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That under the current circumstances the National Debt is almost a completely meaningless number. I'm a Wall Street finance guy with a finance background, but when I make my long, but fairly simple (in my mind!) to grasp argument why it doesn't mean a darn thing, I may as well be a unemployed gas attendant - that is how much credence it gets! ;) Although I am super self-confident and bug me it does not, I still would have to say that is my top answer to this question...I want ahead and elaborated per several requests!Why the United States “National Debt” Doesn't Really MatterA Little History Lesson From Our Friends the BritsThe shortest and simplest version goes as such (with me nothing is ever very short so hang in there my friend): Reagan in the 1980's simply took a page from one historic day in our British ancestral history. In 1693, The British Empire issued the very first Foreign Sovereign Bond - National Debt (the ‘Tontine Act’, which passed through Parliament during December 1692 and January 1693, which strictly speaking should be taken to mark the origin of the national debt.” The UK issued the first sovereign bond in 1693 in the form of a tontine to fund part of the Nine Years War against France). The buyers lined up and the success was amazing, so they issued quite a bit more and more. They used the majority of these proceeds to build the mightiest Naval force the world had seen to that point - and that launched a small, rather dreary (no offense to my UK peeps - my mother's side is all British and you're country is one of my very favorite nations in the world!) small island and 150 years later were the undisputed Super Power of the World, an Empire that held the majority of the world’s landmass. Now the Brits, being a small Island with decent but not nearly enough in the way of natural resources did what every European Empire was doing during that historical time period - they were acquiring land and building colonies via Military Might (in one form or another) because Britain ruled the waves - if you control the sea lanes you control trade and therefore have a VERY large (disproportionate? Perhaps, I am a Realist and not here to judge) percentage control of World Trade and the Global Economy as it existed then. Foreign debt was the fuel behind the expansion of the British Empire - there were plenty of other factors, don't presume me a simpleton, but there is no question that foreign debt was the fuel.That debt fueled the creation of the second greatest Naval force to ever rule the world’s seas. That would be second to one other Republic (not an Empire - that vast majority of Americans on BOTH sides of the aisle cringe at that very word; it is why are largest geopolitical and military failures have come from bailing far too early on nations we've had to knock over since World War II, rather than stick it out with extended occupations like we did in Germany and Japan, two of our closest allies today - but there are a myriad of other factors, including the changing face of warfare itself and the asymmetrical tactics the occupied nation’s rebellious factions utilize to grind down an American public already not at ease with “an occupation of another sovereign nation.” Now, I am a realist - we do not need in today’s economy actual occupation of land mass as a means to an ends of building and maintaining the world’s largest economy. Rather, and this is where I lose SO MANY people who go off to rant and rave about “American Corporate Military Imperialism.” But indeed, I am a Capitalist and perhaps the World’s Last Realist (an ugly combination to some - and I find many fascinated by someone who will simply tell it exactly like it is - totally objective of the left, the right, any political parties, etc…), and indeed, it IS in fact that maintaining the world’s status as the overwhelming military superpower is a very critical reason why the US National Debt means very little - as conditions stand today.What do I mean by that phrase, “as conditions stand today?”Simple: As long as we continue to invest the incredible amounts of borrowed funds in the United States Military, then the US Dollar, and US Treasuries, will remain essentially the foundational “Safe Haven Investment Vehicle” in which foreign nations stockpile their sovereign wealth in.The United States DollarThe International Reserve CurrencyBesides being the main currency of the United States, the American dollar is used as the standard unit of currency in international markets for commodities such as gold and petroleum (the latter sometimes called petrocurrency is the source of the term petrodollar). Some non-U.S. companies dealing in globalized markets, such as Airbus, list their prices in dollars.The U.S. dollar is the world's foremost reserve currency. In addition to holdings by central banks and other institutions, there are many private holdings, which are believed to be mostly in one-hundred-dollar banknotes (indeed, most American banknotes actually are held outside the United States). All holdings of U.S.