The World Has Not Added to Its US Debt Holdings Since 2014
Foreigners have become unwilling to help bear the burden of never-ending and ever-expanding US government deficits
Take a look at this very important chart:
It shows foreign holdings of US debt have been basically flat since Q1 2014.
The growth of foreign holdings of US debt ended five years ago and has not budged since.
For five years now foreign buyers have not added any more US debt to their portfolios and reserves.
They are not selling, and for now, they are also still recycling the dollars they get when the bonds mature back into US treasuries.
But they’ve long stopped sinking more and more money into it.
Aside from a short period during the 1990s when the US wasn’t running deficits in the first place this is quite unprecedented.
Foreigners have become unwilling to help bear the burden of never-ending and ever-expanding US government deficits, leaving domestic buyers and the Federal Reserve money printing operations as the sole financiers.
It’s only a matter of time until the domestic buyers wise up as well, leaving the printing presses as the only option — at which point, the foreigners, and the domestic holders, will all want to sell at once.
[…] Foreigners have become unwilling to help bear the burden of never-ending and ever-expanding US gover… […]
That was then, this is now: the Financial Times’ Gillian Tett says, “Last week, Beth Hammack, a senior Goldman Sachs banker who chairs a US government advisory group known as the Treasury Bond Advisory Committee, dispatched a letter to Steven Mnuchin, Treasury secretary, with a bombshell at the bottom.
“According to TBAC calculations, America will need to sell an eye-popping $12tn of bonds in the coming decade, sharply more than it did in the past 10 years. This will “pose a unique challenge for the Treasury”, Ms Hammack warned, even “without factoring in the possibility of a recession”. In plain English, the Wall Street luminaries on the committee were asking who on earth — or in global finance — will buy this looming mountain of Treasuries?
“The question is highly timely, if not ironic, given that Mr Mnuchin is heading to Beijing for yet another round of US-China trade talks. In recent decades China has been a reliable source of demand for American debt, as the country amassed vast defensive foreign exchange reserves and its export boom left it with dollars to invest.
But now a shift is in the air: between May and November last year, China’s holdings of US Treasuries quietly shrank from $1.18tn to $1.12tn, well below the levels seen just three years ago, when China’s holdings topped $1.25tn.”
America can suck my c#ck!
A slow down of investment in US debt from 2014 is not surprising given that a) the budget deficit was massive from 2008 to 2013 and then reduced greatly, b) the Trade deficit did the same, c) the post 2008 flight to quality (=into Tbonds) slowed down after 2014.
Additionally we have d) China increasingly investing its surpluses rather than just accumulating them and e) classification issues. For example Russia has reduced its official US government debt holdings to close to zero. But it may well be holding $ assets in other forms that lead to some intermediary holding the bonds. Given the US love of sanctions it would be no surprise if a lot of old debt holdings got transferred into something similar which can;t so simply be withheld by the US treasury. (and not just Russia)