What Is a Debtor Nation?
Debtor nation is a nation with a cumulative balance of payments deficit and or a negative net international investment position. A debtor nation has a negative net investment after recording all of the financial transactions it has completed worldwide. Thus, a debtor nation is a net importer.
Debtor nations may be contrasted with creditor nations.
Key Takeaways
- A debtor nation is one that invests less in the rest of the world than the rest of the world invests in it, and in aggregate imports more than it exports.
- A debtor nation is the opposite of a creditor nation.
- Debtor nations run current account deficits and experience a negative balance of trade against other nations.
- The United States is currently the world's largest debtor nation with a net negative international investment position of around $16.75 trillion as of the first quarter of 2023.
Understanding Debtor Nations
Debtor nation is a term that refers toa nation whose debts to other countries exceed its foreign investments. A debtor isa person or entity legally required to provide a payment, service, or other benefit to another person or entity. Debtors are often also called borrowers or obligors in contracts. A net debtor nation, by definition, runs acurrent accountdeficit in the aggregate; however, it may run deficits or surpluses with individual countries or territories depending on the types of goods and services traded, the competitiveness of these goods and services,exchange rates, levels of government spending, trade barriers, etc.
Nations that have invested fewer resources than the rest of the world has invested in them are known as debtor nations. In July 2023, The United States is one of the top five world's biggest debtor nations, posting a trade deficit of $65 billion. A trade deficit is an economic measure of international trade in which a country's imports exceedits exports. The U.S. net international investment position was $16.75 trillion as of the first quarter of 2023.
The U.S. status as the one of world's largest debtor nations is due to the central position that the U.S. plays in the world's monetary and financial systems. The U.S. dollar is the world's primary reserve currency and medium of exchange for settling international trade. This translates into enormous world demand to hold U.S. dollars (and close substitutes like U.S. Treasury debt) outside the U.S., and since the U.S. dollar is a debt instrument, this produces a large negative investment balance and balance of payments for the U.S.
One major way in which America's status as a global debtor manifests visibly is the availability of inexpensive manufacturing capabilities in China, as more and more U.S.-based businesses spend vast amounts of money in China for that purpose. Another major contributor is the large amount of U.S. debt held by China in the form of Treasury bonds. Other debtor nations include Greece, Spain, Portugal, Brazil, and India.
Debt and Trade
A debtor nation will have a negative balance of trade, or trade deficit, because the amount of money coming into the country from outsides sources is greater than the amount of money and exports the country sends out.
A trade deficit typically occurs when a country’s production cannot meet its demand, and therefore imports from other nations increase. An increase in imported goods from other countries decreases the price of consumer goods in the nation as foreign competition increases. An increase in importsisn't always negative as italso increases the variety and options of goods and services available to residents of a country. A fast-growing economy might import more as it expands to allow its residents to consume more than the country can produce.
The U.S. became a debtor nation in 1985, and the trade deficit has been growing for the past few decades, which has some economists worried. Foreign nations hold a substantial number of U.S. dollars, and those nations could decide to sell those dollars at any time. A substantial increase in dollar sales could devalue U.S. currency making it more expensive to purchase imports. In July 2023, U.S. exports were $251.7 billion and imports were $316.7 billion, making the trade deficit $65 billion. In other words, the United States imported $65 billion more than it exported.
FAQs
Debtor nation is a term that refers to a nation whose debts to other countries exceed its foreign investments. A debtor is a person or entity legally required to provide a payment, service, or other benefit to another person or entity.
What does it mean to be a debtor nation? ›
a country that owes more to other countries than other countries owe to it: The heavy foreign buying of U.S. securities flipped the U.S. over from creditor to debtor nation a few years ago.
Why is the United States called a debtor nation? ›
Some observers refer to the net of this investment position (or the difference between the value of U.S.-owned assets abroad and the value of foreign-owned assets in the United States) as a debt, or that it indicates that the United States is in a net debtor position, because the value of foreign-owned assets in the ...
