The US is on the brink of its first-ever default this summer, as Congress and the White House continue its standoff on the issue of raising the debt ceiling.
The country owes trillions of dollars to foreign institutions, including governments, central banks, corporations, and other investors. Foreign governments own a big part of the public debt, which includes treasury bonds and other securities.
— Sam Altman (@sama) May 6, 2023US debt to GDP ratio over time. very scary chart; no plan to fix it or even much of an acknowledgement we need a plan.
See AlsoWhat Happens When A Country Defaults?12 Countries With the Highest Debt to GDP RatioChina’s mounting debt crisisUS owes India USD 216 billion as American debt soars to USD 29 trillion: lawmakerwill get made worse as the rest of the world finds alternatives to the USD and rates stay non-zero.
long-term brewing crisis. pic.twitter.com/rhwtDEdiFY
The gigantic debt of the US
The United States has a national debt of more than $31 trillion, according to the US Treasury. As of January this year, foreign countries own $7.4 trillion in Treasuries, or approximately a fourth of total US debt. Foreign ownership of securities reached a peak in 2014, when it amounted to 34%, the highest percentage in the country’s history.
This number has gone down since. It slid early in the pandemic as countries like China, Saudi Arabia, and Brazil offloaded their shares of US Treasuries to acquire immediate capital. Countries resumed buying debt by the end of 2020, but the levels have not reached previous highs.
Which countries own the most US debt?
For the past 20 years, Japan and China have been the top two foreign countries with US Treasuries.
According to usafacts.org, as of January 2023, Japan owned $1.1 trillion in US Treasuries, making it the largest foreign holder of the national debt. The second-largest holder is China, which owned $859 billion of US debt. Both these countries wish to keep the value of the dollar higher than those of their own currencies, to help keep their exports to the US affordable.
China overtook the UK as the second-largest foreign holder in 2006.
“Even a few weeks of unresolved debt could lead to the loss of 6 million jobs in the US and a $12 trillion loss in household family wealth… and could lead to a recession… that could spiral out across the world,” warns @patrickgaspard. “It’s an incredibly consequential moment.” pic.twitter.com/rOLmVYID3d
— Christiane Amanpour (@amanpour) May 18, 2023
The UK remains the third-largest holder with $668 billion. Belgium is next, holding $331 billion, while Luxembourg rounds out the top five with $318 billion.
As an expert with a deep understanding of global economics and financial markets, I can provide valuable insights into the pressing issue highlighted in the article. My expertise is grounded in a comprehensive knowledge of economic indicators, international finance, and the intricate dynamics of sovereign debt.
The article discusses the imminent threat of the United States facing its first-ever default, and the crux of the matter lies in the ongoing standoff between Congress and the White House regarding the debt ceiling. The evidence supporting this claim is rooted in the country's staggering national debt, which has surpassed $31 trillion, according to the US Treasury.
Foreign ownership of US debt plays a pivotal role in this scenario, with more than $7.4 trillion in Treasuries held by foreign countries, constituting roughly a fourth of the total US debt. This reliance on foreign entities adds a layer of complexity to the economic landscape, as demonstrated by the chart illustrating the US debt to GDP ratio over time, signaling a long-term brewing crisis.
Notably, foreign governments, central banks, corporations, and other investors are major stakeholders in the US public debt, primarily in the form of treasury bonds and securities. The reduction in foreign ownership, as evidenced by the decline from 34% in 2014 to the current levels, underscores the volatility and shifting dynamics in the global financial landscape.
The breakdown of which countries own the most US debt further emphasizes the intricate web of international finance. Japan, with $1.1 trillion in US Treasuries, holds the position of the largest foreign holder, followed by China at $859 billion. The motivations behind their significant holdings lie in their strategic interest to maintain a higher value of the US dollar compared to their own currencies, ensuring affordability for their exports to the United States.
Over the past two decades, Japan and China have consistently ranked as the top two foreign holders of US Treasuries. Notably, China surpassed the UK as the second-largest holder in 2006. The UK remains the third-largest holder with $668 billion, followed by Belgium at $331 billion and Luxembourg at $318 billion.
The article's warning about the potential consequences of a prolonged debt standoff, including the loss of jobs, wealth, and the risk of a global recession, underscores the gravity of the situation. My in-depth knowledge of economic indicators allows me to emphasize the interconnectedness of these factors, highlighting the potential ripple effects that can extend beyond national borders. The urgency for a resolution becomes evident, given the substantial impact such a crisis could have on both the domestic and global economic landscape.
