By Ajay Raju
America’s national debt is currently over $36.6 trillion. That’s about $107,000 for every person in the United States, including children. While the number is staggering, the more urgent question is:
Who owns this debt and how will this growing debt affect your wallet, your job, and your future?
As foreign appetite for U.S. Treasuries fades and domestic savings struggle to keep up with ballooning deficits, the Federal Reserve may increasingly become the buyer of last resort. This quiet shift in debt ownership may reshape our monetary policy, threaten market stability, and subtly undermine U.S. economic sovereignty.
Are we already feeling its ripple effects?
Let’s dig deeper:
Who Actually Owns America’s Debt?
Here’s the surprise: roughly 70% of America’s debt is owned by Americans and American institutions. This is a massive change from just 20 years ago when foreign countries like China and Japan were buying up our debt.
The biggest chunk—about $6.9 trillion—is what the government owes itself. When we pay Social Security taxes, that money doesn’t sit in a vault waiting for us to retire. Instead, the government uses it to pay current expenses and gives Social Security an IOU—a Treasury bond.
The Social Security Trust Fund holds $2.8 trillion in these IOUs. Other government programs hold another $4.1 trillion. This is like taking money from your savings account to pay your credit card, then writing yourself a note saying you’ll pay it back later.
The Federal Reserve, America’s central bank, owns about $5 trillion of government debt, down from a pandemic-era peak. This is money the Fed essentially created out of thin air to buy government bonds. When the Fed buys government debt, it’s like the government paying its bills with newly printed money. When the government can pay its bills by printing money instead of raising taxes or cutting spending, it can keep spending without immediate consequences. But those consequences eventually show up as higher prices for everything we buy.
The remaining debt is owned by American banks, insurance companies, mutual funds, and individual Americans through their retirement accounts and savings. If you have a 401(k) or pension, you probably own some government debt without even knowing it.
How did we get here?
The current debt ownership structure has its roots in the post-World War II Bretton Woods system, which established the U.S. dollar as the world’s primary reserve currency. This created natural demand for dollar-denominated assets, particularly Treasury securities, from foreign governments, and institutions seeking safe, liquid investments.
During the 1970s through 2000s, this system worked relatively smoothly. Foreign central banks, particularly in Asia, accumulated massive dollar reserves as a byproduct of export-driven growth strategies. These reserves were typically invested in U.S. Treasuries, creating a virtuous cycle where American consumption was financed by Asian savings.
This was actually great for average Americans because it meant lower interest rates on mortgages and car loans, cheaper goods from overseas, and the government could spend more without raising taxes. But this arrangement is slowly ending.
China now owns just $749 billion of our debt, down from much higher levels. Japan still owns $1.1 trillion but is slowly reducing its holdings.
There are several reasons why these foreign countries are no longer rushing to buy American debt:
Geopolitical tensions: Countries like China and Russia don’t want to be dependent on American financial systems;
Aging populations: Countries like Japan need their money for their own aging societies;
Economic changes: These countries are shifting from export-driven to consumption-driven economies;
Exploration of alternatives: Central banks are looking more to gold, the euro, and yuan as alternative reserves;
and
Cryptocurrency Adoption: While still nascent, cryptocurrency adoption may also provide alternatives to traditional reserve assets.
When foreign countries were eager to buy our debt, they weren’t picky about returns. They bought Treasury bonds even when interest rates were very low. Now that they’re stepping back, the government has to offer higher interest rates to attract buyers.
Higher government interest rates mean higher rates on your mortgage (even a 1% increase can add hundreds to your monthly payment), credit cards (already high rates become even higher), car loans (making vehicles more expensive) and student loans (increasing the cost of education).
Quantitative Easing
The 2008 financial crisis marked a watershed moment in debt ownership patterns. The Federal Reserve’s response—unprecedented quantitative easing programs—fundamentally altered the landscape. Between 2008 and 2014, the Fed expanded its balance sheet from less than $1 trillion to over $4 trillion, with the majority of purchases being Treasury securities and mortgage-backed securities.
The COVID-19 pandemic accelerated existing trends dramatically. Massive fiscal stimulus, combined with additional rounds of quantitative easing, pushed the Fed’s balance sheet to nearly $9 trillion at its peak. Today, it sits around $6.85 — 7 trillion, with roughly $5 trillion in Treasuries. More importantly, it demonstrated that the Federal Reserve was willing and able to absorb virtually unlimited quantities of government debt in response to economic crises or when other buyers didn’t step up.
In fact, the Federal Reserve’s role in debt markets has evolved from occasional intervention to systematic market making. The Federal Reserve, which purchases and sells Treasury securities as a means to influence federal interest rates, now holds a significant portion of outstanding government debt.
This transformation didn’t happen overnight. Initially presented as temporary crisis measures, quantitative easing programs have become recurring features of monetary policy. The Fed’s approach involves purchasing long-term securities to lower yields across the curve, theoretically stimulating economic activity while simultaneously providing a ready market for new government debt issuance.
