Foreign countries, among them Brazil, China and Japan, hold 4.5 trillion dollars of US debt. While US politicians remain divided on how to raise the government’s ability to borrow how is the current US$ 14.29 trillion in federal debt split, according to stats from the Treasury Department?
Of the current US$ 14.29 trillion, US$ 8.1 trillion are publicly held and US$ 6.2 trillion is held by the US government. Of the publicly held debt, China with US$ 1.3 trillion dollars is the largest buyer and holder of US Treasury bonds.
Other countries combined hold over 3.2 trillion while a range of investors, individuals, pension funds, banks, state and local governments and other buyers hold 3.6 trillion.
Of the 6.2 trillion held by the US government, 2.7 trillion are in Social Security trust funds while other US government agencies have 1.9 trillion and the Federal Reserve Systems has 1.6 trillion dollars.
The US Treasury Department information lists 35 creditor countries, with Japan ranked second holding 912.4 billion dollars in US debt; UK, 346.5 billion; Oil exporting countries, 229.8 billion; Brazil, 211.4 billion; Taiwan, 153.4 billion; Caribbean banks system, 148.3 billion; Hong Kong, 121.9 billion and Switzerland, 108,2 billion.
Besides Brazil other Latin American countries include Mexico with 27.7 billion; Colombia, 19.9 billion and Chile with 18.9 billion dollars in Treasury bonds.
The US federal government debt breached 100% of GDP in the aftermath of the financial crisis of 2008.
The vast amount of US debt held abroad illustrates the dollar’s role as the world’s most reliable reserve currency. However this would change unfavorably for the US economy if the default finally breaks international confidence in the greenback.
In such a scenario interest rates in the US would soar as investors abandoned Treasury notes and would force the Federal Reserve to hike rates to entice wary investors. This would cause the US economy to shrink, bringing recession, raising unemployment, pushing price hikes in goods and commodities.
Furthermore this would be followed by cuts in government services and at the same time driving up government costs for unemployment insurance and health care.
Internationally a default of dollar denominated debt would have a devastating confidence impact on the dollar, reducing investments in dollars and the value of the US dollar relative other currencies, driving up costs of imports, mainly oil, which represent half of the US imports.
China the largest holder of US debt would be constrained from dumping its Treasury notes because it would diminish the value of its dollar accounts, but other currencies with substantial dollar investments will be tempted.