding about 13% of all the debt. Why do they hold it? Well, again, U.S. government bonds are the world’s safest asset. If you have money that you want to park and you want to earn some interest, you’re not going to spend it, or you want it as a reserve fund, you can do it in all sorts of ways. You can invest in real estate, you can invest in artificial intelligence, whatever. But the safest way is to just own U.S. government bonds. That’s why most entities in the world, not just the U.S., want to hold U.S. government bonds.

If we talk about the U.S. government and then state and local governments, we’re now at about one-third of all the U.S. government’s outstanding debt. What about the other two-thirds? Okay, the other two-thirds, other countries, are going to hold about 10%. China is at 2%. The country that holds the most is Japan. Other countries, and then the rest, yes, are owned by banks, investors, all kinds of investment companies, because it’s like having a bank account. If you hold U.S. government bonds, you have to get cash. You can sell that really quickly. The value of the U.S. government bonds is not going to fluctuate, so it’s a safe asset.

Non-wealthy people also hold U.S. government bonds in the U.S. and all over the world. The government of Luxembourg holds the fourth most U.S. government debt than any other country.

Talia Baroncelli

They have a lot of banks there as well, don’t they? There are LIBRAS of EU, I think, central bank policy. Luxembourg, it’s a small country, but it plays a huge role in determining European fiscal and monetary policy.

Bob Pollin

The irony during the global financial crisis of 2007-2009, and then again during the COVID crisis, when the U.S. economy was in bad shape, the world economy was in bad shape. Rather than there being a flight away from U.S. government debt because you think, oh, the U.S. government’s in bad shape. They’re borrowing. Their economy’s in bad shape. There was actually a flight towards that investors of all sorts wanted to hold more U.S. government bonds because they’re safer. They’re safer than holding stocks. They’re safer than holding real estate investments that were tanking. They’re safer than investing in artificial intelligence or tech firms. My guess is that’s going to stay that way for some time to come.

Talia Baroncelli

I wanted to talk about the campaigns right now between the Democrats and the Republicans because if you look at both of the debates, the one that was the disastrous one between Trump and Biden and then the subsequent one between Trump and Harris. I think in both debates, the moderators referred to government spending. There was a report written by the Committee for a Responsible Federal Budget, which was published, I believe, in, I think it was January, February, and then there was an updated version of it in June. I’ll just read two of the numbers there.

According to this report, President Trump approved 8.4 trillion of new tenure borrowing during his full term in office, or 4.8 trillion, excluding the CARES Act and other COVID relief. President Biden, in his first three terms and five months in office, approved 4.3 trillion of new tenure borrowing, or 2.2 trillion, excluding the American Rescue Plan. Just looking at that, if we were to trust these numbers, Trump spent a heck of a lot more. So why do the Republicans keep saying that it was the Biden-Harris administration that racked up the debt?

Bob Pollin

Because they just say it. Why not? Say anything.

Talia Baroncelli

We’re brushing off that that’s being overlooked in this report. There’s no…

Bob Pollin

No. As I said, really, there are two ways that government debt expands. One is when there’s a recession, and so then tax revenues go down, and then generally, governments try to expand their debt finance spending to prevent the economy from collapsing. That happened under Trump, and it happened under Biden around the COVID issue. When Trump expanded government spending, it was more geared toward rich people and businesses. When Biden did it, it was more geared towards giving money to the middle-class and low-income people. But in both cases, you had this expansion.

Then the other way, independent of what happens when you have a recession, is when you spend more and you cut taxes. And so, under Trump, you expand the military spending, and then you cut taxes on rich people. That generated an increase in the debt that has carried over because we haven’t been able to reverse those tax cuts.

Talia Baroncelli

Well, last time, we were also speaking about the supermarkets and price gouging and collusion within certain industries that lead towards monopolization and jacking up prices. There was a merger which was prevented by an antitrust case, and it was preventing the merger of two really big companies in the supermarket industry, Krogers and Albertsons. I think what’s really interesting here, and this goes back to inflation, is that if you look at the U.S. economy or the United States in general, there are four really big companies that account for half of grocery purchases. That’s Walmart, Kroger, Costco, and Albertsons. This merging or potential between two of these big companies, Krogers and Albertsons, would point towards massive consolidation in that sector.

