How Do Other Countries Buy Our Debt?
The United States government spends more than it gathers through taxes every day. The U.S.offsets this by selling promissory notes to its own citizenry, to businesses and to foreign governments. These sells then finance the gap in funding, while at the same time, pushing the United States further into debt. The notes come in the form of Treasury Bills, Treasury Bonds and Treasury Notes.
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Percentage
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About 25 percent of the national debt was owned by foreign governments as of 2007. Nevertheless, the greater bulk of national debt was owned by the United States government itself. It managed to acquire a whopping 52 percent of U.S. debt by purchasing debt through programs like Social Security and Medicare.
Who Owns the Debt
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Japan was in the lead in 1997, owning $644 billion of U.S. debt. China followed far behind at $350 billion. China surpassed its island rival in 2010 by gathering $889 billion of U.S. debt.
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Treasury Bills
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Treasury Bills (T-Bills) are the lightest means by which foreign governments can purchase U.S. debt. These bills are sold at 99.98611 percent of their redeemable value. The purchasing nation will receive $100 back after 4 to 52 weeks for every purchase of $99.98611.
Treasury Bonds
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Treasury Bonds (T-Bonds) are a long-term alternative to T-Bills. They last for 30 years and pay interest every 6 months. The U.S. government refunds the bills at their face value after the 30 years are up. The actual price that the purchaser must pay can be higher or lower than the face value of T-Bonds because they are auctioned off.
Treasury Notes
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Treasury Notes are short-term versions of T-Bonds. They last anywhere from 2 to 10 years and pay interest every 6 months. The purchaser is refunded the face value of the note once the note expires. T-Notes are also auctioned off, and so they might be sold at a higher or lower price than their face value.
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References
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