If You Don’t Understand Bonds, You Don’t Understand Money

The correct metric for determining whether the National Debt is too high is its ratio to Personal Income Taxes. The ability to accumulate such a debt at all is the ability to tax incomes (16th Amendment). When the ratio between the two was too low, there was not enough leverage for economic investment, since it is Treasury Bonds which provide that leverage.  There are four kinds of debt holding that are important. 1. the operational debt held by government funds not attributable to households, holdings in overseas official accounts and by state and local governments. This is about $7T. 2. the debt held to finance social security and Medicare that is broadly held by beneficiary households $3T. 3. Long term and monetary debt, including the Fed - which is ultimately owned by depositors and includes public and private pension holdings  $10.7 T 4. High yield debt held by mutual funds, direct bondholders - including assets held in Luxembourg, the Cayman Islands, Ireland, Switzerland by US an foreign capitalists $15.5 T. These were the figures from the June Treasury Bulletin - which was before the last auction.

Those with access to the Trust Funds are already retired and mainly fall into the first and second income quintiles. The top 10% hold 54% of long term assets and 77% of high yield assets (according to the 2022 Survey of Consumer Finance by the Fed). According to IRS estimates, for any distribution of AGI, the bottom 90% get half and the top 10% get half. The same fraction exists between the top 1% and the remaining 9% (and top 0.1 % and remaining 0.9%). Note that stocks have no federal debt backing - even though mutual funds do by holding T Notes. This means that the top 1% hold about 27% of long term assets and deposit accounts and half of high yield accounts (.77*.77). You can do the math to determine how much the top 0.1% hold. IRS income figures are in line with these estimates.

Net interest on the debt is distributed to the last two types of funds and is necessary for capitalism to grow. If net interest equaled the deficit, then there would be no expansion of capital - we would be treading water.  To even get to that point, to avoid slowing the economy - taxes on the population that holds the debt would need to be increased - especially by partially or fully repealing preferred rates for interest, dividends and capital gains. The result is that less junk will be created to inflate financial bubbles - especially those holding crypto, oil futures and mortgage backed securities - including the current commercial real estate bubble.

In the long term, a cooperative economy would have to provide control over finance and consumption as well as housing, production, infrastructure and human services. To get there the exemption for sales of private stock to qualified esops on capital gains taxes would have to be given to sales of other liquid assets - preferably with capital gains taxes being replaced with an asset value added tax at a high enough rate to encourage such sales, especially among heirs.