Why Does The U.S. Owe Billions To Other Countries

The US government borrows money by selling Treasury securities (bonds, bills, and notes) to cover budget deficits, which occur when government spending exceeds its revenue.

As of December 2024, the top countries holding U.S. debt in the form of Treasury securities are: 

Japan: Approximately $1.06 trillion.
China: Approximately $759 billion.
United Kingdom: Approximately $722.7 billion.
Luxembourg: Approximately $423.9 billion.
Cayman Islands: Approximately $418.9 billion

Canada: $378.8 billion
Belgium: $374.6 billion
Ireland: $336.2 billion
France: $332.3 billion
Switzerland: $288.5 billion 

Reasons for Borrowing from Other Countries:

Funding deficits: When the US government spends more than it takes in through taxes and other revenue, it needs to borrow to make up the difference.

Financing government operations: The US government issues Treasury securities to finance various operations and programs, including infrastructure projects, military spending, social security benefits, and healthcare.

Foreign investment demand: Foreign governments, institutions, and individuals purchase US Treasury securities as a relatively safe and liquid investment option, as they are backed by the US government's full faith and credit.

Trade surpluses: Countries with trade surpluses with the US may accumulate dollars, which they then invest in US Treasury securities.

Reserve assets: Some countries hold US Treasury securities as part of their foreign exchange reserves to manage their currencies and stabilize their economies.

Foreign investors participate in the market for Treasury securities for a variety of reasons:

Safety and Liquidity: US Treasury securities are considered to be among the safest and most liquid investments globally, which attracts foreign investors seeking stability and low risk.

Investment opportunities: Foreign investors may choose to invest in US Treasury securities as part of their investment strategy to diversify their portfolios and earn returns on their investments.

Foreign currency management: Central banks and other foreign investors may purchase US Treasury securities to help manage their own currencies and exchange rates.

Demand for US dollars: A large portion of global trade is conducted in US dollars, so foreign investors may purchase US Treasury securities to maintain their dollar reserves and facilitate international transactions.

In essence, the US borrows money from both domestic and foreign investors, including foreign governments, to finance its spending when revenue falls short of its needs. Foreign investors are attracted to US Treasury securities for their safety, liquidity, and their role in the global financial system.