Who Is the US In Debt to?
Who Is the US In Debt to?
It was 1917 when the United States had just joined World War I. With demands for military investment growing, the US Treasury Department was in desperate need of money. Without enough of its own, the Treasury Department had to borrow it from someone, but was also constitutionally required to receive congressional approval to take on debt and make financial decisions. Rather than oversee every increasingly common request and transaction, Congress figured, “Hey, let’s give the Treasury Department power to oversee their own debt! But we have to limit that so we don’t get ourselves in any trouble.”
Thus the debt ceiling was born. It was a means to allow the Treasury Department to get money, accrue debt, and invest in everything the government needed to invest in without requiring constant approval from Congress, while still allowing Congress to control the total amount of debt accrued.
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Content
0 -> Every couple of
years, Americans watch
2.45 -> as the government dukes it
out over whether to raise
5.3 -> the mysterious debt ceiling
that allows the US to pay off
8.72 -> its many financial
obligations around the world,
11.39 -> like arguing over how
to split up a check.
14.06 -> But have you ever wondered
who the United States actually
17.75 -> owes all that money to?
19.19 -> Well, today we're going to
take a look at who the United
23.09 -> States is actually in debt to.
25.13 -> But before we get started,
be sure to subscribe
27.32 -> to the Weird History channel.
29.1 -> After that, leave
a comment and let
30.74 -> us know what other wild
debts from history you'd
33.71 -> like to hear about.
34.95 -> OK, time to follow the money.
39.64 -> Since 2019, Japan has been
the largest foreign owner
43.75 -> of US debt, peaking at
$1.53 trillion in 2014.
48.82 -> That's a lot of yen.
50.17 -> Japanese holdings
of US treasuries
52.18 -> did drop over the course
of the COVID-19 pandemic.
55.03 -> And Japanese demand
for US treasuries
57.52 -> reached its lowest
point in late 2022
60.22 -> after the Fed raised interest
rates on the US dollar,
62.8 -> weakening the yen.
64.06 -> The Japanese demand
for US bonds has long
66.58 -> been an important part
of the American economy
68.92 -> and financial markets.
70.28 -> So seeing the Japanese
government sell short-term US
73.09 -> bonds in an effort to
strengthen its own currency
75.61 -> gave Wall Street
some conniptions.
77.83 -> Don't start sending
them charity money
79.45 -> yet because the concern
was short-lived.
81.85 -> Japanese demand
for US treasuries
83.77 -> rose again in early 2023,
thanks to Japanese pension funds
87.7 -> buying 10-year US bonds
due to their higher yield
90.97 -> than the Japanese equivalent.
92.38 -> So on behalf of the
US economy, thanks,
95.56 -> Japanese pensioners, and
have a great retirement debt.
99.585 -> [MUSIC PLAYING]
101.04 -> Over the last two
decades, China has
103.71 -> been one of the largest
foreign holders of US debt.
106.5 -> At the 2013 peak of Chinese
holdings in US treasuries,
110.67 -> China held about $1.59
trillion worth when
114.15 -> adjusted for inflation,
which is enough cash to build
117.12 -> a waterslide on the moon.
118.65 -> Today, however, China has been
cutting back on US treasuries
122.19 -> due, in part, to the uncertainty
of US government and politics.
125.76 -> But it's mostly because
over the last two decades,
128.699 -> the Chinese yuan has become one
of the strongest and most used
132.06 -> currencies in the world.
133.68 -> As such, it is no longer
pegged to the US dollar.
136.68 -> And Chinese businesses have
been using the yuan rather than
139.44 -> the dollar in both domestic
and foreign markets.
142.11 -> In recent years, some
economists have raised fears
145.17 -> that China may attempt
to sell off all its US
148.05 -> debt at once, which could
ultimately destabilize the US
151.32 -> economy.
151.92 -> But most believe it's
unlikely that China
153.93 -> will take such a risk
because with the US
156.06 -> market so deeply
intertwined and necessary
158.34 -> for the global market, the
collapse of the US dollar
161.17 -> would still greatly harm
the Chinese economy.
