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.
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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.
10. Luxembourg
We begin this list with the small European country of Luxembourg, which owes the U.S. about $87 billion. In total, the country has total external debt of about $10.06 trillion. Now, how does a country with just over half a million residents manage that amount of debt? Well, Luxembourg also has $10.06 trillion in external assets, making the country a net creditor.
9. Mexico
The only third-world country on this list of the 10 countries that owe the U.S. the most money, Mexico has a total of $91 billion debt to the U.S. And that debt is currently in a quite shaky standing, as two ratings agencies have already sounded the alarm on how that debt can be affected by the new U.S. administration’s hostile stance towards Mexico.
8. Germany
The biggest economy in Europe owes the U.S. $95 billion as of 2015. But that is small change for the $3.86 trillion economy of Germany. Even more amazing is that the country emerged from monumental debt from its loss in World War I, for which the country had to pay 96,000 tons of gold or $6.17 trillion in today’s currency.
7. Japan
The current largest holder of U.S. debt is Japan, next on our list of countries that owe the U.S. the most money, which holds $1.13 trillion in federal bonds. The Asian powerhouse also owes the U.S. $131 billion, which means the net debt of the U.S. to Japan is an astounding $1 trillion.
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6. France
France, next on our list of countries that owe the U.S. the most money currently has a debt of about $2.4 trillion, $146 billion of which is to the U.S. France’s total debt is almost equal to its gross domestic product, making some economists worry about the country’s vulnerability to crises.
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5. Netherlands
While Holland has more debt to the U.S. ($154 billion) compared with France, the Dutch are in a quite better shape debt-wise. The country’s debt is recently at 65% of its GDP, and the government has slightly slashed its debt recently.
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4. Australia
The top four debtors to the U.S. are all part of the British Commonwealth. For instance, Australia owes $157 billion to the U.S. The country’s debt is large enough to warrant a warning from an investment firm, which claimed that the government’s borrowing for consumption is a “ticking time bomb.”
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3. Cayman Islands
The number three on our list of countries that owe the U.S. the most money is this tiny British territory of 50,000 people that owes the U.S. a humongous $302 billion. This looks absurd, but this case is similar to Luxembourg, but on steroids. The Cayman Islands is a tax-exempt destination, attracting a lot of transactions from companies and investors. Not bad for a zone that still relies on the British army for its protection.
2. United Kingdom
Speaking of Britain, the old colonizer owes its former colony about $342 billion, which is unsurprising, given that a lot of business goes between the two countries.
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1. Canada
Even more business goes through North American neighbors, Canada and the U.S. The flow of equities up north is understandably more open compared to down south. Hence, Canada tops the list of 10 countries that owe the U.S. the most money, with $380 billion in debt to America.
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