Who Really Finances US Debt: Local Investors or Foreign Ones?

Jakarta, CNBC Indonesia - The United States (US) debt now stands at $39 trillion. However, the structure of US debt ownership reveals a reality that is often misunderstood. For a long time, many have believed that China finances US debt. But in reality, the US owes more to itself. Majority of US Debt Held Domestically The dominance of domestic ownership is one of the main characteristics of the current US debt structure. Amid perceptions that US debt financing heavily relies on foreign investors, data actually shows that the majority of government debt securities are held by domestic financial actors. The dominance of domestic investors in financing US debt remains strong. In aggregate, this group—including mutual funds, pension funds, banking, and individual investors—controls around 45% of the total debt. On the other hand, the largest demand comes from long-term institutions. Mutual funds and pension funds are the largest holders with a 17% share, reflecting the role of US government bonds as a safe haven asset in investment portfolios. Additionally, the US central bank, the Federal Reserve, also holds about 11% of the total debt, making it one of the major creditors that even surpasses the largest individual foreign countries. Meanwhile, foreign ownership tends to be dispersed and not concentrated, with Japan as the largest holder at only around 3%, followed by the UK and China at around 2% each. Impact of High US Debt The United States currently ranks among the countries with the highest debt-to-GDP ratio in the world, with debt growing by about $1 trillion every three months. As debt increases, the portion of the government budget allocated to interest payments also grows larger, thereby reducing fiscal space for priority sectors such as infrastructure, defence, and social programmes. In the medium term, the high debt burden could pressure economic growth. This situation may lead to slower wage increases and limited job creation. At the same time, fiscal pressures could also drive up interest rates, which ultimately increase borrowing costs for the public, including mortgages, vehicle loans, and credit cards.