The debt limit is the amount of money the Treasury can borrow to meet its obligations. The deadline for Congress to lift the limit, lest the U.S. default, is quickly approaching. Chip Somodevilla/Getty Images
I've Always Wondered ...

Who does the U.S. owe $31.4 trillion?

Janet Nguyen May 26, 2023
The debt limit is the amount of money the Treasury can borrow to meet its obligations. The deadline for Congress to lift the limit, lest the U.S. default, is quickly approaching. Chip Somodevilla/Getty Images

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Listener David Friedli from Murray, Nebraska, asks:

The debt limit: Who do we owe money to? Do other countries owe us money? Has anyone ever defaulted on their debt to us? Why is it that the United States’ budget and debt limit are on different timelines … wouldn’t it make great sense to have them both tied to the same deadline, perhaps forcing Congress and the executive branch to see them as one issue, not two separate discussions?

Treasury Secretary Janet Yellen has announced June 5 as the new deadline for when the U.S. could default on its debt, which she and many other experts say could lead to catastrophic economic consequences. 

So far, the White House and Congress have failed to reach a deal to raise the government’s borrowing limit due to demands for steep spending cuts from Republican officials. Earlier this year, the U.S. hit the $31.4 trillion debt ceiling, which is the amount it’s allowed to borrow to pay existing obligations, like Social Security, Medicare benefits and military salaries. A default could mean a delay in these payments, higher borrowing costs throughout the economy, greater volatility in the stock market and a range of unpredictable effects. 

But late Friday, President Joe Biden said a deal to increase the debt limit was close. Since 1960, that limit has been upped or extended about 80 times, and the nation has never defaulted. “There’s a negotiation going on,” Biden said. “I’m hopeful we’ll know by tonight whether we’re going to be able to have a deal.”

Here’s a look at how the debt breaks down:

First, the debt held by the public stands at more than $24.64 trillion. This represents debt securities, like Treasury bonds and notes, bought by banks, insurance companies, state and local governments, foreign governments and private investors.

The remaining debt, which totals about $6.83 trillion, can be classified as intragovernmental holdings. This is basically debt the government owes itself. “For example, some federal trust funds invest in Treasury securities, thereby lending money to [the] Treasury,” according to the U.S. Government Accountability Office. The Social Security Administration, the Department of Defense and the United States Postal Service all have investment holdings in federal debt.  

In total, other territories hold about $7.4 trillion in U.S. debt. Japan owns the most at $1.1 trillion, followed by China, with $859 billion, and the United Kingdom at $668 billion.

In isolation, this $7.4 trillion amount is a lot, said Scott Morris, a senior fellow at the Center for Global Development. “But the way an economist would look at this is to say, ‘Well, how does that compare to the size of our economy?’” he said.  

And when you do that, the amount of debt we owe other countries is not “particularly problematic,” Morris said. 

The United States supported China’s entrance into the World Trade Organization at the turn of the millennium, which led to an export boom of Chinese goods into the U.S. China ended up parking much of its sales in U.S. Treasurys, CNN reported, because of their perceived safety as an investment. By 2008, China had overtaken Japan as the largest foreign holder of U.S. debt. 

But over the past decade, Japan reclaimed its top spot. Like China, Japan also sells lots of goods to the U.S. and then invests much of the proceeds in U.S. Treasurys, explained Insider. 

Has anyone defaulted on their debts to us? 

Anna Gelpern, a professor at Georgetown University Law Center, said over email that many countries have owed us money and paid it late. She pointed to Britain, which took more than 60 years to pay off a $4.3 billion U.S. loan to refinance the battered country at the end of World War II. The final payment was made six years after it was supposed to come in. 

In the 1930s, the country also defaulted on debt to the U.S. that it had accrued during World War I. This had lasting consequences, according to author David James Gill, with London being frozen out of U.S. securities and money markets. 

But when a country is struggling to repay the money it’s borrowed, the debt might be rescheduled or even forgiven, Morris noted.   

“When it comes to one government owing money to another government, you may never see a moment that is called ‘default,’” he said. 

The United States has forgiven debt owed by other countries, like it did with Iraq in 2004, shortly after President George W. Bush invaded the country. In late 2000, President Bill Clinton signed a law that would "forgive or alleviate" $435 million worth of debt for the world's poorest countries.

Why don't we address the debt limit when passing the budget?

The president is supposed to submit a budget to Congress by the first Monday in February every year. Naturally, this includes estimates of the government’s income and spending. Congress is then tasked with agreeing on a joint budget resolution by April 15. But if it fails to do so by May 15, a House committee can begin the appropriations process. 

If appropriations aren’t done by the start of October, then federal agencies without an appropriation can be funded through continuing resolutions, according to the Tax Policy Center. 

But even though a budget has been approved, the Treasury’s ability to borrow the money to fund government operations can bump up against the debt ceiling. In the early 20th century, Congress enabled the Treasury to issue bonds without congressional approval — up to a certain amount — to provide greater flexibility. Thus, the birth of the debt ceiling.

But what was supposed to give the Treasury flexibility has become a tool for what people call political gamesmanship. To solve this issue, the Bipartisan Policy Center has proposed an approach that would link the debt limit to the annual budgeting process. 

The BPC says that if Congress adopts a budget resolution by April 15, legislation to suspend the debt limit should be sent to the president. If Congress doesn’t, then the president should be able to ask Congress for a debt limit suspension that would last till the end of the fiscal year.

A bipartisan bill known as the Responsible Budgeting Act, which ties these goals together, was introduced in Congress in 2021 and endorsed by the BPC. Under the bill, a concurrent budget resolution should meet “a certain fiscal threshold” by reducing the ratio of debt to gross domestic product by at least 5 percentage points in the 10th year.

“These recurring debt limit episodes showcase that there really is no time on the congressional calendar that lawmakers have set aside to really debate about our future fiscal path,” said Rachel Snyderman, director of economic policy at BPC. 

Attempts to align the debt limit and budget-making have been difficult because it would require reform to the budget process itself, Snyderman said. She added that it’s already tough enough for Congress to pass 12 appropriation bills each year for discretionary funding. 

But there are some lawmakers and groups, including the Center on Budget and Policy Priorities, who say the United States should abolish the debt limit entirely so we don’t run into this issue. 

"Using the debt ceiling as a bargaining chip is always irresponsible, but it’s especially dangerous given recent turmoil in the banking industry and interest-rate increases by the [Federal Reserve] to address inflation," the CBPP wrote on its website.

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