Who Is America In Debt To The Most?

The debt of the USA is held in two categories: intergovernmental debt and public debt. The intergovernmental debt includes Social Security, military retirement funds, Medicare, retirement funds, etc. The public debt includes investors’ debt and foreign debt. Some of the largest holders of US debt are Japan, China, the UK, Ireland, Luxembourg, Switzerland, Brazil, Belgium, and Taiwan.

Key Takeaways

• The USA has a GDP of $21.4 trillion and its GDP per capita is $65,298
• The USA is the most powerful country in the world and it has the world’s largest economy and most enormous military budget
• You will be surprised to know that the federal debt of the USA has exceeded $23.4 trillion
• The intra-governmental debt is owed by the Treasury to other federal agencies and in 2021 the debt was more than $6 trillion
• The public debt holds almost 78% of the national debt in the USA and the amount is more than $21 trillion

The Details Of USA Debt

The U.S. Treasury manages all the debts of the USA through its Bureau of Public Debt. The debts of the USA are intra-governmental debt and public debt. Let’s know more about them.

Intra-Governmental Debt

This part of the debt is owed by the Treasury to other federal agencies. According to recent statistics, the intra-governmental debts in 2021 are more than $6 trillion. So this debt basically means that the government owes money to itself. But, why the government would owe money to itself, right? Well, there are some agencies that take in more revenue from taxes than they need, for example, Social Security Trust Fund, retirement funds, etc. Moreover, these agencies invest the money in the U.S. Treasuries. So, it means that the agencies are transferring their excess revenue to the general fund, where it is spent. Then they redeem their Treasury notes for funds as needed. Therefore, the federal government raises taxes or issues more debt to raise cash. Here’s the breakdown from the February 2021 data and it will help you understand which agency owns the most Treasuries – 

1. Social Security trusts: $2.90 trillion

2. Office of Personnel Management Retirement: $955.1 billion

3. Military Retirement Fund: $1.01 trillion

4. Medical Insurance Trust Fund: $304.4 billion

5. Federal government operations: $723 billion

Public Debt

The public debt holds almost 78% of the national debt and the amount is more than $21 trillion. Here, the foreign governments hold more than a third of the public debt while the rest of the debt is owed by U.S. banks and investors, the Federal Reserve, state and local governments, mutual funds, pension funds, insurance companies, and savings bonds. According to the monthly Treasury Bulletin of March 2021 from the U.S Treasury here’s the breakdown of who holds how much of the public debt – 

1. Foreign: $7.07 trillion

2. Federal Reserve and government: $10.81 trillion

3. Mutual funds: $3.5 trillion

4. State and local governments: $1.09 trillion

5. Private pension funds: $784 billion

6. Insurance companies: $253 billion

7. U.S. savings bonds: $147 billion

8. Other holders and investors: $2.28 trillion

Current Foreign Ownership Of U.S. Debt

1. Japan

Japan is the largest debt holder of the USA and as of January 2021, Japan owned $1.28 trillion in U.S. Treasuries. In fact, this amount is the highest level of debt owned by Japan in recent years. Japan beats China as the largest holder of U.S. debt. Previously China was the largest debt holder of the USA but now they are in 2^nd place. Since 2013, Japan started to give more loans to the USA and the low and negative yield market in Japan makes holding U.S. debt more attractive.

2. China

The 2^nd largest debt holder of the USA is China and they own $1.10 trillion of U.S. debt. This is great for China because it gives them more attention and it is a good reason for China’s rapidly expanding economy. Over the years China has reduced its holdings and this is the lowest amount held in the last two/three years. Currently, China holds 15.5% of America’s foreign debt.

3. United Kingdom

The United Kingdom is the third-largest debt holder of the USA and as of January 2021, UK holds $443 billion of U.S. debt. This is the highest amount for the past nine years and the previous highest was $368 billion in April 2020. The amount of debt has increased because Brexit continues to weaken its economy. The United Kingdom is the 6^th largest economy in the world with a $3.12 trillion GDP in 2021. So the UK holds 6% of America’s foreign debt.

4. Ireland

Ireland holds $314 billion in USA debt and they are in the 4^th position. This might be a surprise for you because when we are talking about the USA’s debt the small island country might not spring to mind. Ireland is mostly known as the home of leprechauns and Guinness beer. But it is also home to many U.S. multinational companies including Alphabet, Google, etc. Ireland has a low tax rate so many US multinational companies are operating from Ireland. So Ireland holds 4% of America’s foreign debt.

5. Luxembourg

This is a very small country and it is the 5^th largest holder of U.S. debt among foreign countries. You will be surprised to know that Luxembourg has the 72^nd smallest economy by GDP but they hold $267.8 billion in U.S. Treasuries. This amount is equal to about 3.8% of the total foreign holdings of America. Like Ireland, this country is also a tax haven for big investors. Therefore, many US multinational companies are operating from Luxembourg.

6. Switzerland

Switzerland is another small country that also holds USA debt. This country might be small but it is an incredibly wealthy European nation and mostly famous for an offshore tax haven for wealthy investors. Moreover, this country has high employment, longer life expectancy, and it is also one of the happiest nations in the world. The Swiss bank of Switzerland is one of the most reliable buyers of U.S. debt and they are also one of the major investors in U.S. Treasury securities.

7. Brazil

You will be surprised to know that Brazil is the world’s ninth-largest economy (according to World Bank). The economic growth of Brazil started in 2010 and it happened because of the aggressive investment from China. China made lots of deals with Brazil regarding raw materials like iron ore and crude oil. China also built huge factories, farms, and manufacturing plants on Brazilian soil that boosts Brazil’s economy. The amount of U.S. debt owned by Brazil is $255.3 billion.

8. Belgium

Belgium ranked 8^th as the debt holder of the USA and as of January 2021, Belgium holds $234.8 billion of U.S. debt. This is also a small country and its GDP is tucked between France, Germany, and the Netherlands. Belgium ranked 25 in the world based on GDP and over the years they have made a name for itself as one of Europe’s most vibrant international banking centers. Moreover, this country is also considered as a tax haven for investors which makes it a popular place to buy U.S. debt.

9. Taiwan

Taiwan is a small island nation and it makes its way to the top 10 foreign owners of U.S. debt. Currently, Taiwan owned $234 billion of U.S. debt. This country is making all its money from exporting goods to Europe, the U.S., and China. So it is quite clear that if the world economy remains good then Taiwan’s economy is also booming. So when the economy is not good, the Taiwan investors put their money in the safest securities in the world and that is U.S. debt. This is a key reason that makes Taiwan one of the largest debt holders of the USA.

10. Hong Kong

The last country on our list is Hong Kong. Hong Kong is a special administrative region of China and they are the 10^th largest U.S. debt holder. As of March 2021, Hong Kong holds $229 billion of U.S. debt. Hong Kong has a GDP of $ 320.00 billion in 2021 and it is expected to grow $ 365.00 billion in 2022. Moreover, Hong Kong’s economy is forecast to grow by 3.5% to 5.5% in 2022.

Final Thoughts

Finally, there is a misconception that most of the U.S. debt is owed to foreign countries like China and Japan. Therefore, the USA economy is not as strong as it is represented. However, the truth is, most of the U.S. debt is owed to Social Security and pension funds. So it means U.S. citizens are the owner of most of the U.S. debt through their retirement money.

References:

1. https://www.theguardian.com/news/datablog/2011/jul/15/us-debt-how-big-who-owns
2. https://facethefactsusa.org/facts/who-holds-the-note-look-in-the-mirror-infographic

Last Updated on October 29, 2022 by Magalie D.