164.52 -> [MUSIC PLAYING]
166.28 -> The United Kingdom
gave the United States
168.62 -> James Bond, the Beatles, and
a London Underground tube
172.28 -> load of cash.
173.69 -> According to the US
Department of the Treasury,
176.06 -> UK investments in US treasuries
rose from about $140 billion
180.53 -> when adjusted for inflation
in 2011 to about $670 billion
185.09 -> in 2023.
186.38 -> However, unlike many
other global economies,
189.14 -> the UK was slow to return
to pre-pandemic levels
192.23 -> of gross domestic product.
193.67 -> In the wake of Brexit
and the Ukraine war,
196.1 -> inflation and taxes
in the country
197.99 -> have outpaced wage growth,
leaving many UK citizens
201.08 -> in a difficult
economic situation.
203.21 -> Cold blimey!
204.38 -> If the US were to
default on its debts,
206.81 -> the UK economy could
suffer even more.
209.76 -> According to UK
Chancellor Jeremy Hunt,
212.09 -> the UK is set to
avoid recession,
214.25 -> but a US default would likely
pull the UK economy into it.
218.19 -> So they might want to send 007
to make sure this all works out
221.06 -> for them.
221.76 -> He's got a license to kill and a
license to practice accounting.
228.29 -> In May of 2014, economists
were surprised to see
231.92 -> Belgium become the third-largest
foreign holder of US Treasury
235.55 -> debt.
236.12 -> Although, they shouldn't
have been that surprised.
238.31 -> Belgium created
the Smurfs, which
240.29 -> had a stranglehold
on the purse strings
242 -> of many American
households in the '80s.
244.38 -> Still, it was a
little unexpected
246.26 -> that a country the
size of Maryland
247.88 -> would hold close to $400
billion in US treasuries.
251.3 -> Even more perplexing
was the fact
253.01 -> that Belgium's holdings
had more than doubled
255.08 -> from August of the year before.
256.85 -> The mystery was
quickly solved when
258.95 -> Belgian-based financial
house, Euroclear,
261.649 -> which sounds like
bottom-shelf booze,
263.96 -> but actually specializes
in security transaction
266.6 -> settlements, claimed
responsibility for the surge.
269.78 -> Euroclear could not provide
specifics, which ironically
273.65 -> makes things less Euroclear.
275.3 -> But we know it holds assets
for over 2,000 institutions
278.75 -> in more than 90 countries.
280.58 -> Financial experts assumed
those assets were temporarily
283.31 -> held by Belgium from
other countries, primarily
285.92 -> China or Russia.
287.24 -> As predicted, Belgian holdings
of US Treasury securities
290.58 -> dropped back down to about
$150 billion in 2015.
294.36 -> But since then, Belgian
holdings have increased again,
297.33 -> reaching about $330
billion in 2023.
300.84 -> That's a lot of smurfing money.
302.91 -> [MUSIC PLAYING]
304.94 -> On the southern
border of Belgium
306.74 -> is the even smaller nation
kingdom of Luxembourg.
310.1 -> With a population of
less than 650,000 people
313.31 -> and a GDP of $85
billion, Luxembourg
316.58 -> has one of the highest GDPs
per capita in the world,
319.95 -> which we imagine really
ticks Belgium off.
322.34 -> But while the GDP
is impressive, it
324.59 -> doesn't fully explain
how this small country
327.02 -> is able to invest nearly $320
billion in US treasuries.
331.91 -> The truth is, similar to
their larger, but less wealthy
335.06 -> neighbor, Treasury
investments made in Luxembourg
337.85 -> are likely not being made
by Luxembourg citizens,
340.61 -> but by foreign companies.
342.23 -> Luxembourg has a reputation
as a tax haven, which,
345.38 -> of course, makes it a major
banking and financial center,
348.38 -> more like Loopholebourg.
350.57 -> The small nation is home
to over 155 different banks
354.05 -> that service corporations
and their subsidiaries
356.33 -> from all over the world,
including Amazon, Apple,
359.21 -> and IKEA, that Swedish
meatball restaurant
361.82 -> that also sells furniture.
