Why Does Richest Country in World Borrow So Much?

Readers Question: and who exactly does the richest country in the world owe money to?

The richest country in the World in terms of GDP is the US with $13 trillion at PPP according to World Bank in 2007

• The US owes alot to China, Japan and other Asian economies.
  The total external debt of the US is $12.25 trillion (30 June 2007) US CIA

The US external debt is so high because

• Many Years of Current Account deficits. Leading to capital flows
• Large Public Sector debt (interestingly external debt is quite close to national Debt of $10 trillion – though they are of different things)

25% of the US National debt is owned externally i.e.  Japanese and Chinese investors have been willing to buy US bonds and treasury securities. This is partly because China has had a large current account surplus with the US and so they have been using the surplus to buy US Securities – lend to US.

In fact few other countries, apart from the US, could have borrowed so much and at such low interest rates. It is because the US is the richest economy and people have confidence in the economy (or at least until recently) that people were willing to buy bonds at relatively uncompetitive rates.

The US has a large current account deficit.

• US national debt
• Debt in US