-dollar bank deposits held by non-residents of the United States are known as "eurodollars" (not to be confused with the euro), regardless of the location of the bank holding the deposit (which may be inside or outside the U.S.).Economist Paul Samuelson and others (including, at his death, Milton Friedman) have maintained that the overseas demand for dollars allows the United States to maintain persistent trade deficits without causing the value of the currency to depreciate or the flow of trade to readjust.The above chart is one of my VERY FAVORITES - it tells the entire tail of how an uni-polar superpower like the United States can run long-term, very large deficits as long as the deficit spending (which is accumulating each year to the United States National Debt) can continue literally indefinitely so long as the deficit capital is being spent by the US Government correctly, in ways that will only produce one or both of the following results:Deficit spending provides strong add-value to the direct and immediate growth of the United States GDP. Growth should be at all times one of the most critical and continually watched-over (preferably I'd love to see a massive "Moonshot" type of overhaul of The Federal Reserve and the Treasury's access to real-time, accurate GDP figures via literally hundreds and thousands and eventually millions and millions of API feeds (Application Protocol Interface - basically a stream of data from a Financial Institution or medium-to-large corporation - anonymously - directly to this incredibly innovative and absolutely POSSIBLE Big Data Solution that could sort through the billions and trillions of datum andSimple - All spending not directly related to immediate and positive GDP growth should then be spent on maintaining Military Spending Levels - in fact, I would like to see a 10-year INCREASE in Military Spending rather than the proposed cuts we are seeing from both parties. To be extremely frank, the United States Military's Projection of Power is a massive reason (I would posit over 60%!) why when times are troubled, and the US decides to issue more National Debt in the past 5-years than in the previous 237-years of our country's history and demand increases for our US Treasury Bonds...and because of that our borrowing costs as a Nation have fallen to record lows, not seen since Eisenhower was in office.Some quick facts:63% of Global Central Banks (excluding the United States Federal Reserve, of course - another brilliant creation for another time to discuss) is held in United States Treasuries and United States Dollars.China and Japan each hold over $1 trillion in US Treasuries. This constitutes a very large percentage of each nation’s Central Bank’s asset’s. But...why?84% of global transactions (from commodities to Derivatives to several countries simply adopting the US Dollar as their national currency outright) are partially of fully conducted, hedged, pegged or at a minimum projected in United States Dollars. A POWERFUL statement...Dollarization and Fixed Exchange RatesOther nations besides the United States use the U.S. dollar as their official currency, a process known as official dollarization. For instance, Panama has been using the dollar alongside the Panamanian balboa as the legal tender since 1904 at a conversion rate of 1:1. Ecuador (2000), El Salvador (2001), and East Timor (2000) all adopted the currency independently. The former members of the U.S.-administered Trust Territory of the Pacific Islands, which included Palau, the Federated States of Micronesia, and the Marshall Islands, chose not to issue their own currency after becoming independent, having all used the U.S. dollar since 1944. Two British dependencies also use the U.S. dollar: the British Virgin Islands (1959) and Turks and Caicos Islands (1973). The islands Bonaire, Sint Eustatius and Saba adopted the dollar on January 1, 2011, as a result of the dissolution of the Netherlands Antilles.Some countries that have adopted the U.S. dollar issue their own coins: See Ecuadorian centavo coins, Panamanian Balboa and East Timor centavo coins.Some other countries link their currency to U.S. dollar at a fixed exchange rate. The local currencies of Bermuda and the Bahamas can be freely exchanged at a 1:1 ratio for USD. Argentina used a fixed 1:1 exchange rate between the Argentine peso and the U.S. dollar from 1991 until 2002. The currencies of Barbados and Belize are similarly convertible at an approximate 2:1 ratio. The Netherlands Antillean guilder (and its successor the Caribbean guilder) as well as the Aruban florin are pegged to the dollar at a fixed rate of 1:1.79. In Lebanon, one dollar is equal to 1500 Lebanese pound, and is used interchangeably