Your question is very critical, hitting the core of modern monetary finance: 'The U.S. government owes its own people debt, what pressure is there? At critical moments, repayment is ultimately at their own discretion?'
Let's analyze layer by layer:
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1. Who actually holds U.S. government bonds?
As of the end of 2024, the total U.S. national debt has exceeded $34 trillion, with the main holders as follows:
Category Holding Ratio Description
🇺🇸 Domestic institutions in the U.S. (about 70%) include the Federal Reserve, pension funds, insurance companies, commercial banks, etc. → left hand owes right hand.
🌐 Foreign investors (about 30%) mainly include Japan, China, the UK, Belgium, oil-producing countries, etc. → true external creditors.
Example (2023 data):
• The Federal Reserve holds about $5.5 trillion in government bonds.
• The Social Security Trust Fund holds nearly $3 trillion.
• U.S. banks, pension plans, and other institutions hold a total of trillions.
• China holds about $770 billion (decreasing year by year).
• Japan holds over $1 trillion (the largest foreign creditor).
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2. Is there significant pressure from the debt the U.S. owes 'its own people'?
✅ On the surface: the pressure seems not significant.
• 'Left hand owes right hand': the government owes money to the Federal Reserve, pension funds, and its own national banks; these institutions have no motivation to collect debts and are even passively accepting.
• Can 'refinance': U.S. bonds maturing are not repaid in one go, but new bonds are issued to pay off old debts, constantly 'borrowing new to pay old.'
• The Federal Reserve can also buy back bonds: when necessary, the Federal Reserve can directly print money to buy bonds, equivalent to 'internal circulation.'
In simple terms: The U.S. government can rely on 'its own institutions' to continue financing, and there will be no issues in the short term.
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3. But the real risk lies in the trust chain and monetary credibility:
❗Question 1: Foreign investors may lose trust.
Once foreign creditors (such as China and Japan) detect a heightened risk of U.S. debt default and continuous depreciation of the dollar, they will:
• Selling U.S. bonds leads to soaring interest rates;
• Turning to hard assets like gold, oil, and bitcoin for hedging;
• No longer buying new bonds makes financing difficult.
It's like a company relying on its own employees to 'buy their own debt'; once external investors leave, the cash flow is cut off.
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❗Question 2: The Federal Reserve printing money to 'buy back government bonds' = inflation bomb.
If the U.S. government allows the Federal Reserve to print money indefinitely to buy bonds, it is equivalent to:
• Use dollars to purchase dollar-denominated debt, seemingly a deadlock;
• But the market knows: this is the direct monetization of fiscal deficits → leading to a significant decline in dollar credit;
• Which could lead to inflation, capital flight, and the weakening of the dollar's status.
Historical cases:
• Argentina, Venezuela, and Zimbabwe all had governments that 'owed their own people debt,' ultimately leading to collapse.
• Post-World War II German marks and the stagflation in the 1970s after the U.S. 'abandoned the gold standard' are partly due to the monetization of deficits.
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4. 'At a critical moment, do insiders have the final say on repayment?' → Half right, half wrong.
✅ Formally, the U.S. is indeed a 'sovereign currency country' and can choose:
• Default and not repay (technically possible): like in 1971 when Nixon announced 'the dollar is no longer convertible to gold,' equivalent to reneging;
• Devaluing to repay: continuing to print money causes inflation, shrinking the debt, equivalent to 'gentle default.'
❌ But the actual cost is — very high.
1. The market will punish: soaring interest rates, a plummeting dollar, capital outflows;
2. Credit rating downgrade: In 2023, Fitch downgraded U.S. government bonds from AAA;
3. Global status is damaged: as the world's reserve currency, once its credit is shaken, it poses a fundamental threat to the entire hegemony system.
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5. Conclusion: The U.S. can 'renege,' but cannot do so casually.
Core issues
Does the U.S. holding its own government bonds pose a risk? Technically, the risk is low, but if fiscal conditions continue to deteriorate, monetary credibility will face structural threats.
Can repayment be skipped at critical moments? Theoretically, yes, it can be a 'soft default' (printing money, delaying), but it will trigger severe shocks to global markets.
Insiders holding debt = no pressure? It's a buffer, but not immunity. Foreign creditors, dollar credit, and inflation expectations are the core risks.
