Final answer:
The United States owes the largest share of its national debt to domestic sources, with foreign entities holding about 15-20%. While public debt is mostly owed within the country, foreign debt does have economic implications such as loss of purchasing power. The long-term outlook remains a concern if the debt continues to grow unchecked.
Step-by-step explanation:
The United States owes the largest portion of its national debt to domestic entities, including its own citizens and institutions, followed by foreign holders. Public debt is mostly owed to the government itself and domestic investors, which does not impact the economy in the same way as foreign debt.
The United States, being a sovereign currency issuer, can service its debt by issuing more bonds and redistributing collected taxes. Nevertheless, foreign debt, which accounts for about 15-20% of the total debt, does lead to a loss of purchasing power as it involves transferring money out of the U.S. economy.
However, unlike individuals, governments never completely pay off debt. This is less important than their ability to keep up on payments and borrow based on their creditworthiness. For example, Germany continued to be a major economy despite taking until 2010 to pay off World War One reparations.
The actual concern is the long-term trajectory of debt, which may become problematic if the public begins to worry about being paid back, potentially leading to increased interest rates.