with local currency as de facto legal tender. The exchange rate between the Hong Kong dollar and the United States dollar has also been linked since 1983 at HK$7.8/USD, and pataca of Macau, pegged to Hong Kong dollar at MOP1.03/HKD, indirectly linked to the U.S. dollar at roughly MOP8/USD. Several oil-producing Arab countries on the Persian Gulf, including Saudi Arabia, peg their currencies to the dollar, since the dollar is the currency used in the international oil trade.The People's Republic of China's renminbi was informally and controversially pegged to the dollar in the mid-1990s at ¥ 8.28/USD. Likewise, Malaysia pegged its ringgit at RM3.8/USD in 1997. On July 21, 2005, both countries removed their pegs and adopted managed floats against a basket of currencies. Kuwait did likewise on May 20, 2007, and Syria did likewise in July 2007. However, after three years of slow appreciation, the Chinese yuan has been de-facto re-pegged to the dollar since July 2008 at a value of ¥6.83/USD; although no official announcement had been made, the yuan has remained around that value within a narrow band since then, similar to the Hong Kong dollar.Belarus, on the other hand, pegged its currency, the Belorussian ruble, to a basket of foreign currencies (U.S. dollar, euro and Russian ruble) in 2009. In 2011 this led to currency crisis when government became unable to honor its promise to convert Belorussian rubles to foreign currencies at fixed exchange rate. BYR exchange rates dropped by two thirds, all import prices rose and living standards fell.In some countries, such as Peru and Uruguay, the U.S. dollar is commonly accepted, although not officially regarded as, a legal tender. In Mexico's border area and major tourist zones, it is accepted as if it were a second legal currency. Many Canadian merchants close to the border also accept U.S. dollars, though at a value that usually favors the merchant. In Cambodia, U.S. notes circulate freely and are preferred over the Cambodian riel for large purchases, with the riel used for change to break 1 USD. After the U.S. invasion of Afghanistan, U.S. dollars are accepted as if it were legal tender. Prices of most big ticket items such as houses and cars are set in U.S. dollars.So First...Who Is Holding the IOUs?Let's skip most of the history and get down to brass tacks. There are a couple of very crucial facts that are totally left unsaid when speaking about the UNITED STATES National Debt.The US National Debt is NOT the US$16,700,000,000,000+/- figure it is purported to be - at least, not in the way the media portrays it. Of the roughly $16.7 trillion plus in total National Accounts Payable, around US$11 trillion (or about two-thirds) of the US National Debt is owed to...Americans themselves.Well, first of all, the government itself. Just about $5 trillion of the total is in the form of so-called "intergovernmental" holdings, mainly the Social Security and Medicare Trust funds, roughly $3 trillion, and Federal employee pension and health insurance programs, just north of $1 trillion.This is so-called "non-public" debt: money the government owes to itself. Typically, when you see the ratio of debt to GDP reported at around 70 percent, it is total debt minus the "intergovernmental" chunk. Including debt to ourselves, the number would be about 100 percent.By the logic of excluding what we owe to ourselves, though, it might seem reasonable to exclude the Federal Reserve's holdings as well. That's another $1.7 trillion or so that one branch of the government owes to, in effect, another branch, since the Fed holds about $1.7 trillion dollars worth of Treasuries.I don't mean to debate the issue, however, just clarify to whom "we" owe money. For those keeping score, if you tally up Fed holdings plus all trust funds, we're now up to about $6.7 trillion of the $16.5 trillion total -- all to ourselves. And we're still not done with what you might call "intra-American" debt.That's because a next big tranche, as they like to say on Wall Street, is also held by or on behalf of citizens of the United States. State and local governments, for example, including their pension funds, hold about $700 billion; mutual funds, nearly $900 billion; private pension funds, $600 billion; banks, $300 billion or so; insurance companies, $260 billion.Add in personal holders of U.S. savings bonds -- another $185 billion -- and individuals, government-sponsored enterprises, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, and other investors in Treasuries, and you've got an additional $1.4 trillion or so. Hit the calculator: $4.3 trillion more in money Americans essentially owe -- to Americans.Grand subtotal thus far: $11 trillion -- two-thirds of the total. So who's holding the rest?Let me pause for you to guess...That's Right!: Foreign Creditors.They're holding about $5.5 trillion worth of Treasury securities, or a MUCH smaller 