The Chinese have close to half of their cash reserves invested in U. For China , it's the safest, best investment the growing nation can make. China's economic growth is fueled partly by the return on their U. Poisoning the dollar would take the yuan right down with it [source: Capaccio ]. We've been talking a lot about America's debt problem, but how does U. The most useful debt measurement is to calculate the ratio of public debt to gross domestic product GDP.
At the end of , U. And while was the year the COVID pandemic ruined economies around the globe, that figure wasn't a huge anomaly, as it was Although a How can the Japanese economy support such a lopsided debt-to-earnings ratio? It turns out that Japan's debt, while incredibly high, is not unsustainable. The Japanese economy is still very strong. It boasts the world's third-largest GDP, and unemployment was a mere 2.
The country is also heavily invested in U. But the biggest difference between Japanese and American debt is that Japanese citizens own 90 percent of their country's debt, with only 10 percent in the hands of foreigners.
In contrast, more than 40 percent of U. The country the United States is most indebted to is As of December , here are some of the domestic investors who owned U. Treasury Securities [source: U. Department of the Treasury ]:. Why would individual Americans, businesses and local governments continue to loan money to the United States? Believe it or not, investing in the government isn't a high-risk proposition. While the federal government is hemorrhaging thousands of dollars by the second in order to pay interest on its debts, the U.
America's credit rating would drop, and the booming market for U. How would the U. Let's hope we never find out. Sign up for our Newsletter! Mobile Newsletter banner close. Mobile Newsletter chat close. Mobile Newsletter chat dots. Mobile Newsletter chat avatar. Mobile Newsletter chat subscribe. Political Issues. Top 10 Countries the U. Owes Money To. A jumble of street signs in a Taiwan street. Taiwan gets most of its income from trade and, as a hedge against the hard times, it invests in U.
The flower carpet at the Grande-Place, Belgium. Despite its small size, Belgium's reputation as an international banking center means lots of financial transactions reside here. A glimpse of the Sao Paulo city center. Brazil is the world's ninth largest economy.
Despite its small physical size, Switzerland manages more financial assets than any other country. Tiny, picturesque Luxembourg is also a big buyer of U. People enjoy afternoon drinks outside a pub in the center of Dublin, Ireland.
A Shanghai skyline at dusk. China is the U. A Japanese girl smiles in a Tokyo city street. Japan is America's largest foreign creditor. Personal Finance. Your Practice. Popular Courses. Key Takeaways Roughly three-quarters of the government's debt is public debt, which includes Treasury securities.
Japan is the largest foreign holder of public U. China ranks second in total U. Article Sources. Investopedia requires writers to use primary sources to support their work.
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Deficit: Understanding the Differences. Partner Links. Related Terms Celtic Tiger Definition Celtic Tiger refers to the country of Ireland during its economic boom years between and around It allows the U. Treasury to borrow more at low rates. Congress can then increase the federal spending that spurs U. Owning U. Treasury notes helps China's economy grow. Demand for dollar-denominated bonds raises the dollar value compared to that of the yuan.
That makes Chinese exports cheaper than American-made goods, increasing sales. China's position as the largest foreign holder of U. It is responsible for lower interest rates and cheap consumer goods. If it called in its debt, U. On the other hand, if China called in its debt, the demand for the dollar could plummet. This dollar collapse could disrupt international markets even more than the financial crisis. China's economy would suffer along with everyone else's.
If China ever did call in its debt, it slowly would begin selling off its Treasury holdings. Even at a slow pace, dollar demand would drop. At some price point, U. China could start this process only after it further expanded its exports to other Asian countries and increased domestic demand. China's low-cost competitive strategy seems to be working. In , it grew at 6. China has become one of the largest economies in the world. China also became the world's biggest exporter in China needs this growth to raise its low standard of living.
For these reasons, we'll likely see China remain one of the world's largest holders of U. Hilarey is an associate editorial director for The Balance and has held full-time and freelance roles at a variety of financial media companies including realtor.
Department of the Treasury.
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