The bulk of the national debt -- soon to exceed a staggering $17 trillion -- is held by the Federal Reserve, Social Security system, various pension plans for civil service workers and military personnel, U.S. banks, mutual funds, private pension plans, insurance companies and individual domestic investors.
China is responsible for just a shade over 7 percent of that total debt. And while it remains the single largest foreign lender (just ahead of Japan), China's been slowly trimming its holdings, down from nearly 10 percent a few years ago. Overall, all foreign investors -- including national central banks -- account for roughly one third of the total outstanding federal government debt.
Also, China is suddenly having debt problems of its own. Heavy recent lending by its banks comes as the recovery in the world's second-largest economy seems to be stalling. The export giant posted a rare trade deficit in March.
The national debt will soon be front-and-center again as a deeply divided Congress wrestles with an expected new Obama administration request to increase the government's borrowing authority, the legislatively set debt ceiling. The higher limit would not authorize borrowing for new spending but just enables the government to pay all the bills already racked up.
The upcoming summer debate could be a repeat of the divisive debt-ceiling crisis in August 2011 when weeks of political irresolution nearly plunged the U.S. into its first-ever financial default -- and did trigger a downgrade in the government's once-sterling credit rating.
Congressional leaders are already drawing lines in the sand for the next big fiscal fight. House Speaker John Boehner, R-Ohio, has said the only way the GOP-led House will go along with raising the country's borrowing ceiling was if President Barack Obama and the Democrats came up with a "dollar-for-dollar" amount in budget cuts.
Yet despite China's relatively shrinking share of the U.S. debt, it continues to be the top poster child for financing America's deficit spending habit, a favorite target for politicians in both parties.
It's not as if U.S. leaders approach China's bankers extending a tin cup and begging for loans. The Chinese government does what many individual investors do -- it simply buys and holds widely available U.S. Treasury bills, bonds and notes.
U.S. politicians see the mountain of debt, but investors globally view U.S. Treasury securities as among the world's safest financial havens, reflected in part by their current super-low yields.
Bill Clinton in 1992 branded China's leaders the "butchers of Beijing." Texas Gov. George W. Bush eight years later blasted outgoing President Clinton and Vice President Al Gore, Bush's Democratic challenger, for policies he suggested appeased Beijing.
Democratic Sen. Barack Obama, in turn, accused then-President Bush in 2008 of "taking out a credit card from the Bank of China in the name of our children." And GOP challenger Mitt Romney last year claimed that, as president, Obama "let China run all over us." Romney vowed to declare China a "currency manipulator on Day One" if elected.
A television ad aired last year by two fiscally conservative groups -- Citizens Against Government Waste and American for Prosperity Foundation -- shows an auditorium supposedly full of Chinese students sometime in the near future with a lecturer explaining the decline and fall of the United States.
"America tried to spend and tax itself out of a great recession," he says in Chinese, with English subtitles. "Of course, we owned most of their debt. So now they work for us." The students laugh.
More recently, Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee, asserted on the House floor that Democrats "wish to tax us more, as they wish to borrow more money from China, money our kids will have to pay back."
And Democratic deficit hawk Erskine Bowles, co-chairman of a presidential deficit commission, tells audiences that "we'll have to borrow the money from China" to fulfill a treaty obligation to come to Taiwan's defense in the event of an invasion from mainland China.
"There's a huge misconception here. The guy on the street thinks that we're up to our ears in indebtedness to China. And it is a large absolute amount. But the public holds a lot more," said Nicholas R. Lardy, senior fellow at the Peterson Institute for International Economics. "And the politicians have not done anything to try to have a more reasonable conversation about this."
China holds just $1.22 trillion in U.S. Treasury bonds and bills, or 7.3 percent of the current $16.88 trillion total national debt, according to the Treasury Department's "Major Foreign Holders of Treasury Securities" for February, the most recent month available.
China also holds about $200 billion in long-term securities of U.S. agencies, including bonds of nationalized mortgage holders Fannie Mae and Freddie Mac, although it has been steadily trimming these holdings since 2008.
Social Security holds $2.7 trillion of the debt in its trust fund, in the form of special unmarketable Treasury bonds. The Federal Reserve holds a $1.7 trillion portfolio of Treasury notes and bonds, much of it accumulated over the past four years with its heavy purchase of U.S. securities to stimulate the economy and hold down interest rates.
Together, Social Security and the Fed are holding over 25 percent of the total debt.
"China is neither an enemy nor a friend, it's a rival for economic success and for global influence," said Bob Sutter, an international affairs professor at George Washington University. "Americans dislike the Chinese government and they want to compete. But they don't want to confront China, and so they want to get along."
Congress delayed a January confrontation by passing a measure that extended the borrowing cap until May 18. Through accounting maneuvers, the government likely could keep paying its bills for another month or two beyond that.
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