As of December 2024, the Debt Held by the Public (DHBP) has surged to $28.7 trillion, representing nearly 97 percent of the nation’s Gross Domestic Product (GDP).
Economic experts often consider DHBP a critical measure of a country’s debt, as it encapsulates the amount borrowed by the Treasury from external sources to fund government operations.
This reliance on public debt, while sometimes necessary, raises concerns among economists regarding its broader implications for the economy.
High levels of DHBP, for instance, can crowd out private investment, complicate the government’s ability to respond to economic crises, and potentially create volatility within financial markets.
In the current economic climate, domestic creditors hold more than two-thirds of this public debt.
This includes investment funds, commercial banks, local governments, insurance companies, and a diverse group of corporations and individuals.
Foreign ownership of public debt has dramatically increased from just 5 percent in 1970, when it amounted to $14 billion, to 30 percent of DHBP, or $8.5 trillion, at the close of 2024.
Treasury securities are often perceived as secure investments due to the backing of the U.S. government’s credit, attracting foreign investors’ interest.
However, recent trends have shown a decline in foreign share ownership of DHBP, particularly following aggressive purchasing by the Federal Reserve in response to economic fallout from the COVID-19 pandemic.
Notably, foreign holdings reached a peak of 49 percent in 2011 but have since varied, with investors from Japan and China currently holding $1.8 trillion combined, or 6.3 percent of DHBP.
Despite some reductions in recent decades, investors in other nations, including the United Kingdom, have increased their positions in U.S. debt.
The implications of foreign ownership of U.S. debt are complex and multi-faceted.
When foreign investors buy Treasury securities, substantial interest payments must be made by the federal government, translating U.S. income abroad.
On a positive note, such investments can stimulate economic activities if the borrowed funds are channeled toward productive endeavors, such as recovering from recessions or enhancing domestic investments.
Conversely, analysts caution that increased foreign debt ownership can diminish domestic financial market control and lead to a greater outflow of income that could otherwise benefit local investors.
In contrast to DHBP, intragovernmental debt, which totaled $7.7 trillion as of December 2024, effectively balances itself out as it represents intergovernmental transfers.
This form of debt has risen by $2.5 trillion over the last decade and is maintained within various government trust funds, which track funds designated for specific programs.
The dominant component of intragovernmental debt is the Social Security Old-Age and Survivors Insurance Trust Fund, holding $2.5 trillion or 33 percent of the total intragovernmental debt.
Other noteworthy accounts include retirement funds for federal employees, Medicare’s Hospital Insurance Trust Fund, and the Highway Trust Fund.
The implications of soaring federal debt on the fiscal and economic landscape are profound and far-reaching.
High levels of public debt can hinder economic growth by stifling private investment and slowing progress.
It can also lead to increased interest obligations to foreign entities, potentially eroding national income and raising the risks of a fiscal crisis.
Furthermore, this accumulated debt can drive up interest rates, constraining policy makers’ ability to react effectively to crises or to invest in future initiatives.
The burden of federal debt also raises concerns about intergenerational equity, shifting responsibilities to future generations and potentially limiting their access to essential public goods and services.
With ongoing deliberations in Washington over a fiscally sustainable federal budget, the trajectory of public debt appears set to rise, posing threats to critical safety net programs and diminishing both domestic and international confidence in U.S. markets.
This uncertainty threatens to undermine economic opportunities for future generations of Americans.
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