Most people know that China is the largest foreign holder of U.S. debt.  Japan is the second biggest, and the United Kingdom (Britain) is the third.

According to the most recent information, China holds a little more than $1 trillion in U.S. government debt (bonds), Japan holds $912 billion and the U.K. holds $346 billion.  Those bonds are held not only by foreign governments, but by private banks and corporations.

Standard & Poor’s downgrade means that U.S. government bonds are now ranked 2nd place.  Germany, United Kingdom and France still hold their triple A 1st place ranks.  Interestingly the Federal Reserve Bank (not a government agency) says the drop in ranking will not change how they handle U.S. bonds.

The problem is that foreign banks will surely change how they handle U.S. bonds.

The majority of U.S. government debt is still held within the United States, by banks, corporations, individuals and taxpayers via the U.S. Treasury.