U.S. National Debt and U.S. Treasuries

To understand the national debt is also to understand U.S. Treasuries

Who Owns the National Debt?

When folks talk about the national and international economy, they often refer to U.S. Treasuries as well as the U.S. national debt, and often interchangeably. They talk about “buying U.S. debt” in one sentence, and “buying U.S. Treasuries” in the next sentence as if they were the same thing. They pretty much are. The total sum of U.S. Treasuries, plus some interest on the Treasuries, is equal to the national debt.  The “owners” of the national debt are the same entities who hold U.S. treasuries. For example, if you have a U.S. savings bond, you own part of the debt.

U.S. Treasuries comprise Treasury notes (T-notes), Treasury bonds (T-bonds), and Treasury Bills (T-bills). For now, you don’t need to know the differences between them (if you want to know, check out this site for a good explanation by Investopedia). What you do need to know is they are all forms of loans to the U.S. government, that pay you back with interest and eventually the principal. That’s why when you buy a U.S. Treasury you are “buying” a slice of the national debt. Another way to look at it is you are making an investment in the U.S. government. The return you get is typically lower than you can get in other kinds of investments, but the upside is that it’s very low risk. Or has been until DOGE came along.

“Making an investment” has a more positive ring to it than “buying debt.” It’s a glass-half-full vs glass-half-empty view of U.S. Treasuries.

U.S. Treasuries are considered a safe investment worldwide, because they are backed by the U.S. government. That is, they have been considered safe investments until the last few weeks, when the stability of the U.S. government appears to be in question.

Who are all those entities who “own” the national debt?  You can get a rough idea from the pie chart below. It is somewhat out of date, but today the proportions are similar to what they were in 2022—China has probably cut back the most.  I chose this chart because it is the best quick-at-glance visualization I could find.

Since January 2022, the most significant change is that China cut back by a half. They have been cutting back since the mid-2010s, when they held approximately 10-12%. Japan remains the largest foreign debt holder.

One thing that jumps out is the amount of the debt that the government owes itself—adding together the federal reserve and the social security trust fund, you get 28.3% of the total; that fraction remains about the same from year to year.

To calculate dollar amounts of the various investor classes, apply the percentages above—out of date but not obsolete—to the total debt which is now roughly $34 trillion. So the debt owned by U.S. individuals and institutions (the blue slice above) is now approximately .39 x $34 trillion, or ~$13.3 trillion.

A breakdown of domestic debt in 2023 is shown in the chart below. As before, the proportions remain roughly the same year to year.

What these charts do NOT show is interest payments on the debt, eliciting lots of grumbling as it grows along with the principal. According to Investopedia, interest payments  in 2024 were $1.2 trillion, the highest ever. It’s big, but the 2024 Gross Domestic Product was ~$30 trillion, making interest payments on the debt about 1/25th of GDP. Since the interest paid goes to investors it potentially contributes to growing the economy, although since most investment in Treasuries are held by the rich, the bulk of it goes to the rich.

As I’ve discussed elsewhere in terms of Modern Monetary Theory (see here, here, and here), the U.S. can always pay off its debt, because unlike a household, a municipality, a state, a business, a charity—all of which need to balance their budgets eventually—the federal government is the issuer of a sovereign currency, and can create as much money as it needs to pay its debts.

The problem with the debt is not the numerical size of it, but what it represents. If it represents money the government has spent into the real economy, as in building roads and bridges or research facilities or training workers with new job skills, that’s money invested in the American people, and part of the return on that investment comes back around to those investing in U.S. Treasuries. As long as it hasn’t spurred inflation, it’s part of a virtuous circle. BUT if it represents giveaways to oligarchs and financial corporations in the form of tax cuts, the money has been largely wasted on those who either sit on it or play financial games such as stock buybacks to create wealth on behalf of the already filthy rich (and in the process cause the stock market to become overvalued).