Posted on 09/20/2011 11:18:41 AM PDT by library user
(CNSNews.com) - Foreign ownership of U.S. government debt declined in July for the second straight month, according to Treasury Department data released Friday.
Overall, foreign holdings of U.S. debt dropped from an all-time high of $4.5115 trillion in May to 4.4956 trillion in June and then to $4.478 trillion in July.
In June and July, President Barack Obama and congressional leaders were negotiating legislation to increase the legal limit on the U.S. government’s debt. In August, Obama signed legislation that will permit the Treasury to borrow up to another $2.4 trillion.
Among major foreign creditors of the U.S. government, entities in Russia led the way in divesting from U.S. Treasury securities, with Russian holdings of U.S. debt dropping by $9.6 billion from June to July.
In fact, Russian-based owners of U.S. debt have dropped about 43 percent of their overall U.S. debt holdings over the past year. Those holdings peaked at $176.3 billion in October 2010, according to Treasury Department data, and dropped to $100.2 billion by July.
More dramatically, since March 2009, according to historical Treasury Department data, the Russians have dumped about 95 percent (94.94 percent) of their holdings in Treasury bills, which are short-term U.S. Treasury securities that mature in periods of one-year or less.
Russian ownership of U.S. Treasury bills peaked at $73.15 billion in March 2009 and had declined to $3.7 billion by July.
Israelis have also been decreasing their ownership of U.S. government debt.
Total Israeli holdings of U.S. Treasury securities peaked at $22.0 billion in April 2010. That had dropped to $17.2 billion by this July, a decline of about 22 percent.
Like the Russians, the Israelis have dramatically decreased their ownership of short-term Treasury bills, according to Treasury Department data. Israeli ownership of Treasury bills peaked at $15.638 billion in March 2009 and declined to $8.375 billion in July, a drop of about 46 percent.
Entities in mainland China countered the worldwide trend, and reversed their own previous trend, by increasing their holdings of U.S. government debt in recent months.
From October 2010 through March 2011, Chinese holdings of U.S. debt had dropped from an all-time peak of 1.1753 trillion to $1.1449 trillion. But in April, May, June and July, overall Chinese holdings of U.S. debt increased, reaching $1.1735 trillion in July--nearly back to their peak of the previous October.
In June and July, the Chinese also started increasing their ownership of short-term U.S. Treasury bills--after having dramatically drawn them down between May 2009 and May of this year.
Chinese ownership of short-term U.S. Treasury bills hit an all-time peak of $210.417 billion in May 2009. It then dropped to a low of $2.978 billion in May 2011—a decline of almost 99 percent over two years. This June, however, the Chinese increased their ownership of Treasury bills to $4.546 billion; and, in July, they increased them again to $10.122 billion.
(The $10.122 billion in U.S. Treasury bills that the Chinese held at the end of July--while an increase from the two previous months--still represented a 95-percent decrease in Chinese T-bill holdings from their peak in 2009.)
The publicly held portion of the U.S. government debt primarily consists of Treasury bonds that mature in 30 years, Treasury notes that mature in 2 to 10 years, and Treasury bills that mature in one year or less.
Even though foreign ownership of U.S. government debt declined in June and July, the $4.478 trillion in U.S. government debt that was still held by foreign interests at the end of July equaled about 46 percent of the U.S. government debt held by the public--which was $9.7558 trillion at the end of July. The Treasury also owed another $4.586 trillion as of the end of July in what it calls "intragovernmental" debt--which is the money the Treasury has borrowed and spent out federal trust funds such as the Social Security trust fund and has replaced with the equivalent of IOUs that the Treasury can only redeem by taxing or borrowing more money.
Are we screwed???
This is not surprising at all. People usually dump bad investments if they see a crash coming.
Well, in that case, why has the price held up so well? Why is the Treasury able to sell them at low interest rates? Who are the buyers now?
The only one buying Treasuries is the Fed? That can’t be good.
