The Expanding World of US Treasury Debt

cropped-bob-shapiro.jpg   By Bob Shapiro

The US National Debt stands at around $18 Trillion. This is well above the annual GDP, and it looks impossible for the US ever to repay its accumulated official debt (let alone agency debt and unfunded liabilities). The US will be defaulting, either by refusing to repay or most likely by continuing to debase the currency through the printing press.

How long the rest of the world will allow this to go on is the big question. We can get a glimmer of an answer by looking at who holds all that Treasury debt. As of August, the FED itself held about $4¼

Trillion of it, Foreign Central Banks held over $6 Trillion, and American individuals and businesses (mostly big money center banks) held the rest.

The biggest single foreign holder of Treasuries, China, has not added to its store of US Treasuries during the last 2½ years, and has sold about $50 Billion since its highest amount. Russia has sold off about $60 Billion since its high point – the US prevented Russia from selling any more last year when it imposed sanctions. (This action adds to foreigners’ distaste for buying more Treasuries.)

American businesses and individuals are buying some Treasuries, but with the US Economy still doing poorly (in the real world as opposed to government stats), American buyers just don’t have much money to invest, especially at near zero rates for irredeemable bonds.

That leaves just the FED to monetize US Budget Deficits – and they have. The FED has accounted for well over half of Treasury purchases during the last few years. And, with tiny countries like Luxemburg and Belgium together buying almost $500 Billion of Treasuries, the FED may have had a hand in that as well.

us_deficit_nom

US Budget Deficits are projected to continue in the $500 Trillion range for the next five years (history shows these guesses usually are low), so the need for somebody to buy the new Treasuries will continue. Who will it be, and when will the game end? We’ll see.

For a presentation of who holds US Treasuries, and trends in ownership, please read Mark Lundeen’s Holders of US Treasury Debt.

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