Who Owns the US National Debt?

The Biggest Owner Is You!

Who owns the U.S. debt?
Photo: Thomas Barwick/Getty Images

The U.S. debt was $22 trillion as of February 11, 2019. Most headlines focus on how much the United States owes China, one of the largest foreign owners. What many people don’t know is that the Social Security Trust Fund, aka your retirement money, owns most of the national debt. How does that work and what does it mean?

The Debt Is in Two Categories

The U.S. Treasury manages the U.S. debt through its Bureau of the Public Debt. The debt falls into two broad categories: intragovernmental holdings and debt held by the public

Intragovernmental Debt. This is the portion of the federal debt owed to 230 other federal agencies. In December 2018, intragovernmental holdings totaled $5.9 trillion or 27% of the debt. Why would the government owe money to itself? Some agencies, like the Social Security Trust Fund, take in more revenue from taxes than they need. Rather than stick this cash under a giant mattress, these agencies buy U.S. Treasurys with it.

By owning Treasurys, they transfer their excess cash to the general fund, where it is spent. Of course, one day they will redeem their Treasury notes for cash. The federal government will either need to raise taxes or issue more debt to give the agencies the money they will need. 

Which agencies own the most Treasurys? Social Security, by a long shot.

The U.S. Treasury publishes this in the Monthly Treasury Statement, Table 6. Schedule D-Investments of Federal Government Accounts in Federal Securities. The most recent data is from December 2018. Here's the breakdown:

  • The Social Security Trust Fund and Federal Disability Insurance Trust Fund - $2.798 trillion.
  • Office of Personnel Management Retirement - $998 billion.
  • Military Retirement Fund - $828 billion. This has become a big issue in funding our nation's defense and is only expected to grow.
  • Medicare, which includes the Federal Hospital Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust Fund - $308 billion.
  • All other retirement funds - $287 billion.
  • Cash on hand to fund federal government operations - $634 billion. 

Public Debt. The public holds the rest of the national debt of $16.1 trillion. Foreign governments and investors hold 30% of it. Individuals, banks, and investors hold 15%. The Federal Reserve holds 12%. Mutual funds hold 9%. State and local governments own 5% The rest is held by pension funds, insurance companies, and Savings Bonds.

The most recent complete breakdown from the U.S. Treasury is as of June 2018. The public debt was $15.6 trillion. It's in the Treasury Bulletin, Ownership of Federal Securities, Table OFS-2. Here is the breakdown:

  • Foreign - $6.2 trillion. In June 2018, China owned $1.18 trillion of U.S. debt and Japan owned $1.03 trillion. That's more than one-third of foreign holdings.
  • Federal Reserve - $2.46 trillion.
  • Mutual funds - $1.8 trillion.
  • State and local government, including their pension funds - $984 billion.
  • Private pension funds - $600 billion.
  • Banks - $674 billion.
  • Insurance companies - $226 billion.
  • U.S. savings bonds - $158 billion.
  • Other holders such as individuals, government-sponsored enterprises, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, and other investors - $2.4 trillion. 

This debt is not only in Treasury bills, notes, and bonds but also in Treasury Inflation Protected Securities and special state and local government series securities.

As you can see, if you add up the debt held by Social Security and all the retirement and pension funds, almost half of the U.S. Treasury debt is held in trust for your retirement. If the United States defaults on its debt, foreign investors would be angry, but current and future retirees would be hurt the most.

Why the Federal Reserve Owns Treasurys

As the nation's central bank, the Federal Reserve is in charge of the country's credit. It doesn't have a financial reason to own Treasury notes. So why did it double its holdings between 2007 and 2014?

The Fed needed to fight the 2008 financial crisis. In 2007, it ramped up its open market operations by purchasing $2 trillion in Treasurys. This quantitative easing stimulated the economy by keeping interest rates low. It helped the United States escape the grips of the recession.

Did the Fed monetize the debt? In a way, yes. The Fed purchased Treasurys from its member banks, using credit that it created out of thin air. It had the same effect as printing money. By keeping interest rates low, the Fed helped the government avoid the high-interest rate penalty it would incur for excessive debt.

The Fed ended quantitative easing in October 2014. As a result, interest rates on the benchmark 10-year Treasury note rose from a 200-year low of 1.442% in June 2012 to around 2.17% by the end of 2014.

On September 29, 2017, the Federal Open Market Committee said the Fed would begin reducing its Treasury holdings in October. That puts upward pressure on long-term interest rates. The FOMC meeting statement summary is a report of FOMC’s discussion regarding the nation’s economic outlook. It also includes the resulting vote on the interest rates and the monetary policies the Fed plans to follow. 

Current Foreign Ownership of U.S. Debt

In May 2019, China owned $1.11 trillion of U.S. debt. It's the largest foreign holder of U.S. Treasury securities. The second-largest holder is Japan at $1.1 trillion. Both Japan and China want to keep the value of the dollar higher than the value of their currencies. That helps keep their exports affordable for the United States, which helps their economies grow.

Despite China's occasional threats to sell its holdings, both countries are happy to be America's biggest foreign bankers. China replaced the United Kingdom as the second-largest foreign holder on May 31, 2007. That's when it increased its holdings to $699 billion, outpacing the United Kingdom's $640 billion. 

The United Kingdom is the third-largest holder with $323 billion. It's increased in rank as Brexit continues to weaken its economy. Brazil is next, holding $306 billion. It's followed by Ireland with $271 billion and Switzerland with $231 billion.

Luxembourg is seventh at $230 billion. The Bureau of International Settlements believes it is a front for sovereign wealth funds and hedge funds whose owners don't want to reveal their positions. So are the Cayman Islands, holding $216 billion, and Belgium at $191 billion. 

After the Cayman Islands, the next largest holders are Hong Kong, Saudi Arabia, Taiwan, and India. They each hold between $156 billion and $204 billion. 

Data are from various reports that are released at different times. As such, the numbers in this article may not add up to the total U.S. debt.