Who is the biggest debtor nation? ›
United States. The United States boasts both the world's biggest national debt in terms of dollar amount and its largest economy, which resolves to a debt-to GDP ratio of approximately 128.13%. The United States' government's spending exceeds its income most years, and the US has not had a budget surplus since 2001.
What is a creditor nation in simple terms? ›
Creditor nations are those that lend more money to the world than they borrow from it. Being a creditor nation grants a country some power and influence, particularly when negotiating trade agreements with debtor nations.
Is the US still a debtor nation? ›
The U.S. status as the one of world's largest debtor nations is due to the central position that the U.S. plays in the world's monetary and financial systems. The U.S. dollar is the world's primary reserve currency and medium of exchange for settling international trade.
How long has the US been a debtor nation? ›
In 1981, Reagan's first year in office, the US was a net creditor to the tune of $140.9bn. By 1984, that had shrunk to just $3.3bn – and the next year, the US shifted from being a creditor nation to a debtor nation for the first time in almost 70 years.
Who is all the national debt owed to? ›
There are two kinds of national debt: intragovernmental and public. Intragovernmental is debt held by the Federal Reserve and Social Security and other government agencies. Public debt is held by the public: individual investors, institutions, foreign governments.
Who are the US indebted to? ›
Nearly half of all US foreign-owned debt comes from five countries.
| Country/territory | US foreign-owned debt (January 2023) |
|---|
| Japan | $1,104,400,000,000 |
| China | $859,400,000,000 |
| United Kingdom | $668,300,000,000 |
| Belgium | $331,100,000,000 |
6 more rowsThe total state debt in the US has been steadily increasing, driven by factors such as population growth, rising costs of services, and economic fluctuations.
The 20 countries that owe the US money include Korea as well. As of January, the country owes a total of $105.8 billion to the United States.
What country has no debt? ›
Singapore is one of Asia's major financial centers. It is also one of the most prosperous countries on the planet. And all this has been achieved without taking on any meaningful public debt. In fact, very much like Norway, Singapore has more assets than debt.
How much debt is America in? ›
The $34 trillion gross federal debt equals debt held by the public plus debt held by federal trust funds and other government accounts. In very basic terms, this can be thought of as debt that the government owes to others plus debt that it owes to itself. Learn more about different ways to measure our national debt.
Is the US the world's largest debtor? ›
In 1985, the United States officially became the world's largest debtor. Indeed, the United States has been running a trade deficit for most of the past 40 years, meaning that it imports more goods and services than it exports.
Is China a creditor nation? ›
China has become the world's biggest debt collector, as the money it is owed from developing countries has surged to between $1.1tn (£889bn) and $1.5tn, according to a new report. An estimated 80% of China's overseas lending portfolio in the global south is now supporting countries in financial distress.
Is China a creditor? ›
China is one of the United States's largest creditors, owning about $859.4 billion in U.S. debt. 1 However, it does not own the most U.S. debt of any foreign country. Nations borrowing from each other may be as old as the concept of money.
What does the Bible mean by debtors? ›
Debt and debtor are used in a moral sense also as indicating the obligation of a righteous life which we owe to God. To fall short in righteous living is to become a debtor. For this reason we pray, "Forgive us our debts" (Matthew 6:12).
What happens if a nation is in debt? ›
What happens when a country defaults? For ordinary people, a default means higher food costs from inflation, as the government prints money to cover its costs. It means unemployment, as businesses and government agencies cut spending. And it means reductions in essential services such as health care and education.
Was the US a debtor nation after ww1? ›
The debt grew steadily into the Twentieth Century and was roughly $22 billion as the country paid for involvement in World War I. The buildup to World War II brought the debt up another order of magnitude from $51 billion in 1940 to $260 billion following the war.
What did the Bible say about a debtor? ›
Ps 37:21 - The wicked borrows but does not pay back, but the righteous is generous and gives. The Bible is clear that when something is borrowed is should be paid back. Someone refusing to repay reveals a wicked heart and not the generous and giving heart God wants us to have.