32.93% of the US GDP! These include the infamous bond hoard held by China, for example. You've surely heard the story: the Middle Kingdom could supposedly, if angered, dump on the bond market, driving up U.S. interest rates. Absolute RUBBISH.But in fact, China holds no more in U.S. Treasuries than does Japan: just over $1 trillion each. You can see the total list for yourself here, though you may want to take a crack at the top ten first. Russia above Germany, do you suppose? Singapore more than Switzerland? Check it out.But details aside, the foreign total is, as I say, about $5.5 trillion, about a third of the total total. If by "our children" the pundits mean the next generation of Americans, they are holding, at least implicitly, the substantial majority of our national debt. It is the government's liability; it is their asset.Yes, if taxes rise to pay off the interest and principal, the next generation will be on the hook. But mostly, you could argue, they will be paying themselves. Especially to the extent that today's American holders of Treasuries bequeath them to their children.So there it is, the truth about the U.S. national debt. I’m sure a lot of people who prefer to live their lives in fear will not like what they read here. Some people have to believe the worst about everything and simply cannot function in a positive frame of mind.We often think of our debt as owed to foreign countries, America owes a lot of money to sources closer to home -- namely ourselves. Large institutions, individual investors, social security -- are all big buyers of U.S. bonds. But even regular Americans indirectly own a large chunk of our national debt -- through their 401(k) plans, retirement accounts, etc. They're buying U.S. bonds, which is lending money to the government.Year National Debt National Debt($ billions) as % of GDP1940 $51 50%1945 $260 122%1970 $381 38%1980 $909 33%1990 $3,206 56%2000 $5,629 57%2013 $17,200 102%Moreover, the national debt is not like debts you and I might incur. It is money that we, through our collective representative the government, have borrowed from ourselves. Our personal debt is external; it's owed to others. Most of the national debt is internal; it's money we owe to ourselves. Although some of the debt is owned by foreign interests, two-thirds of it is held by U.S. creditors. In fact, the largest creditor of the government is the government itself! Over 40 percent of the national debt is owned by government agencies - mostly federal, but some state and local.The national debt need not be repaid in the same sense that private debt must be repaid. Most government debt is in the form of short-term Treasury bills that mature every 90 days. When one set of Treasury bills matures, the government simply pays them off by selling more. As long as it offers competitive rates of return on "safe" bonds, the government will be able to refinance or "roll over" its debt indefinitely. As a result, we need not worry about burdening our children with repayment. They won't repay the debt. Like us, they will refinance and pass it on.More importantly, the official data badly misstate the true importance of the debt. The government does have debts, but it also has assets. If I can borrow $500 and buy a capital asset worth $600, I'm better off, not worse off! What matters is government net worth, not the value of its debt. The numbers are somewhat subjective (how can we measure the value of the Capitol or Yellowstone National Park?), but researchers calculate that our government net worth remains solidly positive.Does that mean deficits and debt pose no economic problem? Not necessarily. Government borrowing impacts credit markets and pulls dollars and resources into the public sector. If the economy is in a recession and these resources otherwise would have been unemployed, no damage is done. In fact, deficit spending designed to put these resources back to work is the traditional fiscal policy recommendation to stimulate the economy and eliminate the recession. But, if the economy is already at or near full-employment, deficits can potentially "crowd out" private investment.When the government borrows, it competes for scarce loanable funds with private firms that also want to borrow. Like any other market, increased demand creates a shortage that, in turn, drives up prices. When the government wants to borrow, its new demand creates a shortage of loanable funds that drives up the rate of interest. The higher interest rate makes borrowing more costly and discourages private firms from borrowing and investing. The would-be private borrowers are crowded out of the market. Monies that might have been loaned to finance research and development or new manufacturing capacity in the private sector are loaned to the government instead. Unfortunately, with less research and development and less manufacturing capacity, productivity and long-run