As per my understanding, China, Japan and a few others are our biggest creditors. I believe a few years ago, the debt was 14T, now it's 19T. The US has been on a Deficet spending spree for the last decade and we haven't had a surplus since. Can somebody please educate me where the money is coming from? The traditional answer I get is from investors, foreign governments (i.e. China) and others. But let's be honest. 19 Trillion is a lot of money and I doubt it's all from the above... If China does buy our Tres bonds, than who lends China money? Last I checked they are in a deficiet too. I have a very bad feeling less than half of that 19T is from real sources and it's just all printed by the Fed. I just can not see how the whole world is in debt to each other, where the hell is all the money coming from????
Unlike U.S where large institutions are the main source of fund, in China and Japan, they raise money from rich retail investors. There is alot of herding investment going on at the moment in China.
You are right currently USA has about 19 Trillion debts mostly (about 13 Trillions) are domestic debts, that means investors, hedge funds and retail investors buy the treasuries. China holds 1,3 Trillions and Japan 1,1 Trillions, and 3,8 Billions other countries like (Arabs, Europe, etc). You have to educate yourself a little bit about how money is created. In short: money is created by debts. A few more facts for your enjoyment: the 19 Trillions are just federal debts, there are about 50 Trillions if you add household and businesses' debts. Lastly I read a nice article about that, which you might enjoy: http://www.investing.com/analysis/has-us-debt-reached-a-tipping-point-200161504
I'm not really worried if I owe China money, but I am worried if China starts owing me too many trillions. When you open a savings account the bank loans your money to the U.S. government. If you buy a U.S. Treasury bond congratulations, you are now one of the many who are owed 19 trillion plus interest.
I don't worry about this textbook relationship. who cares? we are more interested in the implication of real world practice.
The real world implication gets bad, when the productivity growth is lower than the interests, which needs to be paid. Look debt service is in most industrial countries, the seconds or 3rd largest budget position, in the current fiscal year us paid 423 Billions on interests alone. (https://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm) That means from the taxes paid, almost 10% goes to the owner of the treasuries. Additionally people have to pay the interests of the own debts and additionally the interests of businesses every time the buy something. When we think about the 26 Trillions debts, of businesses and households and lets assume the pay 8 % interests (for simplicity reasons) on average, we can conclude, that about 0,42 Trillions + 2,10 Trillions = 2,5 Trillions of all income is used to pay debts. That means 2,5 Trillions (most probably much more) of the 16 Trillions GDP needs to be paid on debts.In other words paying debts is one of the top 3 industries in the USA. Everyone will understand, that this is not sustainable forever, so in the long run we will need to reduce the debts, that on the other hand means, someone has to lose money. There is no other way to reduce debt, other than destroying money, because debts are assets for someone else. BTW: 20% of the federal debts hold the federal reserve, so twice as big as China or Japan. To answer your question, how can it be that China is in debt, when it buying US Tres, thats because not China a the country needs to buy but maybe some Investors there, even when the owner is the government, still they are different entities.
The debt comes from someone at the Fed typing some numbers into a computer. I am not kidding. Open up excel and then type some numbers into it. It works very similar to that. Just a different program. You do not have a very good understanding on how fiat monetary system works in the US. The vast majority of the money in circulation is evidenced by numbers in a computer program. Very little of the money in circulation is actually printed. The real potential risk of all of that debt is inflation. When someone or a country buys Treasuries or bills it is very similar to a savings account at a bank. Just in this case, the savings account is at the Fed. China has a lot of treasuries because they ship us goods and we pay them in US dollars for those goods. They then want to invest those US dollars so they don't lose money due to inflation and therefore buy a lot of US treasuries since it is perceived to be a very low risk investment. The US government is not like a household balance sheet. You are looking at the US balance sheet as though it is your balance sheet. That is not the case. You cannot print your own money. The US government can. It has very little risk of ever defaulting on its debt payments. They only way the US defaults is if it makes the conscious decision to not print more money and not make the payment. All of the US debt is denominated in US dollars. Greece is not like the US. Greece cannot print its own currency. Greece is similar to a state in the US. For example, California cannot print its own currency. Wiemar Germany was not like the US. Wiemar Germany had to pay its debts in other currencies therefore it had FX risks. The US in not like Venezuela. Venezuela has a lot of debt denominated in other currencies namely the US dollars therefore it has FX risks as well. The EU is not structured the same as the US fiat monetary system. Add: If you are a US citizen, you have to have US dollars because it is the only way that you can pay taxes. A US citizen cannot pay taxes with bitcoins or gold.
Most of the debt is purchased by Central and Commercial banks who literally create money out of nothing via fractional reserve banking That's how the scam works.