The reason I bring this up is to ask you the question of the price of eggs because we saw the price of eggs go up incredibly over the past few years. Would you say that the rise in the price of eggs is because of a lot of the monopolization in the food sector and the wholesale food sector? But then, how does that account for local farmers who are local producers? They’re not importing eggs from China or from Europe. I would assume that oil prices don’t play into that. How do you explain that?

Bob Pollin

Well, first of all, let’s say, in general, inflation in the U.S. is basically negligible at this point, and that’s true for the other high-income advanced economies. I just checked to make sure I have the numbers right. Inflation in the last month was 2.4% from September 2024 to September 2023. That’s basically in line with the Fed’s 2% inflation target.

Right now, over the past year, inflation in general is negligible. That does not mean that there aren’t individual prices that are going up sharply, because when we say overall inflation, that’s this basket, so-called average consumer basket. That price has gone up 2.4%.

Now, eggs went up during the depths of the COVID. A dozen eggs, on average, was $1.41. By the end of COVID and then past that, eggs went up to $4.82 for a dozen. Now, eggs are at $3.20 on average. I just checked all these numbers. This is clearly beyond the COVID lockdown and the supply-side pressures that I was talking about that were generating the initial post-COVID price spikes. We’re in a totally different situation. So, how do we explain it?

Well, two factors have been important. One is the spread of avian flu. Just in the U.S. itself, we’ve lost about 20 million hens over the last year, which has created a supply shortage. We’re back to the idea of a supply shortage. And now what has happened with this supply shortage, comparable to what we saw after COVID, was that monopolistic companies or oligopolistic companies take advantage of the supply shortage and jack up prices rapidly and to the extremes that we’re observing.

Take one important case, this so-called Cal-Maine Foods, which controls about 20% of all the wholesale market for egg supply in the United States. Cal-Maine Foods increased their profits over the last year by 600% because they were able to mark up the prices in conjunction with the oligopolistic firm. Interestingly, Cal-Maine Foods does not report a single instance of avian flu at any of its supply locations. They didn’t experience any losses, at least not that are being reported. Nevertheless, they took advantage of the supply contraction of eggs and hens to jack up prices.

That’s the term that’s emerging, so-called greedflation. Greedflation reflects this idea of companies that have market power, that have oligopolistic power, jacking up prices in the face of supply shortages taking advantage of these supply shortages to the maximum extent. When the term emerged like two years ago, right after COVID, saying companies are really greedy, and that’s why we’ve got price increases. Other economists were saying, well, that’s ridiculous because companies are always greedy, so what’s the big deal? What’s new here? That they’re more greedy? Well, of course. No, they’re not more greedy. It’s just that the conditions have changed that allow them to exercise and bask in their greed more than they otherwise would be able to.

Talia Baroncelli

Right. I think some of the internal documents that were shared in this particular antitrust case to prevent the merger of Kroger and Albertsons showed that, as you mentioned as well, there were increases in inflation. For example, our supply chain issues, and they took advantage of that to then increase their own prices. Then, when those supply chain issues were no longer an issue, and prices went down, they didn’t pass on those savings to consumers. They just kept their own prices up. I think, in this particular case, Kroger kept their prices up even though Walmart was reducing their prices. That’s an indication that the company is taking advantage of the situation. But what would your response be to controlling that? Would it be nationalizing the wholesale sector? How would you prevent companies from engaging in that sort of price gouging?

Bob Pollin

Short of nationalizing, in many instances, I have called. I’ve supported the nationalization of the fossil fuel industry, for example, and realized that that ain’t happening. It ain’t happening with the grocery chains either. Is there any policy mechanism that could be effective here? I think there are fairly effective antitrust laws in place, meaning antitrust laws or anti-monopoly practices, so that when there is evidence of companies doing exactly what we’ve seen happen with Kroger, Albertsons, with Cal-Maine, which controls 20% of the wholesale egg market, then you have to introduce measures to limit their pricing power. That’s what this is.

