Nobody Can Repossess The United States

ThinkProgress:

Last night on The Daily Show, Jon Stewart was joking about the debt limit debate and cracked that we’re so worried about the federal government being unable to pay its bills that we have to park it around the corner so that the Chinese don’t repossess it. Joking aside, this highlights a misconception among the public: that federal debt, particularly foreign ownership of foreign debt, is bad because foreign countries can use it as leverage to take over the U.S. I think this confusion arises because most people fail to realize the fundamental difference between personal debt and government debt. Most individuals who have debt have secured debt, that is that the loan they got to buy their car or house is backed up by the car or house itself. If the individual doesn’t pay, the asset gets repossessed. Government debt, on the other hand, is secured only by the promise that the government will pay when it promises to. People who buy debt in the form of U.S. Treasuries are not buying an ownership interest in the U.S. All they get is a promise. So the Chinese can never cash in their holdings in Treasures by repossessing parts of the U.S. But there seems to be paranoia, particularly on the right and from organizations like the Peter G. Peterson foundation, that the U.S. government’s debt opens us up to weakness because of the idea that debt holders are buying up U.S. debt in order to take over the country. This misconception is based on a fundamental confusion between personal secured debt and government bonds.