Here’s a fun fact: most of the 10 countries that owe the U.S. the most money also own a lot of U.S. debt. But it actually makes a lot of sense once we get past the initial absurdity of it all.
In the same way that federal debt can be owned by foreign entities, whether they are governments, companies, or individuals, foreign debt can be owned by the U.S. government, as well as American companies or people. Every year, the U.S. Department of the Treasury releases a report on how much foreign securities are being held by U.S. entities. These securities include equity holdings such as stocks and similar assets, as well as long-term and short-term debt.
According to the latest report of the U.S. Department of the Treasury, which was released in October 2016, the U.S. owns a total of $9.46 trillion in foreign securities, including $6.76 trillion in equity and $2.70 trillion in debt. This debt can come from foreign governments, institutions, or companies, so most of these debts are not exactly a country’s debt. The report covers holdings accrued as of the end of 2015, so it will be likely that information on American holdings of foreign debt as of 2016 will not be released until later this year.
This significant delay in information on U.S. holdings of foreign debt contrasts the monthly updates on American debt being held by foreign countries. This might seem unfair at first, but it means that the U.S. is better in keeping track of its debts and obligations than other countries. Besides, U.S. Treasury bonds are considered to be the safest investments in the world, because of its top-notch military, immaculate debt settlement record, and power to print money to settle debt (and not just money, because the US dollar is the world’s reserve currency). That’s why many countries have invested in U.S. bonds, especially the 10 largest foreign holders of US debt.
As to why the U.S. and its constituents hold foreign debt, it’s because with the largest economy in the world (with due respect to China), the U.S. has the financial capacity to lend money to a lot of foreign entities. Some of these debts may also be due to trade agreements that the U.S. has with other countries, or investments that U.S. companies have made in these countries. It also serves as good investment diversification, because most of the foreign debt that the U.S. holds is from well-developed, financially capable countries as well. Besides, we tend to be more willing to lend money to people who we know can pay us back on time, right? The U.S. has that same play here. Hence, the U.S. owns $1.71 trillion in debt from the 10 countries that owe the U.S. the most money.