While every American understands the devastating impact of the current national debt crisis, the details of who the United States owes money to and why it matters may not be so clear.
Owing a country in terms of national debt happens when a nation issues government bonds to raise funds, and both foreign countries and domestic investors purchase these bonds. This makes the issuing nation indebted to these bondholders, which can include other nations. The cumulative amount owed to creditors, both domestic and foreign through these bonds is what constitutes the national debt.
The debtor country, in this case, the United States, must make periodic interest payments to bondholders and repay the principal when the bonds mature. Currently, with a national debt nearing $33 trillion, the annual interest payments alone are a staggering $475 billion. If the current spending trends are not curbed, these interest payments are projected to triple, reaching a concerning $1.4 trillion by 2032.
The national debt’s level and the amount owed to foreign countries are crucial as they can significantly impact a nation’s creditworthiness, fiscal policies, interest rates, and international relations. High levels of debt may raise concerns about the country’s ability to repay, while lower debt levels can signal financial stability. The national debt serves as a comprehensive measure of all outstanding government obligations, and it plays a critical role in a country’s financial and economic situation.
The United States owes substantial sums to at least twelve different nations worldwide. While China is a well-known holder of American debt, with the U.S. owing about $860 billion, it’s not the largest debt the United States faces. In fact, the United States owes the most money to itself, with the U.S. government holding a staggering $27 trillion in Treasury notes and bonds as of January 2023, accounting for around 58% of the total U.S. debt. This internal debt largely arises from private market investors buying government securities, with some held by the U.S. Federal Reserve and other government entities.
Across the Atlantic, the United Kingdom holds $668 billion of U.S. debt, and Switzerland claims a substantial $291 billion stake. In contrast, Japan is a high-stakes creditor, currently holding over $1 trillion of America’s debt.
Belgium might not be the first country that comes to mind in the U.S. creditor game, but its noteworthy ownership of U.S. Treasuries is linked to Euroclear, a well-known Brussels-based firm specializing in securities transactions and asset management. As of January 2023, Belgium’s U.S. debt holdings amounted to $331 billion, comprising about 4.47% of the total foreign debt.
The Cayman Islands, renowned for its Caribbean charm and zero percent corporate income tax rate, had over $285 billion invested in U.S. debt by 2020. This surge resulted from increasing interest among foreign investors looking to diversify assets and capitalize on the stability of the U.S. economy, making the Cayman Islands an appealing destination for multinational corporations.
Moving northward, Canada’s strong economic ties with the United States have led to substantial investments in U.S. debt, securing its financial interests. This approach has provided Canada with stability during economic challenges and opportunities to benefit from financial markets. In 2019, Canada’s investments in American debt amounted to over $254 billion.
Taiwan, a major foreign creditor to the United States, holds $235 billion of America’s foreign debt, totaling $234.6 billion. Despite ongoing political challenges, the financial partnership between Taiwan and the United States remains robust due to their strong economic ties.
Luxembourg, one of the top foreign holders of U.S. debt, stands out with a remarkable GDP per capita of $133,590 as of 2021, thanks to its reputation as a tax haven. Investors are drawn to deposit capital in local holding companies, and a significant portion of this wealth is strategically invested in various securities, including U.S. Treasuries. In January 2023, Luxembourg held an impressive $318 billion in U.S. Treasuries, making up about 4.29% of the total foreign holdings. Switzerland also has a noteworthy $290.5 billion stake in United States debt.
Lastly, Italy, as the Eurozone’s third-largest economy, is a significant foreign creditor to the United States, holding approximately $262.1 billion in U.S. debt as of 2020. Surprisingly, Ireland, with a relatively small population of just under 5 million, also holds a substantial $243 billion in U.S. debt.
It’s easy to see that America’s escalating debt has huge economic consequences. Smart management is crucial for both domestic stability and maintaining a strong position on the global stage.
Against this backdrop, the recent spending spree and reckless mismanagement of the national debt under President Joe Biden’s administration raises legitimate concerns about the nation’s fiscal direction and the challenges it poses both now, and in the future.