It is a known fact that the U.S. government borrows a lot of money from foreign governments to settle its bills. In 1989 alone, the country had accumulated a national debt of $2.7 trillion, which is very miniscule compared to what it is today. In 2008, the national debt crossed the elusive $10 trillion mark, and today, the national debt stands at just over $17.28 trillion. Despite racking up such a huge debt, the money that the U.S. government owes to others is still increasing at a stellar pace. Presently, the debt per citizen stands at over $53,000, which is just a tad more than a household’s annual median income in the U.S.A.
However, you should note that the U.S. government does not owe all of the $17.28 trillion dollars to its creditors, which comprises of everyone that owns the country’s treasury bonds and securities. The creditors include individual American citizens, corporations, banks, local and state governments, and foreign investors. Treasury bonds and securities are basically government-backed IOU’s, wherein the government takes cash loans by promising interest to the lenders.
Only around $12.4 trillion of the national debt today represents public debt, or the debt held by the public. This is the money that the federal government has borrowed from external sources to fund its activities. The rest of the money, which is around $5 trillion, is held in intragovernmental holdings such as Medicare and Social Security.
Now, if you are wondering who exactly the government and the public owes money to, then you will be pretty surprised to know that most of them are its former enemies. In fact, the U.S. has a shaky relationship with some these countries even today.
10. Honk Kong – U.S Owes: $142.9 Billion
Honk Kong was handed back to the Chinese by the British in 1997, and ever since then, this “special administrative region” has enjoyed a special status in China. It is economically free from China, but its revenues still depend largely on exports to the Mainland.
Honk Kong exports almost 10% of its goods to the U.S.A., supplying to some of America’s biggest brands such as Wal-Mart and Target. The U.S. also exports a huge amount of high-value goods to Honk Kong in the form of aircrafts, diamonds, computer processors, telecommunication equipment and spacecraft.
Thanks to its close financial ties with the U.S.A., Honk Kong invests in U.S.’s national debt owing to its reliability. It also sees the dollar as the most stable reserve currency, owing to its international status.
Moreover, Honk Kong is a major banking center in Asia. As a result, a good percentage of its GDP comes from financial industries. As a result, investors in Asia mostly trade from Honk Kong to buy U.S. securities.
9. Belgium – U.S. Owes: 143.5 Billion
This might come as a surprise to you, but Belgium invests a lot of money in U.S. public debt. Belgium is one of Europe’s leading banking centers, thanks to a secret called “custodial bias.” Up until 2011, banks in Belgium offered a high degree of secrecy to its investors. However, in spite of the changes it brought in 2011 to eliminate clandestine operations, Belgium still offers huge tax breaks to foreign companies that have their subsidiaries inside the country. The tax benefits even extend to investors who open their offshore accounts inside Belgium.
As a result, many foreign investors buy U.S. securities through Belgium banks, even though they might not be permanently settled in Belgium. So, even though the Belgium government might not be involved in the public debt investments, the foreign investors trading through Belgium banks create a custodial bias to have Belgium placed at the ninth position here.
8. Luxembourg – U.S. Owes: 144.7 Billion
Even though Luxembourg is a very small country, it owns a huge amount of the U.S. public debt per person. Its financial industry is mainly centered on banking and related services, which explains its huge custodial bias. In fact, Luxembourg ranks the third-highest GDP per-capita of the world at around $80,000. As a result, the bankers there are more confident in investing in other countries’ cheap debt.
Moreover, just like Belgium, Luxembourg’s relaxed tax laws attract many wealthy foreign investors. Several U.S. companies have setup branches in Luxembourg to avoid paying taxes in their home country. Since the U.S. doesn’t know how to distinguish between a country and its nationals when it comes to public debt investments, Luxembourg ranks very high in this list.
7. United Kingdom – U.S. Owes: $159.1 Billion
Being a close ally of the United States, the United Kingdom shares many similarities with it. However, it is also a very small country with a limited set of population, which makes managing its economy easier. With a massive amount of investment from foreign nations, it makes sense for the United Kingdom to put their money in their partner’s national debt too.
Even though these two nations have shared a very charred history going back centuries ago, when the U.S.A. gained its independence from the British, they are today one of the best allies, supporting each other financial and military wise.
6. Russia – U.S. Owes: 162.9 Billion
Even though Russia and the U.S.A. share a conflicted history, when it comes to investing in public debts, Russia is one of the top investors. Russian Prime Minister Vladimir Putin has even called the American economy a “parasite” on the world economy, owing to America’s huge debts to many countries. However, despite the remark, many Russians have continued to invest heavily in the U.S.A.’s debt.
If you are wondering where Russia gets this buying power from, then you’ll have to look at their oil resources. Currently, Russia is the largest producer of oil in the world. Using this to its advantage, it has built up huge reserves of cash by investing heavily in foreign securities and bonds, which also involves U.S. treasury securities and bonds.
5. Switzerland – U.S. Owes: 192.7 Billion
Switzerland is almost the same as Belgium and Luxembourg: a small and wealthy European nation that is used by many foreign nationals and corporations as a tax haven. Swiss banks are well-known all around the world for managing private assets of many foreign nationals. As a result, the Swiss banks rank highly in owning U.S.’s national debt. It routinely ranks among the top ten investors in U.S. national treasury securities.
4. Taiwan – U.S. Owes: 196.6 Billion
Taiwan is a small Asian country that makes most of its wealth by exporting goods to China, Europe and North America. When the American economy is doing well, the Taiwanese economy prospers too, with investors betting heavily in their home market. However, when the American economy tanks, so does the Taiwanese economy. During this period of uncertainty, the Taiwanese investors hand over their money to buy the safest securities in the world, which is the U.S. debt.
Taiwan shares a very conflicted history with China, but currently, they share a warm relationship with their neighboring sibling country.
3. Brazil – U.S. Owes: 253.4 Billion
Being the world’s sixth-largest economy, and owing to huge investments from the Chinese, Brazilian economy has boomed during the recent years. Naturally, all the investors in Brazil look forward to putting their money in one of the world’s safest securities: U.S. national debt.
Currently, the Brazilian economy has shown no signs of slowing down. Even during the recession period the country registered record growth, which is a huge relief for all the investors out there.
2. Japan – U.S. Owes: 1.149 Trillion
Even though Japan has one of the highest debts in the world, its economy is very stable. That is possibly because a large portion of Japanese debt is owned by its public, and only a small portion is owned by foreign investors. In short, Japanese debt is highly sustainable, in spite of its many shortcomings.
Compared to the U.S.A., only 5% of Japan’s debt is owned by foreigners, whereas around 47% of U.S. debt is owned by foreigners. Due to their stable economy, which is highly dependent on exporting high-value products, it is natural that Japan also invests heavily in U.S. debt.
1. China – U.S. Owes: 1.268 Trillion
Being the second-largest economy in the world, and with a population of around 1.3 billion people, and having a stellar economic growth among all the industrialized nations, China leads all the other countries when it comes to foreign investments in U.S. debt. It broke the trillion-dollar mark way back in 2001, and there are no signs of it slowing down now as of yet. Truly, China is an economic powerhouse with no match.
However, considering that China is one of the USA’s biggest rivals, some quarters have raised doubts over whether investments from China are wise for the U.S.A. economy and national security. It can be compared to the arms race between the United States and the Soviet Russia during the cold war period, but only this time it is being fought with the economy.
China can seriously devalue the U.S. Dollar by withdrawing all their investments in the U.S. debt; however, by doing so, they would also be weakening their own economy in the process. As a result, for China, investing in U.S. debt is the best and safest return on investment they can expect; at least for the foreseeable future.
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