economic growth will suffer. As a result, current fiscal prolifically can lower the standard of living our children will enjoy.On the other hand, crowding out does not always cause lower productivity and growth. Suppose the government borrows $100 million that would have been borrowed by General Mills to modernize its cereal factories. We lose the $100 million of private investment, but what do we get in return? What does the government do with its $100 million? If the $100 million is wasted on unproductive Congressional junkets to Bermuda, future generations are harmed. They inherit a smaller and less productive stock of capital with which to work. But, suppose the $100 million is used to educate a new workforce or to rebuild our transportation infrastructure. These are productive investments and are indispensable building blocks for our future economic well-being.The critical question is which project will benefit future generations the most - modernized cereal factories or new education and infrastructure. As long as the government spends its borrowed dollars on investments at least as productive as the private investments it crowds out, no damage is done.The Controversial Part - The Debt, The Deficit, and Military SpendingAnd finally, we arrive at the most controversial but frankly the most simple part of ALL of this National Debt talk to understand. I will put it in extremely CRUDE, SIMPLE TERMS - I do not mean to offend a soul, but sometimes more complex realities, OR realities that the vast, vast majority of both the US and the Global Population do not want to really acknowledge out of Political Correctness, National Pride, etc. etc.As the British Imperial Navy saying went in the 1800's, "Might Makes Right." In other words, our US Treasuries and US Dollars are now considered at the end of the day far safer than Gold, or any other national currency or debt instruments or investment vehicles, is because of a single reason.If shit really does hit the fan...where do you want the bulk of your nation's, your company's or your personal net worth parked in? The one country with the most powerful military in the history of mankind - and likely there will never again be such a historical mismatch. China, Russia, these countries are of little-to-no relevance when it comes to direct military conflict. Many do not realize China has yet to set sail a SINGLE AIRCRAFT CARRIER? They have no Projection of Power. SPAIN has an aircraft carrier - albeit two entire generations older that the oldest United States Carrier (recently retired in early 2013). China is actually fairly weak from a military standpoint - Taiwan would give China one Hell of a fight and I am here to tell you China would not take the Island Nation of Taiwan (or the ROC, if that is your preference) without resorting to nuclear strikes.And that would then impose upon the United States Military to act. We sail 11 Carrier Battle Groups - each of which has enough combined firepower along with long-range Air Force Strategic Bombing to sustain prolonged military conflicts with FOUR Nations simultaneously - that is just one Carrier Battle Group. 11 CBGs could then conceivably take on 44 nations concurrently. It is absolutely AMAZING the gap in hardware, training, and technology the United States Military has over the rest of the world combined.I won't go one with any further statistics - but clearly you can see why the United States of America's National Debt really means very, very little. Well...SO LONG as our - sorry, gotta curse - Asshole Tea Party Eco-Terrorists do not insist on holding the United States and the Global Economy hostage over debt ceiling raises in retaliation for a bloody Health Care Law that was passed by both Houses of Congress, was signed into LAW by the President of the United States, and essentially was upheld by numerous appellate courts including the Supreme Court of the United States. KNOCK IT OFF. The GOP lost me on that one...what an incredibly stupid maneuver that was. I may hate the ACA more than anyone - but that is NOT THE WAY to strategically fight its implementation! (I'm not saying I dislike the ACA - I do think it will fail under its own complexity and sheer weight, but I also believe a better Universal Healthcare System will rise from its ashes.Here is hoping this makes sense - I slammed it together on a new Chromebook in the back of a sedan on my way back from my partner's estate in East Hampton down the Long Island Expressway. I can provide much more concise White Paper research studies my company, nxVenture Capital Ltd put together with the global financial consulting firm BDO (particularly the Singapore location and their incredibly research team, regarding as one of the best in the world).I really want these basic precepts of why the National Debt means very little right now to hit home - HARD. Please feel free to contact me with any questions!