That’s right, the United States owes México. Now put away the pitchforks and bring your blood pressure back under control and let me explain. Sovereign debt is the money borrowed by a country’s government to fund government operations over the amount of money the country has. A country either issues bonds, backed by its currency, or borrows from other governments or from the private sector.
Most of you know it as the national debt. Over simplified, a country’s GDP is the money it brings in and coupled with taxes it is the money available to the government to fund it. Any expenses beyond that becomes national debt, or sovereign debt. The United States has a nation debt of about $21 trillion.
To make up the difference, the United States government borrows money from itself and then sells debt to the public, including other governments. Recently, and because of the recent passage of national funding bill, many tend to believe that much of the U.S. national debt is owned by China. That is not the case.
About 30% of the national debt is owed to other U.S government agencies. The U.S government borrows money from itself to fund operations. This money comes from several government retirement funds, such as military retirement benefits, with most of it being borrowed from the social security system that people pay into. That’s right, 30% of the national debt was borrowed from you, the taxpayer, either from your social security or from your federally-funded retirement systems.
The U.S government also sells debt to the public, you, but mostly to pension funds across the country, including municipal and state governments. Some banks and individuals buy U.S. debt through mutual funds and U.S. savings bonds.
Only about $6 trillion, of the $21 trillion is held by foreign governments. Who are the countries that the United States owes money to?
China is owed about $1.2 trillion as of January 2018, according to the Department of the Treasury/Federal Reserve Board report dated March 15, 2018. Japan is second on the list at about $1 trillion. But guess who else the U.S government owes money to?
That would be México. México holds about $34 billion on U.S debt.
I realize some of you may be thinking, aha, that could pay for The Wall.
Conceivably, the U.S could default on its debt to México and take the money to pay for The Wall.
But, here’s the problem with that, it would put the United States in default of its debt obligations and other countries would note the default and take appropriate steps to mitigate their exposure. Much like your credit rating suffers when you decide to forgo paying certain debts.
There will be some of you that will likely throw out, “well, what about the money” México owes to Uncle Sam for the healthcare, schooling and welfare benefits to Mexican citizens. To those of you arguing this fallacy, I point you to yesterday’s article where the point was made that laws and processes in the United States are made by U.S. citizens. It is to those people you should gripe to.
Now, for the other side of the coin because there are those of you itching to argue about U.S. aid to México. So, let’s get into that.
Foreign aid provided to other countries by the United States is not simply millions of dollars going to the coffers of a government. U.S. foreign aid serves many purposes; political, humanitarian, security and development. Of the four, development and security take up about 73% of the total foreign aid the United States allocates to other countries. Development is aid used to develop a country’s infrastructure or systems, like healthcare. But, it is important to remember that the United States uses foreign aid for political purposes, such as supporting friendly governments, such as Israel, or buffering U.S. interests in other parts of the world, again, such as Israel.
Foreign aid designated for security purposes are used to strengthen militaries and support anti-drug operations and counter-terrorism programs. Basically, security foreign aid is to allow the United States to secure itself from foreign dangers such as narcotics, terrorism and military threats from rogue nations.
The United States maintains a doctrine, or policy of taking the fight to far off places against threats to the security of the United States. In other words, the United States would rather fight a threat in another shore rather than within the borders of the country.
The latest data on U.S. foreign aid, through the government’s data aggregator site, the United States Agency for International Development is for 2016. (Take it up with your government if you think this data is too old)
The top ten recipients of U.S. foreign aid are the obvious countries, Iraq (2016-$5.2 billion), Afghanistan (2016-$5 billion), Israel (2016-$3.1 billion), Egypt (2016-$1.2 billion), Jordan (2016-$1.2 billion), Kenya (2016-$1.1 billion), Ethiopia (2016-$1.1 billion), Syria (2016-$916 million), Pakistan (2016-$777 million) and Uganda (2016-$741 million).
But before we get to México, let us look at a few interesting countries. Arch-nemesis Iran got about $3.3 million in 2016. Even friendly and economically sound countries like Australia accept U.S. foreign aid. Australia accepted about $63 thousand in 2016. Belgium accepted $3.1 million in the same period. How about Canada, it took $3.2 million and let’s not forget Great Britain, better known as the United Kingdom. It accepted $3.8 million. The list continues with countries such as France ($4.6 million), Germany ($5.4 million), Russia ($17 million), North Korea, as in nuclear missile nemesis, Kim Jong-un, ($2.1 million) and Cuba ($16 million).
Clearly, there are many reasons the United States gives out foreign aid and most of them have to do with the security and the welfare of the country. But, where does México fit in?
México accepted about $87 million of U.S. foreign aid in 2016. It is trending significantly down to an estimate of $61 million in 2017 to a low of less than $100 thousand this year.
According to the USAID data, most of the 2016 foreign aid allocated to México went towards anti-narcotics efforts and environmental programs such as deforestation. Some of the money went towards human rights and labor programs. The majority, though, went towards the Promoting Justice Project (Projust), a program reforming the Mexican justice system.
The U.S. aid monies that towards México focuses on drug interdiction programs, from law enforcement, military infrastructure and judicial reform. Even the most jaded among us can agree that reducing illicit narcotics entering the United States and increasing the buffer zone from which foreign adversaries can launch attacks into the United States is money well spent. Regardless, much of the U.S, foreign aid entering México in recent years is the result of the narcotics problems facing both countries.
México, over the last 18-20 years has taken in about $100 million annually, which dramatically increased to $718 million in 2010 and has been tapering off since then. Much of it is the result of the Merida Initiative that targets drug cartels in México.
The drug problem is a shared problem between both countries, even though some readers refuse to accept this. Regardless, the foreign aid going to México is not money exclusively for the benefit of México, or its people.
Although many tend to believe that México is a large recipient of U.S. taxpayer funds, it is not, or that México must depend on U.S foreign aid for viability, the fact remains that México’s use of U.S. foreign aid benefits both countries.
Historically, México has kept its distance from U.S foreign aid because of the strings attached to such aid that the U.S government historically imposes on recipients, i.e. nation building.
The notable exception to this were the Brady bonds in the 1980s. We’ll look more into this in tomorrow’s edition.