363.56 -> Thanks to Luxembourg's tax
laws, many of the corporations
366.523 -> that funnel earnings
through the country
368.19 -> pay a tax rate of less than 1%.
370.6 -> And rather than
let that money sit,
372.54 -> the Luxembourgers find it
more profitable to invest it
375.405 -> in bonds, bills, and other
securities, like US treasuries.
379.542 -> [MUSIC PLAYING]
381.15 -> With white sandy
beaches, no income tax,
384.15 -> and a GDP per capita that far
exceeds most other nations
387.6 -> in the Caribbean, the
Cayman Islands sound
390.24 -> more like a mysterious
Star Trek planet
392.31 -> than an actual place on Earth.
393.99 -> But the small group
of islands, which
395.85 -> has a population of
about 68,000 people
398.43 -> and a GDP of just
under $6 billion,
401.16 -> is actually home to more
companies than people.
403.8 -> Over the years, it has
hosted subsidiaries and shell
406.68 -> companies from corporations,
like Facebook, BP,
409.62 -> and Goldman Sachs group.
411.09 -> It was also a filming
location for James Cameron's
413.94 -> directorial debut,
Piranha 2, The Spawning.
417.69 -> It didn't have the same
cultural impact as Avatar.
420.3 -> Much of the wealth
in the Cayman Islands
422.22 -> is made and held through
hedge funds, which
424.47 -> are accounts that pool
investor wealth into securities
426.81 -> and other investments.
428.01 -> The British territory
houses over 50%
430.95 -> of the world's hedge funds.
432.54 -> And in February 2021, the
US Treasury Department
436.08 -> reported that the
Cayman Islands became
438.03 -> the largest monthly net buyer
of long-term US treasuries.
442.104 -> [MUSIC PLAYING]
443.76 -> When you think of the
Swiss, you probably
446.07 -> think of chocolate,
hot chocolate,
447.84 -> and those bank accounts
where movie criminals
450.09 -> hide all their money
and possibly chocolate.
452.85 -> But Switzerland also
has a long history
455.25 -> as a global financial capital,
welcoming many Treasury Bond
458.91 -> investments.
459.78 -> In early 2023, Switzerland's
ostensibly stable economy
463.74 -> was thrown into turmoil
amid a banking crisis,
466.65 -> beginning with a March
collapse of Silicon Valley
469.14 -> Bank in the US.
470.46 -> Depositors and investors
around the world
473.19 -> feared for the stability
of their own investments.
475.74 -> Though most banks survived
the market turmoil,
478.44 -> Switzerland's second largest
bank, Credit Suisse, did not.
482.49 -> The bank collapsed
and was bought up
484.71 -> by its largest rival, UBS Group.
487.17 -> As of May 2023, the
effects of this crisis
489.96 -> are still uncertain.
491.37 -> And many questions
have been raised
492.99 -> about the strength
of the Swiss economy,
495.06 -> as well as the nation's
status as a financial center.
498.3 -> If the US were to
default, owners
500.82 -> of US treasuries in
Switzerland, along with the rest
503.52 -> of the world, would
suffer losses,
505.38 -> which could put Switzerland's
economic health in even
508.32 -> greater jeopardy.
509.49 -> And you do not want
to anger the Swiss.
511.98 -> Have you seen their army knives?
514.59 -> [MUSIC PLAYING]
516.03 -> Ireland was actually the
eighth largest foreign creditor
519.24 -> to the United States
in 2023, in large part
522.27 -> because US corporations
were using Ireland
524.67 -> as a starting point
for European operations
527.22 -> due to the country's
low corporate taxes
529.14 -> and English-speaking workforce.
530.94 -> Many of the US
treasuries held were
532.86 -> attributed to subsidiaries
of some of the largest US
535.41 -> companies, including Google's
parent company, Alphabet,
538.32 -> to avoid a repatriation
tax on overseas profits.
