Understanding the U.S. National Debt
The United States national debt is the federal government’s debt to creditors. The funds are borrowed to meet the budget deficit and cover all costs, including health care, infrastructure, and defense. This is also advantageous to creditors because it is not typical borrowing as in other nations. The United States borrows by selling federal treasury bonds on the open market. It benefits them since it keeps their free resources in the most dependable tool.
Components of U.S. National Debt
The U.S. national debt consists of two parts, namely, intra-government and public debt. The debt of the U.S. budget forms the first to government agencies, such as public pension funds. The beneficiary of such securities is, for example, the Social Security Trust Fund, an organization that receives tax deductions and distributes pensions and other compensations (Feuer, 2019). The public portion of government debt is treasury securities held by individuals, corporations, the U.S. Federal Reserve System, and state and foreign governments. United States bonds are among the most popular securities with investors worldwide.
Trends in Global and Domestic Debt
Public Sector Debt
After reviewing the table in the section on Federal Securities Ownership, to a few conclusions have arisen. Throughout the last decade, the United States debt has expanded dramatically. Government borrowing has contributed more than half of this rise, with the global public debt ratio reaching 99 percent of GDP (Raga et al., 2022). Non-financial firm and private household sector debt also reached new highs. The rise in debt is most visible in advanced economies, where the public debt ratio rose from over 70% of GDP in 2007 to 124% in 2020 (Raga et al., 2022).
Private Sector Debt
Private sector debt, on the other hand, has risen at a more moderate pace, from 164 percent to 178 percent of GDP over the same period (Raga et al., 2022). U.S. creditors often need somewhere to invest more rationally free funds internally, as this would only lead to inflation in the first place, so they direct funds to the country in question. However, the public issues held by the federal reserve banks have been rapidly declining. Private investors owning securities and government securities were increasing, but not as rapidly.
Current State of U.S. Debt and Major Holders
When the United States issues Treasury securities to pay the difference between what it collects in taxes and other income and what it spends on the military, Social Security benefits, and interest on current debt, the country incurs debt. As of February 2023, the federal government’s total debt was $31.45 trillion (Your guide to America’s finances, n.d.). Most of the national debt is held by the Federal Reserve, state and local governments, mutual funds, pension funds, insurance companies, and savings bonds, with the remainder held by foreign governments.
International Ownership of U.S. Treasury Securities
The national debt is $24.6 trillion as of February 2023 (Your guide to America’s finances, n.d.). Japan has $1.08 trillion in Treasury securities as of November 2022, overtaking China as the biggest foreign holder of US debt (Sebastian, 2023). The low and negative yield markets in Japan make owning US debt appealing. Japanese ownership was $1,184.9 in 2017 and $1,304.0 in 2021 (Sebastian, 2023). China owned $1,061.6 in 2017 and $1,068.7 in 2021 (Sebastian, 2023). Although Japan and China remain the largest holders of federal debt, their percentage of overall foreign debt has decreased since 2017.
China’s Role in U.S. Debt
China receives much attention since it holds most of the US government’s debt. With its remarkable economic growth in recent decades, this should come as no surprise. China is the second-largest foreign investor of US debt, after only Japan, with $870 billion in Treasury holdings as of November 2022 (Sebastian, 2023). While Chinese debt is frequently exploited as a political talking point, an export-oriented economy investing in Treasury securities is not particularly nefarious.
European Investment in U.S. Treasuries
Indeed, Treasuries are a natural investment for a country with significant foreign exchange reserves. China accounts for almost 11.96% of the United States foreign debt (Sebastian, 2023). British investors have grown their exposure and raised their investment in US debt to $645.8 billion as of November 2022 (Sebastian, 2023). Britain had $249.9 in 2017 and $647.4 of U.S. property in 2021 (Sebastian, 2023). Britain’s investment in US debt might be related to the country’s rising economic concerns. It is still reeling from the consequences of the coronavirus outbreak and the loss of several economic links due to Brexit.
Belgium’s considerable holdings of US Treasuries have grown dramatically in recent months. Conversely, Belgium had $271.7 in 2021, although its portion was negligible in 2017 (Sebastian, 2023). This growth might be traced in part to the growing activity of Euroclear, a prominent European financial company specializing in settling securities transactions in Brussels. Euroclear presently manages assets for over 2,000 financial institutions in over 90 countries and millions of ordinary investors (Sebastian, 2023).
Luxembourg and Other Minor Holders
Luxembourg owned $217.6 in 2017 and increased to $325.6 in 2021 (Sebastian, 2023). According to the most recent data, Luxembourg is the fifth-largest foreign holder of US debt, with one of the highest per capita GDPs at $133,590 as of 2021 (Sebastian, 2023). This position might be connected to Luxembourg’s status as a tax haven, where affluent investors invest in local holding corporations. A large portion of this money is subsequently invested in other assets, such as treasury bonds.
Global Financial Resources and U.S. Treasuries
In this way, almost all the free financial resources of the world, at least for now, tend to go to the United States. Furthermore, the growth of new debts benefits the population because by attracting financial resources, they can cover their prevailing expenditures and, consequently, the state budget deficit. There is no more reliable instrument in the world for storing free financial resources than U.S. Treasury bonds. They have always succeeded creditors, paid the debt’s interest, and repaid the principal on time. Another important factor is that the dollar is currently the strongest currency compared to others.
References
Feuer, A. (2019). How Savings and Retirement Benefit Distributions May Prudently Be Used to Make Charitable Gifts. NYSBA TR. & EST. L. SEC. J. 7, 53(1).
Raga, S., Ayele, Y. and te Velde, D.W. (2022). Public debt of selected African countries. ODI. Web.
Your guide to America’s finances. America’s Finance Guide | U.S. Treasury Fiscal Data. (n.d.). Web.
Sebastian, A. (2023). 5 countries that own the most US debt. Investopedia. Web.