10 Largest Foreign Holders of US Debt

It’s no secret that the U.S. government spends a lot of money what forced us to think about largest foreign holders of US debt. Entitlements such as Social Security and Medicare cost a lot. In 2016, maintaining Social Security cost the government around $916 billion and providing Medicare cost tax payers $595 billion for the year. Discretionary spending such as financing the military and enacting fiscal stimulus packages aren’t cheap either. According to the U.S. Department of Defense, America spent $585 billion on its military for fiscal year 2016. With President Trump vowing to rebuild the U.S. military, the defense budget will likely only rise in the coming years. Similarly, rebuilding American infrastructure to stimulate the economy could cost hundreds of billions of dollars over a period of time.

The U.S. government has in recent decades not brought in as much as it spends. For various reasons, the U.S. national debt has ballooned from $5.6 trillion in 2000 to to almost $20 trillion today. In per capita terms, the U.S. national debt is over $62,000 for every man, woman, and child living in America.

Although the U.S. government has a lot of debt, U.S. Treasury bonds are still universally considered THE safe haven asset. When times get tough, many investors instinctively sell out of equities and pile into U.S. government debt. Given that the U.S. federal government has the strongest military in the world, a spotless payment record, and the technical ability to repay all its debts by printing money, there is no reason to believe that the U.S. will default on its debt, no matter how massive a number it might be. No matter what ratings agencies might say, U.S. Treasury bonds will always be Triple A rated in many investors’ eyes.

The U.S. government spending more than it brings in isn’t necessarily a bad thing either. If the government spends more during bad times, the economy will get moving again. America’s debt to GDP ratio is also not as bad as some other countries. Greece’s debt to GDP percentage is 176% for example. For more information on this vital metric, read this article on the 7 Countries with Highest Debt to GDP in the world.

Given the security of U.S. debt, it’s not surprising that many foreign countries own a lot of it. For many years in the 1980’s, Japan was the leading debt holder. In the 2000’s, China, currently home to the world’s second largest economy, took the top spot for a long period of time. While Japan and China are still very high on the list, there are also some surprising countries that also hold a lot of U.S. debt (in terms of U.S. Treasuries). In this article, let’s take a closer look at the 10 Largest Foreign Holders of US Debt according to the U.S. Treasury as of November 2016.

#10 Taiwan

Clocking in at number 10 on our list of largest foreign holders of US debt is Taiwan, with $183.1 billion worth of Treasury securities at the end of November 2016. Taiwan is one of the four Asian Tigers (along with Hong Kong, Singapore, and South Korea) and has a tech-based export economy. Due to its export economy, the country incidentally has an excess amount of dollars, which it uses to buy U.S. Treasury bonds.

#9 Hong Kong

Clocking in at number nine on our list of largest foreign holders of US debt is Asian financial center Hong Kong, which held around $185.5 billion of U.S. Treasury securities. Although the city is technically a part of China, Hong Kong operates under the ‘two systems, one country’ principle and operates mainly independently.

#8 United Kingdom

Given that London is a major money center and the global capital in terms of currency trading, it’s not surprising that the United Kingdom held around $211.9 billion worth of Treasury bonds as of November 2016 — good for number eight of top foreign holders of U.S. debt. Whether that number falls once Britain officially leaves the E.U. is anyone’s guess.

#7 Luxembourg

In what is certainly a big surprise, Luxembourg, a country-city with around half a million people owned $221 billion worth of U.S. Treasury securities at the end of November last year. Given that it’s a financial/government center, many financial entities are based there and account for the vast majority of the holdings. Now, let’ see what’s next on our list of largest foreign holders of US debt.

#6 Switzerland

Although the Swiss are famously neutral, they own a lot of U.S. debt — $229.5 billion at the end of November 2016 to be exact. With many ultra-wealthy investors sticking with their Swiss bankers, the financial community there apparently needs major Treasury exposure.

#5 Brazil

Although its economy is tepid at best, South America’s largest country is also a major holder of U.S. debt. Brazil owned $258.3 billion worth of Treasury bonds at the end of November.

#4 Cayman Islands

Given that it’s a hedge fund hotel, a tax haven, and a cool place to visit, it’s not surprising that the Cayman Islands clocks in at number four, with $260.6 billion worth of Treasury bond holdings.

#3 Ireland

Seeing as how major cash-rich tech companies such as Apple Inc. (NASDAQ:AAPL) incidentally have their European operations based there due to Ireland’s low corporate tax rates, Ireland had $275.2 billion of Treasury holdings at the end of November.

#2 Mainland China

In a surprise to no one except those living under a rock for two decades, China, one of the largest foreign holders of US debt. holds a lot of U.S. government debt. The world’s most populous country held $1.049 trillion worth of Treasury bonds at the end of November, good for number two on the list. China would have been number one on the list as recently as September 2016, but capital outflows have caused the country’s holdings to go down.

#1 Japan

Serial exporter Japan holds the top spot in terms of major foreign holders of Treasury securities, with $1.1 trillion worth of U.S. bonds at the end of November.

In conclusion, many export nations make up the 10 Largest Foreign Holders of US Debt. Many banking center regions such as the Cayman Islands or Hong Kong also do pretty well in that metric. While the U.S. national debt is still growing, there is little reason to fear the safety of that debt, at least for the foreseeable future.

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