542.01 -> In 2018, however, there was a
major drop off in US treasuries
546.06 -> held in Ireland, which
some experts believed
548.79 -> was due to US
companies repatriating
551.01 -> their profits to the US.
552.72 -> And if you don't know
what repatriation means,
555.09 -> well, Alphabet it.
556.83 -> In 2021, Ireland agreed to a
joint international agreement
560.76 -> to set the tax rate on
multinational corporations
563.25 -> to a minimum of
15%, which experts
566.07 -> suspect could end the country's
status as a tax haven.
568.92 -> So even the luck of the
Irish has its limits.
571.87 -> [MUSIC PLAYING]
573.16 -> Canada is respected
throughout the world
575.41 -> for being the friendly
little country that gave us
577.66 -> Rush and Michael J. Fox.
579.37 -> It's also the northern
neighbor to the US.
581.74 -> So an average of $2.4
billion worth of product
585.31 -> is traded between the
two nations every day.
588.13 -> Any economic crisis
in the United States
590.41 -> could have immediate effects
on the Canadian economy.
593.09 -> So there is probably no
country more concerned
595.6 -> with a potential US
default than Canada.
598.28 -> Despite these close ties,
Canada, understandably,
601.18 -> cannot interfere in political
standoffs that could bring
603.55 -> about a US default. The Canadian
government and economists,
606.89 -> however, are usually watching
closely to minimize any ripple
610.03 -> effects or spillover recessions
that they predict will occur
613.39 -> if the United States cannot come
to an agreement over the debt
616.27 -> ceiling.
617.26 -> And if they get
really mad, they'll
619.24 -> take Ryan Reynolds away.
621.392 -> [MUSIC PLAYING]
623.04 -> The largest creditor
to the United States
625.59 -> is not actually
a foreign nation.
627.72 -> It's the good old US of A.
In fact, as of January 2023,
632.88 -> foreign nations own just
25% of the US national debt.
636.96 -> The rest is split between public
and intergovernmental holdings
639.99 -> in America.
640.77 -> So you're probably
wondering how anything
643.35 -> can be in debt to itself.
645.03 -> Well, some federal agencies,
including Social Security,
648.87 -> the Military Retirement
Fund, and Medicare,
651.36 -> take in more tax revenue than
is needed for their agency.
654.54 -> Rather than let money
sit there, those agencies
657.48 -> invest in bonds, bills,
and other securities,
660.21 -> allowing the federal government
to use the money elsewhere.
662.98 -> But as with any other debt,
the federal government
665.7 -> must still pay it
back, eventually.
669.57 -> The rest of the debt the
United States owes to itself
672.36 -> is in public holdings,
which include everything
675.39 -> except the federal
government and its agencies.
678.09 -> A little over 50%
of the US debt is
680.34 -> owed to US banks and investors,
mutual funds, pension funds,
684.61 -> state and local governments,
holders of savings bonds,
687.82 -> and insurance companies, among
many other private businesses,
691.7 -> including your cousin
Denny, who says
693.85 -> he's got a real great
investment opportunity
696.4 -> and just needs a couple of
grand to get it off the ground.
698.93 -> Come on!
699.67 -> Lend him the cash.
701.11 -> One of the largest
owners among these
703.09 -> is the US Federal Reserve,
which uses treasuries
706.39 -> to regulate inflation and the
amount of money in circulation.
709.81 -> Due to the 2020
pandemic, the Fed
712.06 -> increased the
amount of treasuries
713.71 -> it owned to
stimulate the economy
715.42 -> and support financial markets.
717.37 -> As of August 2022,
the US Federal Reserve
720.79 -> owns almost $9
trillion of US debt,
723.43 -> from C-note to shining C-note.
726.7 -> So what do you think?
728.42 -> Which of these US debt holders
surprised you the most?
731.57 -> Let us know in the
comments below.
733.1 -> And while you're at it, check
out some of these other videos
735.6 -> from Our Weird History.
737.11 -> [MUSIC PLAYING]
Source: https://www.youtube.com/watch?v=6EPGF0T4eS8