We do have, at present, a Federal Trade Commission that is trying to utilize the laws that are on the books. That’s the head of the Federal Trade Commission, Lina Khan, who is, as policymakers go with some power, I think she’s really been effective and committed around these issues. Not surprisingly, she is being vilified. And one of the big demands of the billionaire Democrats supporting Harris is, well, we like you, Harris, a lot better than Trump in general, but you really got to get rid of Lina Khan.

Talia Baroncelli

Yeah, Reid Hoffman has been saying that as well.

Bob Pollin

Yeah.

Talia Baroncelli

Okay, just one final question. A quick one. If you can sum up what you would say if you were a presidential candidate. If you were in Harris’s shoes, for example, what would you be saying right now with regard to price gouging or other measures to entice the American consumer to get them on your side? What should Harris be talking about right now to convince people that she will be the best on the economy?

Bob Pollin

Well, I don’t know how much people want to hear the true story of the economy, but let’s start with that. The true story is, as things go, especially for working people and low-income people, the economy is performing pretty well. Over the last year, the full year of 2023, average real incomes, after controlling for inflation, went up by 4%. It’s the first time since 2019. And average incomes for the lowest 10% of the population went up by 6.7%. So, in real dollars, it’s definitely not the world that I would love to see, but we have seen at least modest steps toward a more prosperous and more egalitarian economy. I do give Biden some credit for that. That’s step one.

Step two: Okay, yes, people are really concerned about prices. Generally, price inflation has stopped. There are these particular pockets, eggs being the big one. The egg one is all about monopoly power being exerted, and that therefore, what Harris should say is, we’re going to continue to enforce to use the laws that are on the books and to prevent this kind of excessive price markups. Meanwhile, more generally, we’re also going to continue what, again, I give Biden credit for. He said that he is pro-union. Generally, he has been pro-union. He made sure that the dock workers’ strike ended and the dock workers got a 60% raise. These are positive steps. They didn’t come from Biden. Biden was a mainstream neoliberal Democrat. They came from organizing efforts over years and decades that filtered up to the highest levels of the Democratic Party, such that the story coming out of Biden is a very different story that came out of Clinton.

Talia Baroncelli

If I can push back a bit, over the past few years, you keep hearing the Biden administration saying, we have the greatest or the U.S. has the greatest economy in the world. We’ve created the most amount of jobs, but people were clearly suffering or they were upset or frustrated. Disapproval ratings are incredibly high. I think part of the issue now is that Harris has not been able to distance herself from Biden, and so people are wondering what she’s actually going to do. She hasn’t really substantiated that all that much or to the degree that she maybe should in order to convince people. You sound a bit more optimistic.

Bob Pollin

Well, I’m just saying, look, we’ve been talking about neoliberalism. Neoliberalism, which has prevailed for 50 years, almost, was a variant of capitalism that was aggressively pro-rich, pro-big business, and anti-worker. The Democrats supported it, as well as the Republicans, broadly speaking. Biden has cut into it. Not dramatically, but he has cut into it. In three years, he was under the COVID lockdown. The notion that you could reverse all that in a matter of two years is, of course, unrealistic, but if you continued something akin to what Biden did with respect to supporting, in general, not always, but in general, supporting unions, supporting workers, the National Labor Relations Board, which oversees union-management negotiations, has been very much on the side of workers, the opposite as Trump. Those things, if you have 50 years of that, we’d have a different society. Three years of it is just the beginning. And so what we need to do is continue in the trajectory that was started under Biden. But we have a long way to go.

Talia Baroncelli

All right, Bob Pollin, it’s been really great speaking to you. And hopefully, next time, we can ask you about this paper you’ve been working on on fossil fuel subsidies.

Bob Pollin

I look forward to it.

Talia Baroncelli

All right, and thank you for watching theAnalysis.news. Feel free to go to our website, theAnalysis.news, and support us if you can. Thanks for watching.