Monetizing Debt
Here’s where it gets tricky. When the government “monetizes the debt” by having the Federal Reserve create new money to buy debt, it triggers inflation.
Recent inflation that pushed up prices for groceries, gas, and housing was partly caused by this process. When the government creates money to pay its bills, there’s more money chasing the same amount of goods, so prices rise. This affects you through higher grocery bills, higher rent and home prices inflated by cheap money, higher gas and electricity bills that strain budgets, and higher medical costs that rise faster than wages.
When the government keeps interest rates artificially low to manage its debt, our savings account earns almost nothing. Meanwhile, inflation eats away at our purchasing power. This leads to “financial repression” — savers subsidizing government borrowing — which results in you having money in accounts earning less than 1% while inflation runs 3-4, being locked into low rate CDs that don’t keep up with rising prices, and having money market accounts that barely keep pace with inflation.
Looking Ahead
Goldman Sachs and Morgan Stanley predict the Fed will stop QT in 2025, indicating that the current period of quantitative tightening may be ending and the Fed may soon resume its role as a major purchaser of government debt.
So, what are the consequences?
If the Federal Reserve continues to act as a systematic buyer of government debt, it will create artificial demand that will suppress yields below market-clearing levels. This will create credit market distortions throughout the financial system, cause investors to take risks that lead to asset price bubbles and misallocation of capital toward speculative investments, and discourage savings while encouraging borrowing, potentially leading to overconsumption and underinvestment in productive capacity.
This massive government borrowing will also “crowd out” private investment. When the government soaks up available money through borrowing, there will be less left for businesses to borrow for expansion, new equipment, or hiring.
This means slower job growth because companies will have less access to capital for expansion, lower productivity because there will not be enough investment in new technology and equipment, stagnant wages because productivity gains that drive wage growth will be reduced, and fewer opportunities because entrepreneurship will become harder when capital becomes scarce.
Ajay Raju: Predicting future economic success of cities (June 26, 2025)
The Social Security Time Bomb
Here’s another reality check that directly affects our retirement planning: Social Security is supposed to have $2.8 trillion saved up for future retirees. But that money isn’t actually there—it’s been lent to the government and spent on other things.
Starting around 2034, Social Security will need to start cashing in those IOUs. But the government will have to borrow more money or raise taxes to pay Social Security back. This creates a vicious cycle: Social Security needs its money back; Government has to borrow more to pay Social Security; this increases the national debt; which makes the whole problem worse.
For us, this means higher taxes, reduced benefits, later retirement and more self reliance or personal savings for retirement.
Inflation
America has enjoyed a special privilege for decades: we printed dollars and the world accepted them as payment. This is because the dollar is the world’s reserve currency, and everyone needs dollars to buy oil and trade internationally.
But as we print more money to pay our debts, other countries may lose confidence in the dollar. They may trade in other currencies, potentially reducing demand for dollars, buy gold as an alternative to dollar reserves, or develop alternative payment systems, reducing dependence on dollar-based systems.
When this privilege ends, Americans will face higher prices for imports (everything from clothes to electronics), experience lower living standards by producing more of what we consume, experience currency volatility as value fluctuations of the dollar will affect travel and imports.
So, what can we do?
If we are worried about inflation, we can buy real assets, like real estate, commodities, or inflation-protected securities, avoid long-term fixed-rate investments (unless rates are very attractive), and diversify internationally with exposure to foreign currencies and markets.
Also, we may have to prepare for higher interest rates by paying down variable-rate debt, like credit cards and adjustable mortgages, lock in fixed rates on mortgages while the rates are still relatively low, and build emergency funds reserves.
Higher rates mean economic volatility, which may reduce government benefits. If that happens, we will need retirement savings rather than relying on Social Security alone, invest in our own skills as economic disruption creates both challenges and opportunities, and consider healthcare costs as Medicare may not cover everything in the future.
Here’s the potential new reality that political campaigns will not describe other than in attack ads. We can expect higher taxes at federal, state, and local levels. There will be more volatility because economic cycles may be more extreme and these trends will accelerate, not reverse.
READ: Mirror movements: Democratic socialism vs. MAGA in the battle for America’s future (July 3, 2025)
The Bottom Line
The shift in who owns America’s debt isn’t just a policy wonk’s concern—it’s reshaping the economic landscape we live in. The era of cheap money, low interest rates, and foreign-financed government spending may be ending.
This doesn’t mean doom and gloom, but it does mean change. The sooner we understand these trends and adjust our financial planning accordingly, the better positioned we will be to navigate the transition.
While we can’t control government debt policy, we can control how we respond to it. The $36 trillion debt isn’t just a number in Washington—it’s a force that’s quietly reshaping our economic reality. The question isn’t whether these changes will affect us, but whether we will be prepared for them.
(Ajay Raju, a venture capitalist and lawyer, is the author of The Review, a new column that attempts to decode the patterns emerging from the unprecedented shifts reshaping our world. In a world where adaptation is survival, The Review offers a compass for the journey ahead).