In one of my recent articles, I had discussed on the biggest foreign holders of US Treasury securities. This article discusses the biggest holders of Treasury securities (within US and foreign) and the implications of the trend.
The chart below gives the top seven holders of US Treasury securities as of December 2015.
The following points are worth noting –
First, while China and Japan are among the top seven holders of Treasuries, these two countries have not been aggressive buyers of Treasuries in the last few years. I expect foreign holding of Treasuries to remain stagnant or decline in the coming years.
Second, the Federal Reserve is the largest holder of Treasuries securities followed by the federal government employee retirement fund. In the coming years, I expect the government holding of Treasuries to increase significantly in absence of any major foreign buyer.
The key point is the debt monetization (money printing) is the way forward and this tool can potentially be used to suppress interest rates. The benefit of keeping interest rates low is that the debt servicing cost for the government will remain under control. In another article, I had discussed that the CBO expects US debt servicing cost to reach $1 trillion by 2025.
Overall, foreign holding of US Treasuries as of December 2015 was 33% of the total federal debt outstanding ($18.9 trillion) and I expect that in the next 10 years, the top ten holders of US Treasury securities will be organizations within the US. While it’s too early to compare US with Japan, I don’t see policies moving in the right direction.
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