Who owns most U.S. debt? It isn't China. (Photo Credit: CC BY/Kevin Krejci/Flickr)
As Democrats and Republicans struggle to balance the federal budget and come to an agreement regarding the debt ceiling, the threat of national debt default has many perplexed. Popular opinion is “China” is the answer to “who owns America?” People also believe default will place the U.S. too far behind. Yet a study by Business Insider points out that popular opinion regarding who owns America is wrong. China has a major stake, but much like in Japan, most of U.S. debt is domestically held.
Who owns most of the $14.3 trillion in U.S. government debt?
A breakdown of the total amount and percentage of total U.S. debt clears up the question of who owns America. In short, Americans own America. Here’s the breakdown:
- Hong Kong: $121.9 billion (0.9 percent)
- Caribbean banks: $148.3 billion (1 percent)
- Taiwan: $153.4 billion (1.1 percent)
- Brazil: $211.4 billion (1.5 percent)
- Oil exporting nations: $229.8 billion (1.6 percent)
- Mutual funds: $300.5 billion (2 percent)
- Commercial banks: $301.8 billion (2.1 percent)
- State, local and federal retirement: $320.9 billion (2.2 percent)
- Money market mutual funds: $337.7 billion (2.4 percent)
- United Kingdom: $346.5 billion (2.4 percent)
- Private pensions: $504.7 billion (3.5 percent)
- State and local government: $506.1 billion (3.5 percent)
- Japan: $912.4 billion (6.4 percent)
- U.S. households: $959.4 billion (6.6 percent)
- China: $1.16 trillion (8 percent)
- The U.S. Treasury: $1.63 trillion (11.3 percent)
- Social Security trust fund: $2.67 trillion (19 percent)
While the U.S. owes foreign powers $4.5 trillion, it owes U.S. households, the U.S. Treasury and Social Security and other categories more than double that amount at $9.8 trillion.
The role China’s debt may play
The U.S. isn’t the only nation with severe debt problems. Northwestern University economist Dr. Victor Shih recently told GlobalPost that China’s debt burden can’t be ignored. Beijing’s most recent national debt audit indicates local Chinese governments owe $1.65 trillion in outstanding loans, the majority of which are of the questionable “off balance sheet” branch of financial wizardry. Moody’s believes the true number is actually $540 billion, but that doesn’t take into account the central government or guaranteed bank deposits.
Shih sees China’s true debt exceeding 150 percent of the nation’s gross domestic product, a deadly combination.
What does this mean for the U.S.? If China were to go bust, it could cash in large stores of U.S. Treasuries to bail out failing Chinese banks, which would be harmful to the U.S. economy. Yet Shih believes if that were the most probably course of action, other nations would be snapping up the Treasuries like hotcakes. As it stands, a Chinese financial collapse would likely increase interest rates globally.
Economists like Shih remind us that China isn’t Big Brother to the U.S. The communist nation has financial problems of its own to deal with.
Do we still believe in the power of the middle class?
Sources
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