Debate Desk
Do Deficits Not Matter Because We Owe the Debt to Ourselves?
Much of the debt is held by foreign buyers, and even the domestic share must be repaid with interest out of taxes that people would otherwise keep.
The claim
Defenders of deficit spending say a country that borrows in its own currency is mostly in debt to its own citizens, so the interest is a transfer from one American pocket to another and nothing leaves the country. A household that overspends can go broke, they argue, but a nation cannot, so worry about the total is misplaced.
The answer in three points
- A large part of the debt is held by foreigners and foreign governments. Interest paid to them leaves the country and becomes income for another economy. Calling the whole sum a family matter is simply wrong.
- Even debt held at home has to be serviced out of taxes, and taxes are paid by people who would otherwise spend or invest the money. The bondholder gains, and the taxpayer who funds the interest loses. The net effect on growth is negative when the money would have been used productively.
- Borrowing also competes with private borrowing for the supply of savings, and it leaves less room to respond to a war or a recession. A country that is already near its limit cannot borrow as freely when it needs to.
The "we owe it to ourselves" line has the ring of comfort and the substance of a bookkeeping trick. Every dollar of interest is paid by someone and received by someone else, and the question is whether the person paying could have put the dollar to better use. When the interest bill is nearly a trillion dollars a year, that question is worth asking out loud, and it should be asked before the next increase in borrowing, not after it.
The numbers
- The Treasury Department's Debt to the Penny reported total public debt of $40.56 trillion on November 5, 2026, up from $38.05 trillion on November 4, 2025.
- The Treasury's international capital reports show foreign holders owning roughly a quarter to a third of the debt held by the public, with Japan and the United Kingdom among the largest holders.
- The Congressional Budget Office reported that net interest on the debt was about $880 billion in fiscal 2024, more than the nation spent on national defense.
What they will say next
"Interest rates were near zero for years and nothing happened." True while rates stayed low, because the cost of carrying debt was small. When rates rose, the interest bill rose with them, because the Treasury has to roll over a large stock of debt at the new rate.
"Japan owes far more and has not collapsed." Japan borrowed from its own citizens at very low rates for decades and has a shrinking population. Its experience has included slow growth, and it is not a model to copy. It also shows that the limit does not appear in a predictable way, which is a reason for caution.
"The Federal Reserve can buy the debt." It can, and creating money to do so produces inflation if it goes too far. The price level rose sharply in 2021 to 2023, and families paid it as a hidden tax.
"Government debt gives savers a safe asset." It does, and a modest amount is useful for that purpose. But the safe-asset argument justifies a stock of debt that is stable in relation to the economy, not one that rises without end. Savers also lose when inflation or higher taxes follow, so the safety is only as good as the government's discipline.