The U.S. government incurs debt when it issues Treasury securities to fund the deficit between the amount of money that it receives in taxes and other revenues versus the amount of money that it spends on defense, welfare programs, the interest it pays on its current debt, and more. As of February 2023, the government's total debt is $31.45 trillion.
Key Takeaways
- The Bureau of the Fiscal Service classifies national debt in two ways: intragovernmental debt and debt held by the public.
- Over three-quarters of the total national debt is public debt, which includes Treasury holdings by foreign countries.
- Japan is the largest foreign holder of public U.S. government debt, owning $1.08 trillion in debt as of November 2022.
- China ranks second in total U.S. debt owned by foreign countries, with the U.K., Ireland, and Luxembourg, rounding out the top five.
- The total national debt is $31.45 trillion as of February 2023.
Types of Debt
U.S. national debt is categorized as intragovernmental debt and public debt. Intragovernmental debt is debt held within the U.S. by federal agencies and entities. It makes up about a fifth of the total outstanding U.S. debt. This debt includes money owed to Social Security, military retirement funds, Medicare, and other retirement funds.
The remainder is public debt. Foreign governments hold a large portion of the public debt, while the rest is owned by U.S. banks and individual investors, the Federal Reserve, state and local governments, mutual funds, pensions funds, insurance companies, and holders of savings bonds.
As of February 2023, $24.6 trillion of the national debt is public debt.
The Debt Ceiling
Congress sets a ceiling on the debt that can be raised periodically. On Dec. 16, 2021, the debt ceiling was raised by $2.5 trillion to $31.4 trillion. This is the largest dollar amount increase of the national debt.
1. Japan
Japan held $1.08 trillion in Treasury securities as of November 2022, beating out China as the largest foreign holder of U.S. debt. The low and negative yield market in Japan makes holding U.S. debt attractive. Japan holds 14.87% of foreign-owned U.S. debt.
2. China
China gets a lot of attention for holding a big chunk of the U.S. government's debt. Given that its economy expanded rapidly in the last decades, perhaps this shouldn't come as a surprise. China takes the second spot behind Japan among foreign holders of U.S. debt with $870 billion in Treasury holdings as of November 2022.
While Chinese-owned debt is frequently drummed up as a political talking point, there's nothing particularly sinister about an export-oriented economy investing in Treasury securities. In fact, Treasuries are a logical investment for a country with high foreign currency reserves. China currently holds almost 11.96% of U.S. foreign debt.
3. The United Kingdom
British investors increased their holdings of U.S. debt to $645.8 billion as of November 2022. This increased from $641.3 billion the month before. The U.K.'s investment in U.S. debt may be linked to growing economic uncertainty in the U.K. It's still recovering from the effects of the coronavirus pandemic as well as the loss of many trading relationships due to Brexit. The U.K. holds 8.87% of U.S. foreign debt.
The largest owner of U.S. debt by far is actually the U.S. government, which holds Treasury securities in various government accounts and pension funds.
4. Belgium
Belgium's large holdings of U.S. Treasuries have increased substantially in the last several months. This increase can be partially attributed to the increase in activity at Brussels-based company Euroclear, which is a major European financial house that specializes in the settlement of securities transactions. Euroclear currently holds assets on behalf of more than 2,000 financial institutions in more than 90 countries, as well as for millions of retail investors.
As of November 2022, Belgium held $332.9 billion in U.S. debt, which is 4.57% of total foreign debt.
5. Luxembourg
Luxembourg is the fifth-largest holder of U.S. debt among foreign countries while having one of the highest GDP per capita—$133,590 as of 2021, the latest data available. This ranking may be due to Luxembourg's status as a tax haven, where wealthy investors park their funds in local holding companies. Much of this wealth is then invested in various securities, including Treasuries.
As of November 2022, Luxembourg held $312.9 billion in U.S. Treasuries, equal to 4.3% of total foreign holdings.
Who Owns the US Debt Besides Foreign Governments?
Other holders of U.S. national debt include U.S. banks and investors, state and local governments, mutual funds, pension funds, insurance companies, and investors in savings bonds. Various agencies and entities within the U.S. government also own debt, which is known as intragovernmental debt.
What Is the Current National Debt?
As of February 2023, the total U.S. national debt is $31.45 trillion, after crossing the $30 trillion mark for the first time in January 2022. At the end of 2019, prior to the COVID-19 pandemic, the national debt was $23 trillion. One year later, it had risen to $27.7 trillion. Since then, it has increased by more than $2 trillion.
Why Is the National Debt So High?
It's high because the U.S. continues to spend more than it receives in revenue. Therefore, it must issue more debt to cover the difference. The national debt is an accumulation of federal budget deficits. Every spending program and tax cut adds to the debt unless paid for by new appropriations.
Why Is the US in Debt to China?
The U.S. doesn't restrict who may buy its securities. China invests in U.S. debt because of the positive effect these low-risk, stable investments can have on its economy. By investing in dollar-denominated securities, the value of the dollar increases relative to the value of China's currency, the yuan. This, in turn, makes Chinese goods cheaper and more attractive than U.S. goods to buyers. That increases sales and strengthens the economy.