Bibi and Pootie are no fools
Who are the buyers now? We are! The Printing press is running overtime.
That is why foreigners are quiting our bonds, they have to pay real money for them.
Uh oh!
Where in the world do investors get the money to buy our securities? Are all these countries better off than we are?
No, are you kidding? Why should anyone worry about this? If foreign governments won’t buy US bonds, the Fed will. They can buy an infinite amount of treasuries. It is a never ending money machine. Only saps like us don’t appreciate the beauty of this.
Has China transferred its holdings out to the various municipalities and “companies” (which usually have a state-ownership component anyway)? Israel has been on a very decent growth clip, and did not hit the recession in 2008 as hard as we have. They have a well respected man running their central bank - he was a candidate (with almost no chance of winning the seat) for the IMF directorship. He was a deputy director of the IMF for a while before taking the post at the Israel National Bank or whatever their Fed is called.
I suppose given their growth rate, they couldn’t stand seeing their foreign reserves sitting at near zero. They probably have good intel (ahem) on places to put money that are safe and still earn decent return. Plus, over the last 10-15 years the USA has become a less important trading partner, as Israel has been able to open new markets. It is only natural that they diversify their holdings to represent their more diverse trade.
Here is the important part (I tend to be verbose at times). The reason many are divesting is because the return is so low. That means at some point the return has to go up. Meaning, interest rates will go up. Obama and the Congress MUST REALIZE that if and when rates go up, SO WILL OUR COST TO MAINTAIN THE DEBT. If interest rates go to 5% then our debt maintenance costs will skyrocket, and our budget will get blown again and again. Can we keep interest rates low for 30 years? If we are paying $200 billion a year interest on the debt now, and rates double, we will pay $400 billion a year in interest. It is not only possible but conceivable that interest on our debt will consume a large portion, a majority or even all of our tax revenues. THEN WHAT?
Well, we will have riots, and the only action will be to shut down the federal reserve bank. We have done it several times in our history. It is probably inevitable that we will do it again.
That was my question. If Russia and Israel are selling their T Bills. Who is buying them?
I suspect it is the Fed also, if so we are deep doo-doo.
We cannot use Monopoly money and stay above water. We are sinking fast and Obama is spending faster than they can print it.
It seems now the only people assured jobs are the workers at the printing office that prints money.
Zimbabwe inflation cannot be far away.
Russia has lots of real assets in the form of oil. Now that it has had decades to show it is not the communist empire monster the world once feared (shenanigans in Georgia notwithstanding) nobody’s afraid to buy its oil. With oil at windfall prices today, why should Russia need any steenkin’ US Treasury notes?
Israel has LOST FAITH in the USA —conceptually I can relate, but it still sounds ironic and hugely AMUSING.
Hmm...let me turn it over again in my mind:
“Israel no longer trusts US money...”
HAHAHHAHA...! Oh wow, now that is REALLY funny..!
I dumped most of my government bonds over the last year, and put the money into corporate bonds.
I think there is more likelihood of a government default than a corporate one.
Corporations earn money. Governments just suck money like a leech and burn it up (to mix metaphors).
Buyers now are individuals, companies and countries willing to lose a bit of value in return for security. The security of an overwhelming military power.
Besides, there’s no growth to invest in. That will change, though in other countries before here in America
As other countries’ economies start growing- providing investment opportunities- we’re gonna be hurting awful.
Nothing to worry about. The Fed will buy all of these bonds. (with our money). Move on, nothing to see here.
Well, this is definitely not good, for sure! When your former ‘enemy’ dumps his ownership of your debt ALONG with your now-former Ally (in case no one has come to the realization - ISRAEL), you are in one big tall pile of deep Kimche.....
Reminds me of the scene in Southpark when Cartman gets all ascared when the teacher introduces the class to Mohammhed something or other, their new class mate....”Whoaaa....dude...NOT cool! Definitely NOT COOL.....no way....I’m outta here.......whupp whupp whupp!......” Funny as hell...it was the Hillary Snuke episode...
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