Debtor nation: The US owes $37 trillion, world's largest public debt, but still dominates global economy. How?
&imwidth=600&imheight=450&format=webp&quality=medium "Debtor nation: The US owes $37 trillion, world's largest public debt, but still dominates global economy. How?")
The answer lies in the prime position of the US dollar as world's reserve currency Photograph: (Others)
The US holds $37 trillion in national debt, the highest globally, yet remains the world's largest economy. But just how? The strong trust in and demand for the US dollar, steady GDP growth and investor trust in Treasury securities are the answers. How long can this go on?
The US national debt is now at a record $37 trillion, the highest in the world. Despite this colossal burden, the United States remains the largest global economy. How is this possible? The answer lies in a combination of US economic growth, the unique role of the US dollar in global financial system, and the structure of its debt. But how long can this party last? Let's find out.
Why the US owes more than it earns: Where does debt come from?
The US debt-to-GDP ratio has climbed above 119 per cent, meaning the country owes more than its entire annual economic output. By mid-2025, the US GDP stood at around $30.3 trillion. Debt is increasing rapidly, meanwhile—by about $1 trillion every five months—making consistent economic growth essential to managing this load.
Of the $37 trillion, nearly $24.4 trillion is public debt owed to private investors, mutual funds, and foreign governments. Approximately $7.3 trillion consists of intragovernmental holdings, such as Social Security and Medicare trust funds. The Federal Reserve, the US central bank, holds about $4.6 trillion in US Treasuries, part of its monetary policy operations.
Who are the main foreign holders of US debt?
Trending Stories
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
&im=FitAndFill=(700,400))
)
)
)
)
)
)
)
&im=FitAndFill=(700,400))
)
)
)
&im=FitAndFill=(700,400))
)
)
Japan is the largest foreign creditor with roughly $1.1 trillion in US debt holdings, followed by the UK ($809 billion), China ($756 billion), the Cayman Islands ($455 billion), and Canada ($426 billion). These countries invest heavily in US debt because the US dollar is the world’s primary reserve currency, and US Treasury securities are considered among the safest and most stable investments worldwide.
The rising interest costs challenge the US budget
Interest payments on the debt are increasingly straining the US budget. In fiscal year 2024, net interest costs reached nearly $880 billion—more than the government spends on Medicare or defence. Average interest rates on government borrowing have more than doubled in recent years, rising from around 1.6 per cent in 2022 to 3.35 per cent by mid-2025. This rise has prompted Moody’s to downgrade the US credit outlook, citing growing deficits and debt.
Also read: Trump’s Fed interference poses ‘serious danger’ to world economy, warns ECB chief Christine Lagarde
Why the US economy remains dominant
The global demand for US dollars and Treasury securities underpins America’s economic strength in spite of its public debt. The dollar’s role as the primary reserve currency allows the US government to borrow at relatively low interest rates and continuously re-finance its debt. Investors worldwide see US debt as a safe, liquid asset.
US GDP growth has been steady, helping to prevent the debt-to-GDP ratio from worsening despite rising debt. Much of the public debt is also held domestically—in pension funds, mutual funds, and financial institutions—reducing reliance on foreign creditors.
US economic resilience amid challenges: Risks and projections
The US economy has demonstrated remarkable resilience, successfully navigating the 2008 financial crisis and the COVID-19 pandemic with effective fiscal and monetary stimulus measures that stabilised markets and restored growth.
However, risks remain. The Congressional Budget Office projects that public debt could rise from 99 per cent of GDP in 2024 to 116 per cent by 2034, potentially reaching 172 per cent by 2054 if current trends continue. Some forecasts suggest debt could hit 130 per cent of GDP over the next decade without significant policy reforms.
Consultancy firm EY warns that unchecked debt growth could reduce economic output by $340 billion by 2035, lead to 1.2 million job losses, cut private investment by nearly 14 per cent, and suppress wages.
Can the US sustain its debt?
A sudden collapse under the debt burden is unlikely, but concerns persist. The US financial system remains one of the most credible globally, but credit rating agencies and investors are closely monitoring the country’s fiscal health. The critical question is whether the US government can manage its debt without undermining its economic leadership.
For now, America’s unique position as the issuer of the world’s primary reserve currency, its ongoing economic growth, and deep financial markets allow it to maintain global dominance. However, the future depends on prudent fiscal management to prevent the debt from becoming a significant drag on economic progress.
