US NEWS

Who is the US in debt to? How much is the US in debt?

The country has an impending repayment that could end with the US defaulting on debt for the first time in its history if the debt ceiling remains.

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Who is the US in debt to? How much is the US in debt?
Kevin Dietsch AFP

The US debt ceiling has been reached and Congress is at an impasse. The House has passed a bill to suspend the limit, but the Republican senators say they will not support the bill. This leaves the real risk of a government shutdown as well as the US being unable to repay debt payments in October.

Negotiations are ongoing and failure would also lead to the termination of the Democrat political agenda.

The country is teetering on a debt precipice which would cause an economic slowdown around the globe. The debt news comes as Chinese real estate giant Evergrande is close to bankruptcy, causing a slide on world stocks in the last few days.

How big is the US debt?

The US debt stands at $28.5 trillion. Despite this being over the debt to GDP ratio, at 107%, the reason the US economy can sustain itself is that there is belief from investors that the US can eventually repay its debt.

However, problems arise once there is a possibility of defaulting. Failure to repay debt has never happened in US history and would scare investors around the world, precipitating a fall in the strength of the dollar. The fact that its is used as reserve currency for many countries means a likely global economic slowdown as foreign currency reserves become worth much less value.

Who is the US in debt to?

The US Treasury manages the US debt through its Bureau of the Public Debt. The debt falls into two categories: intra-governmental holdings and debt held by the public. 78% of is held in public debt. A third of this is controlled by foreign governments, while the rest is owned by US banks and investors.

The problems with a default are then clear. If the US can't afford to pay back a loan, companies and foreign governments will stop investing in the US economy. This would lead to a general price hike on goods in the US. The public debt is also significant as much of the debt is stored in Social Security payments and pension funds. Defaulting on the debt would impact the livelihoods of these Americans.

For example, Japan holds $1.28 trillion in US Treasuries. Therefore, a weakened dollar would not just impact the US economy, but that of Japan too. The close knitting of the global economy means just one shock could lead to a large downturn, as every economy is affected by events. This would be magnified by the importance of the US in the world economy.