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Fiscal Outlook

The Federal Government Has Borrowed Trillions. Who Owns All that Debt?

Last Updated August 6, 2024

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At the end of 2023, the nation’s gross debt had reached nearly $34 trillion. Of that amount, about $27 trillion, or 79 percent, was debt held by the public — representing cash borrowed from domestic and foreign investors. The remaining $7.0 trillion (21 percent), was intragovernmental debt, which simply records transactions between one part of the federal government and another.

Debt Held by the Public

Economists generally view held by the public (DHBP) is as the most meaningful measure of debt, because it reflects the amount that the Treasury has borrowed from outside lenders through financial markets to support government activities. At high levels, DHBP can crowd out private investments in the economy, make it more difficult to respond to economic crises, and increase volatility within the economy.

As of the end of December 2023, DHBP was $27 trillion, or 97 percent of GDP. That borrowing came from both domestic and foreign creditors, with the former holding about two-thirds of it.

Domestic Holders of Federal Debt

Domestic holdings of federal debt have increased notably over the past decade, rising from $6.0 trillion in December 2011 to $19.4 trillion at the end of December 2023. The Federal Reserve, which purchases and sells Treasury securities as a means to influence federal interest rates and the nation’s money supply, is the largest holder of such debt.

In fact, the central bank doubled its borrowing during the COVID-19 pandemic as part of its effort to mitigate the economic impact of the pandemic. However, the Fed has been reducing the size of its balance sheet over the past couple of years to combat high inflation.

Other domestic holders of public debt include investment funds (mutual and pension funds), commercial banks (depository institutions), state & local governments, insurance companies, and other corporations and individuals.

Foreign Holders of Federal Debt

Foreign ownership of U.S. debt, which includes both governments and private investors, is much higher now than it was about 50 years ago. In 1970, total foreign holdings accounted for $14.0 billion, or just 5 percent, of DHBP. As of December 2023, such holdings made up $7.9 trillion, or 29 percent, of DHBP. Of that amount, 52 percent was held by private foreign investors while foreign governments held the remaining 48 percent. Because Treasury securities are backed by the full faith and credit of the U.S. government, creditors including foreign investors often view lending to the United States as a safe investment.

In recent years, however, the foreign share of DHBP has declined due to the rapid growth in purchases by the Federal Reserve in response to the economic effects of the COVID-19 pandemic. Foreign holdings peaked at 49 percent of DHBP in 2011, but dropped to 29 percent by the end of 2023.

Investors in Japan and China hold significant shares of U.S. public debt. Together, as of December 2023, they accounted for nearly $2 trillion, or about 7 percent of DHBP. While China’s holdings of U.S. debt have declined over the past decade, Japan’s purchases of U.S. Treasury securities remain comparable. Investors in many other countries — including the United Kingdom, Switzerland, and Ireland — have increased their holdings of U.S. debt as well.

Foreign ownership of U.S. debt can have implications for the nation’s economy and financial markets. When foreign investors purchase Treasury securities, the federal government must send income abroad in the form of interest payments. On the one hand, that foreign investment may help increase U.S. economic activity if the money borrowed from such investors is used for productive purposes, such as stimulating recovery from a recession or funding investments in the nation’s economy. On the other hand, some analysts note that more foreign-owned debt reduces the control of financial markets in the U.S. and more income sent abroad means less is available for domestic investors.

Intragovernmental Debt

Intragovernmental debt records a transfer from one part of the government to another, and therefore has no net effect on the government’s overall finances. As of December 2023, intragovernmental debt totaled $7.0 trillion, a $2.0 trillion increase from a decade ago. In almost all cases, such debt is held in government trust funds — accounting mechanisms to track money designated for a specific purpose or program.

The largest holder of intragovernmental debt is the Social Security Old-Age and Survivors Insurance Trust Fund, which holds about $2.6 trillion, or 38 percent of intragovernmental debt. Other accounts holding such debt include retirement funds for federal employees, Medicare’s Hospital Insurance Trust Fund, and the Highway Trust Fund.

What Does All This Debt Mean For the Federal Budget and the Economy?

The amount of federal debt issued to the public can affect the country’s fiscal and economic health in a number of ways. The nation’s high and rising levels of such debt can affect economic growth and poses a number of risks; it could:

  • Reduce private investment and slow the growth of the economy
  • Increase interest payments to foreign holders, thereby potentially reducing national income
  • Elevate the risk of a fiscal crisis
  • Lead to higher interest rates
  • Constrain lawmakers from implementing policies to respond to crises or invest in the future
  • Impede intergenerational equity, preventing future generations from accessing public goods and services

Until lawmakers in Washington agree on a fiscally sustainable approach to the federal budget, public debt will continue to rise — threatening important safety net programs as well as domestic and foreign confidence in U.S. markets that can eventually chip away at economic opportunities for Americans.

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