Important Takeaways:

• China is one of the United States’ largest creditors, owning about $859.4 billion in U.S. debt. It doesn’t own the most U.S. debt of any foreign country, however.
• Nations borrowing from each other may be as old as the concept of money. Foreign debt provides the opportunity for countries to secure financing that they ordinarily wouldn’t have access to and to stimulate their economy.
• The concept of foreign debt carries a negative connotation, however, especially when it concerns large amounts owed to nations embroiled in controversy. The huge amount of debt that the U.S. government owes Chinese lenders has been the subject of countless debates, headline news stories, and political platforms for decades.
• Japan commands the top spot among foreign creditors with $1.1 trillion, about 3% of total U.S. debt owed by the U.S. government. China holds the number two position with $859.4 billion of U.S. Treasury’s, about 2.6% of the total U.S. debt.
• Consequences of Owing Debt to the Chinese
• It’s politically popular to say that the China “owns the United States” because it’s such a huge creditor but the reality is very different from the rhetoric.
• The U.S. dollar would depreciate and the yuan would appreciate if China called in all its U.S. holdings, making Chinese goods more expensive.
• Although 2.6% of the national debt isn’t insignificant, the Treasury Department has had no problems finding buyers for its products even after a rating downgrade.
• Others would likely step in to service the market if the Chinese suddenly decided to call in all the federal government’s obligations and this isn’t possible because of the maturities of debt securities. This includes the Federal Reserve which already owns six times as much debt as China.

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