Hi! I was looking up the statistics about the national debt of my country and the negative implications thereof. I assumed it must be owed to other countries. Pertinently, every major economy I came across has a very high national debt, including the developed countries. Who is this national debt owed to? If it’s owed to each other, why is that a major problem? If it’s owed to the citizens of it’s own country, why is that a major problem?
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Let’s look at the US; as the famous “debt holder” it’s a good example – this is 2013, because i found a good chart for that year.
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34% of the debt is owned by other countries – 13% by china, 7% by japan, and 19% by “other foreign nations” e.g. France, or Britain; this is usually simply the other government buying Debt bonds just like a private citizen would, sometimes there are special arrangements (e.g. reduced tariffs in exchange for a low interest loan.
44% of the debt is held by the government itself thusly:
-16% of the debt is social security funds – this is the money the US owes people who are living on social security, and was “loaned” to them while they were working.
-12% of the debt is federal reserve debt – the government loaned ITSELF money or has bought back its own debt, this does economic magical stuff to stimulate the economy, control inflation, and otherwise make the economy do better.
-13% of the debt is held by other federal government organizations – e.g. the FBI and CIA hold significant portions of the US’s debt.
-3% is held by state and local governments – some states that have a positive budget will buy federal debt to supplement their income.
Our last section is individuals and corporations –
6% are owned by mutual funds (investment groups)
3% are owned by private pension funds
2% are owned by depository institutions (banks and credit unions)
2% are owned by insurance companies
1% are owned by private individuals (yes YOU can buy some US debt!)
and the remaining 8% is held by “individuals, Government-sponsored enterprises, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, and other investors,”
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as for “why is that a major problem” – it really isn’t. That’s why we aren’t doing anything about it. The loans stimulate the economy very cheaply by making more money available. It can be a problem over the VERY long term if the debt is continually growing (which we are starting to approach) as solvency can become an issue and people may start being concerned about the country’s ability to repay the debt, but as long as investors trust the government to repay them, the debt is really not an issue.
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