Question

The US Public Debt was $18.2 trillion in 2015. This was up from $16.4 trillion in 2012.

In 2015, Foreign ownership was 34% of that total, or $6.1 trillion.

Of this $6.1 trillion, China held 20%, Japan 18%, and oil exporting nations 5%.

1. How does the fact that 34% (and increasing) of the debt is held by foreigners effect us?
2. What are potential risks or pitfalls with foreigners owning an increasing amount of the US Debt?
3. How concerned should we feel? Give a rating on a scale of 1 to 10, with 0 = no concern and 10 = extremely concerned.

Answer 1

• An increase in foreign owned debt would lead to declining economic growth as there will be a negative impact on the real GDP growth rate.
• The pitfalls/risks of rising debts of foreign ownership would imply that whatever revenue that the United States generate, would be used to offset their loans to foreign countries, rather than investments in their own economic development (namely , infrastructure, healthcare, education ,etc)
• On a scale from 1 to 10, the concern level should be around 8 (10 being the most concerning level).
  As 34% of total debt is a relatively high number and this is ensuring that the United States are compromising with their income growth which also might decline standards of living as a consequence.