Recently, I came across a really interesting economic topic, and it’s worth having a good discussion about global debt.

Have you ever thought about this: if every major country on Earth is stuck in a morass of debt, then who, exactly, is lending? The United States owes 38 trillion dollars; Japan owes an amount equal to 230% of its own GDP; and the United Kingdom, France, and Germany are also running persistent deficits. Where does the money come from? That’s the real puzzle.

I previously listened to a podcast in which Greece’s former finance minister analyzed this question in depth, and that’s when I realized the truth is far more complicated than I imagined. It turns out the biggest creditor of government debt is not some mysterious foreigner at all, but people within the country itself. The largest creditor of the U.S. government is the Federal Reserve (holding 6.7 trillion), but that’s only the start. Social Security funds, military retirement funds, and healthcare insurance trusts all hold government bonds. In other words, the United States effectively owes itself about 13 trillion dollars.

What’s even more interesting is that ordinary Americans are indirectly creditors too—through pension funds, mutual funds, and insurance policies. Imagine a teacher in California: part of her monthly salary is deposited into a pension fund, and that money ultimately gets invested in U.S. Treasury bonds. She is both a borrower (benefiting from government spending) and a lender (her retirement depends on the government continuing to pay interest). This is the first secret of the modern debt system.

So what about foreign investors? Japan holds 1.13 trillion dollars’ worth of U.S. debt, and the United Kingdom holds 723 billion. But their reasons for buying U.S. debt are very practical. Japan earns dollars through exports and needs to invest those dollars to maintain exchange-rate stability. U.S. debt becomes a tool for them to recycle trade surpluses. And to be honest, U.S. government debt isn’t a burden imposed on others—it’s the safest asset that global investors are competing to acquire.

Now let’s talk about the cost of debt. In fiscal year 2025 alone, the United States’ interest expense will be 1 trillion dollars—more than the entire defense budget. By 2035, annual interest payments are expected to reach 1.8 trillion. Over the next decade, the U.S. government will spend 13.8 trillion on interest. This money could have been used for infrastructure, research, and healthcare. Every dollar spent on interest is money that can’t be used elsewhere.

On average, OECD countries’ interest spending has already surpassed defense spending. Globally, 3.4 billion people live in countries where government-paid bond interest is higher than spending on education and healthcare. For developing countries it’s even worse: they spend 38% of their export income just on interest payments, and some countries use more than 10% of their government revenue to pay interest.

So why don’t countries simply default? Because the consequences are catastrophic—being shut out of global credit markets, currency collapse, and imported goods becoming prohibitively expensive. There have been examples in history: Argentina defaulted nine times, Russia defaulted in 1998, and Greece also came close. No government chooses to default on purpose.

This system runs on four pillars. First is population aging and the need for savings: people need a safe place to store retirement funds. Second is global trade imbalances: surplus countries accumulate financial claims. Third is central banks treating government bonds as a policy tool. Fourth is the scarcity of safe assets—when the world is full of risk, safety comes with a premium. The contradiction is that the world actually needs government debt.

But there’s one question that keeps people up at night: this system has looked stable right up until it collapses. Historically, crises tend to erupt when confidence evaporates. Greece in 2010 was like that; so was the Asian financial crisis; and so was the Latin American crisis. Everything seemed normal for years, and then suddenly a certain event triggered it: investors panicked, demanded higher interest rates, the government couldn’t pay, and the crisis broke out.

Some say the United States and Japan will not default because they control their own currencies and their financial markets are too big to fail. But experts have been wrong before. In 2007, they said housing prices wouldn’t fall nationwide—then they did. In 2010, they said the euro was unbreakable—it nearly collapsed. In 2019, nobody predicted the global pandemic would shut down the economy for two years.

Now risks are continuously building up. Global debt is at an unprecedented level in peacetime. Interest rates have risen sharply from near zero, making debt-servicing costs even higher. In many countries, political polarization is worsening, making it hard to formulate coherent fiscal policy. Climate change requires huge investment, but it has to be raised under debt levels at historical highs. Population aging reduces the workforce, putting pressure on government budgets. Most importantly, there is trust—this whole system depends on confidence that governments will keep their commitments, that currencies will hold their value, and that inflation will stay moderate. If confidence collapses, the entire system falls apart.

Coming back to the original question: every country has debt—so who is the creditor? The answer is all of us. Through pension funds, banks, insurance policies, and savings accounts—through central banks, and through the money created by trade surpluses—we collectively lend to ourselves. This system has brought massive prosperity: it has funded infrastructure, research, education, and healthcare, allowing governments to operate in times of crisis without being constrained by taxation. But it is also extremely unstable—especially when debt climbs to levels never seen before.

The problem isn’t whether this system can last forever—it can’t; nothing does. The real question is how it will adjust. Will the adjustment be gradual? Will governments slowly control deficits while economic growth outpaces debt growth? Or will a crisis erupt suddenly, forcing all the painful changes to happen at the same time?

I don’t have a crystal ball, and no one does. But one thing is certain: the longer it goes on, the narrower the path becomes, and the smaller the margin for error. We’ve built a global debt system in which everyone owes everyone else. Central banks create money to buy government bonds, and today’s spending is paid for by tomorrow’s taxpayers. In a setup like this, the wealthy benefit disproportionately from policies that help everyone, while poor countries pay heavy interest to wealthy creditors. This can’t continue forever—there will inevitably be trade-offs.

When everyone is in debt, the question of “who is lending” is really a mirror. We’re not only asking who the creditors are, but where this system is headed and what it will lead us to. The most unsettling fact is that no one truly controls the situation. The system has its own logic and momentum. We’ve built something complex, powerful, yet fragile—and we’re all trying to steer it.