US Debt Hits $38 Trillion: China Isn't the Country We Owe Most

The United States has reached an astonishing milestone, with its national debt now exceeding $38 trillion. However, much of the recent discussion about the country's debt tends to originate from outside the US. Contrary to the common perception, China does not hold the largest share of US debt.

The majority — approximately 75% — of the national debt is owned by US entities. Nearly 20% is held by Social Security, Medicare, federal pensions, and other funds managed by the federal government. The second-largest group of holders (around 13%) is the Federal Reserve Bank. Foreign governments account for about 25% of the total US national debt.

Who Holds the Rest?

Japan leads among foreign holders, possessing more than $1.1 trillion in Treasury securities. London's financial institutions manage over $800 billion in Treasury holdings, often on behalf of other international investors. While China has moved into third position with roughly $750 billion in US Treasuries, it has reduced its holdings in recent years amid geopolitical tensions and trade disputes with the United States.

The fact that a significant portion of US Treasury holdings is outside the country demonstrates that no single external nation has the capacity to fully control or forecast the country's fiscal future. The overwhelming majority of Treasury obligations remain under American control. This domestic ownership helps provide stability to the US borrowing rate, although it does not eliminate the burden of rising interest costs.

Interest Costs Are Rising Fast

Borrowing money is one thing; servicing debt is another. In 2024, federal net interest payments are projected to total around $880 billion, with forecasts suggesting this could reach $1 trillion annually by 2026. Breaking it down, the government will be paying approximately $83 billion every month — equating to about $650 per household each month. The impact on individual households is significant, although often not immediately visible. Essentially, all Americans are paying for the federal debt through their interest payments, much like paying a mortgage for the country.

Why Domestic Holdings Matter

Having most of the debt held domestically allows Washington to manage its finances more smoothly than if foreign entities dominated ownership. Reinvestment of interest back into the US economy is carried out by agencies and investors based within the country. This internal cycle also highlights an important issue: the debt can be viewed as an internal financial loop, since Treasuries are used to fund programmes such as Social Security and Medicare. If interest rates increase, the financial pressure on these programmes will also rise, further straining their budgets.

A Debt Strategy for the Future

Policymakers face the formidable challenge of balancing the need to meet immediate financial obligations with ensuring long-term fiscal stability through prudent management of public debt (excluding foreign ownership). Although US government debt constitutes the largest share of the government's assets, the associated interest costs are set to surpass other sources of government revenue combined. Borrowed capital acts as a vital financial resource, but servicing this debt is becoming an increasingly significant expense for the government.

In practical terms, the burden of this debt — both economically, through indirect interest payments, and politically, via government policies supporting the debt — is shared across the entire US economy. These financial pressures influence not just government budgets but also the economic wellbeing of citizens, shaping policy decisions and fiscal strategies for years to come.