Foreign Holdings Of U.S. Treasuries Have Fallen

By Hard Assets Alliance Team


While it is no secret that the US is severely addicted to debt, what some may find surprising is that over half of all privately held US public debt is held by foreigners. According to the International Monetary Fund (IMF), the United States accounted for 37.4% of the world's imported foreign capital in 2012.

As a nation living beyond its means, the US's reliance on foreign-held debt is hardly sustainable. Following the downgrade of the US's long-term sovereign credit by Standard and Poor's in August 2011 from AAA to AA+ and the heated debate over raising the debt ceiling that followed soon after, both China and Japan—the first- and second-largest holders of American debt, respectively—expressed concern over the possibility that the US may default on its debt obligations, while also raising questions about the long-term sustainability of America's aggressive expansionary monetary policy. More recently, the finance ministers for each country pleaded for the US to do what is necessary to avoid default.

As a result of America's deteriorating financial condition, it should come as no surprise that major holders of US debt have expressed interest in diversifying their holdings. Based on the chart above, it appears as though they are making good on their threats to liquidate or significantly curtail purchases of new securities. Although nations like China and Japan own a variety of US debt instruments, the chart considers only US Treasury securities, since these represent the largest category of US securities and are the primary vehicle for the US government to finance its federal debt.

As reflected in the chart, net holdings fell for four months straight in the middle of 2013. The potential implications of major holders of US debt diversifying away from US securities could be severe, as it could induce other foreign investors to follow suit, which could threaten the stability of the US economy and jeopardize the status of the US dollar as the world's reserve currency.

What will be interesting to see in the coming months is how the government shutdown and contentious debate over the debt ceiling impacted foreign holdings since July 2013.


The Hard Assets Alliance website and the SmartMetals Investor are published by Hard Assets Alliance, LLC. Information contained in such publications is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained in such publications is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. The information in such publications may become outdated, and there is no obligation to update any such information.

Any Hard Assets Alliance publication or website and its content and images, as well as all copyright, trademark, and other rights therein, are owned by Hard Assets Alliance, LLC. No portion of any Hard Assets Alliance publication or website may be extracted or reproduced without permission of Hard Assets Alliance, LLC. Nothing contained herein shall be construed as conferring any license or right under any copyright, trademark, or other right of Hard Assets Alliance, LLC. Unauthorized use, reproduction, or rebroadcast of any content of any Hard Assets Alliance publication or website is prohibited and shall be considered an infringement and/or misappropriation of the proprietary rights of Hard Assets Alliance, LLC.

Hard Assets Alliance, LLC reserves the right to cancel any subscription at any time. Cancellation of a subscription may result from any unauthorized use or reproduction or rebroadcast of any Hard Assets Alliance publication or website, any infringement or misappropriation of Hard Assets Alliance, LLC's proprietary rights, or any other reason determined in the sole discretion of Hard Assets Alliance, LLC.

Affiliate Notice: Hard Assets Alliance has affiliate agreements in place that may include fee sharing. If you have a website or newsletter and would like to be considered for inclusion in the Hard Assets Alliance affiliate program, please contact us. Likewise, from time to time Hard Assets Alliance may engage in affiliate programs offered by other companies, though corporate policy firmly dictates that such agreements will have no influence on any product or service recommendations, nor alter the pricing that would otherwise be available in absence of such an agreement. As always, it is important that you do your own due diligence before transacting any business with any firm, for any product or service.

© 2014 Hard Assets Alliance, LLC.

Posted 01-06-2014 3:24 PM by Hard Assets