Final answer:
The United States owes the greatest portion of its public debt to itself in the form of intergovernmental holdings and debt held by domestic investors, not to foreign countries like China, which holds the largest foreign share.
Step-by-step explanation:
To whom does the United States owe the greatest portion of the public debt? The answer lies within its own borders. While China holds the largest portion of U.S. debt among foreign nations, the majority of the public debt is actually owned by domestic entities, including government trust funds and individual investors. This means the United States owes most of its debt to itself, in the form of debt held by government trust funds, intergovernmental debt, and bonds held by American investors.
The United States' ability to borrow is not necessarily hindered by its debt levels, considering that it has the capacity to issue more bonds to cover outstanding debts and that the purchasing power is redistributed internally when debts are repaid with taxes collected from its citizens. As of 2019, the public debt was equivalent to 79% of the GDP, a significant amount, yet less than what the economy produces in a year. However, potential threats to the economy could arise if current spending and revenue patterns persist, potentially leading to public concern about repayment and resulting in increased interest rates.
In the international sphere, China, as a substantial holder of U.S. debt, is an important economic player, with its investments stretching across the globe and particularly into U.S. Treasury securities. Yet, it's key to recognize that foreign-held debt only accounts for a fraction of the total U.S. public debt, with the rest being owed domestically.