Who Holds the Federal Debt?
Key Takeaways
- The federal debt is divided between intragovernmental holdings (primarily Social Security Trust Fund) and debt held by the public.
- Public debt holders include domestic investors, foreign entities, and the Federal Reserve, with the Fed's holdings significantly increasing in recent years.
- Foreign ownership of U.S. debt represents a substantial portion, raising both opportunities and potential risks for economic stability.
The federal debt is often classified into two buckets: intragovernmental holdings and debt held by the public.
Intragovernmental Debt
As of November 21, 2024, intragovernmental holdings totaled $7.35 trillion, which is 20.4% of the total outstanding public debt of $36.03 trillion. The largest share of this intragovernmental debt is held by the Social Security Trust Fund.
Debt Held by the Public
Debt held by the public can be broken down into debt held by the U.S. public, foreign entities, or the U.S. Federal Reserve. The U.S. public is a broad category that encompasses domestic non-federal investors. It includes state and local governments, private pension funds and insurance companies, banks, and other investors. Foreign entities include the governments and central banks of other countries and private international investors.
In recent years, even relative to the first two groups of debt holders, the U.S. Federal Reserve has greatly increased its holding of government debt. The Federal Reserve buys the debt with newly created reserves, but these purchases raise the risk of inflation by monetizing the debt. Since new reserves can increase the nation’s supply of money, they can lead to higher prices as more dollars chase the same volume of goods and services. The Federal Reserve asserts, “Federal Reserve purchases of Treasury securities from the public are not a means of financing the federal deficit.” But Federal Reserve asset purchases are traditionally a means of circulating newly printed bills. While new tools like interest on monetary reserves can mitigate the impact of such expansion, the dramatic increase of Federal Reserve debt purchases (which include mortgage debt and corporate bonds as well as Treasurys) is a serious concern.
Given the persistence of federal deficit spending, if demand for U.S. debt does not keep pace with debt accumulation, the risk of debt monetization via Federal Reserve purchases rises further.
Who Holds U.S. Debt
Quarterly data (1981-2024)
Foreign Debt
Demand for U.S. debt has remained strong because the dollar is still the de facto reserve currency of the world. The Bretton Woods system, which pegged other currencies to the U.S. dollar (itself redeemable for gold), effectively ended after President Richard Nixon suspended dollar-to-gold convertibility. Since that point, the nations belonging to the Organization of the Petroleum Exporting Countries (OPEC) have primarily denominated oil sales in U.S. dollars, thereby sustaining global demand for America’s debt.
Historically, many countries have relied on the safety and stability of U.S. Treasurys. However, recent sanctions—including those imposed on Russia—underscore that this “risk-free” asset is not risk-free for countries that fall out of alignment with American foreign policy.
Foreign Holdings of U.S. Debt
December 2024 (nominal dollars)
Top 10 Countries
Today, China and Japan still account for a significant share of foreign-held U.S. debt. But with deepening trade tensions between Washington and Beijing, and Japan’s demographic challenges, it is no longer a given that either country will continue absorbing large amounts of new U.S. debt indefinitely.
Ultimately, the United States must come to terms with the fact that it does not have an unlimited capacity to finance deficit spending. This reality will become more pressing as obligations for programs like Social Security and Medicare continue to grow rapidly.