Historically, most of our debt has been financed domestically. Recently though, this has changed dramatically.
At the end of 2004, foreign central banks owned $1.2 trillion of the $1.9 trillion of Treasury bonds, bills and notes owned by foreigners, 60 percent of the total.
Most of this is being by purchased by central banks, especially by China and Japan, to control the value of their currencies vs. the dollar and protect their export driven economies.
Here's and excellent article from Bruce Bartlett on this very subject.
As for American's buying foreign debt...I don't really know the answer to that. Here's more from the article:
Because the dollar is the dominant world currency, the one in which the bulk of world trade takes place, including all transactions in the oil market, the U.S. has the luxury of ignoring the international value of the dollar. It goes up or down on the free market, largely free of intervention by the Treasury Department.
In 2003, foreigners bought $829 billion worth of US bonds, while Americans increased their ownership of foreign financial assets by $283 billion. I don't know how much of that $283 billion invested was in bonds and how much was in stocks. The difference ($546 billion) was about equal to the current account deficit for that year.
Tale of Two Debts/Deficits: Japan and the U.S. (October 9, 2006) by Charles Hugh Smith
The not-so-visible difference between Japan’s debt and the U.S. debt is that the Japanese are prodigious savers, and can fund their own debt internally. In other words, as long as the Japanese save 20% of their national income, then their individuals, insurance companies and banks can buy their government’s 34 trillion yen in bonds and cover the annual deficit more or less indefinitely.
But here in the U.S. we are saving -1% —yes, a negative savings rate for the first time since the Great Depression. We don’t generate sufficient savings to fund our own government’s deficits. We rely on foreigners to buy at least half of all outstanding Treasury bonds— over $2 trillion, not counting OPEC money which flows in from London or the Caribbean and thus isn’t counted as central bank ownership.
Bottom line: the Japanese can continue running such staggering deficits because they can fund them with their own savings. The U.S. does not have that luxury. So what happens if for political or financial reasons, foreign investors and central banks stop buying U.S. bonds? Interest rates will have to rise to the point that someone steps up and willingly slaps down their cash for a fixed rate of return from the U.S. Treasury.