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Who holds the most U.S. Treasuries in the world? (Hint: It’s not China.)

posted on February 2, 2011 at 6:29 pm
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Why is this not terribly reassuring?

Last week a newcomer moved to the top of the rankings for the world’s leading holder of U.S. Treasuries.

Used to be Japan, once upon a time. But Japan with holdings of $877 billion in U.S. Treasuries is now No. 3.

For a while China was the biggest holder of U.S. government debt. But now with $896 billion China has slipped to No. 2.

As of last week, the leader of the pack is—the envelope, please–the New York Fed, which holds the Federal Reserve’s Treasury bills, notes, bonds, and TIPs. (TIPS are Treasury Inflation Protected Securities.) As of last week the Fed’s System Open Market Account held $1,108 billion in U.S. government debt. (That’s $1.108 trillion if you prefer.)

And the Federal Reserve isn’t done building that portfolio. It’s still buying Treasury debt—about two-thirds notes with four-year to 10-year maturities—as part of the second program of quantitative easing and it is also buying about $30 billion a month to reinvest the interest from its portfolio.

By June, when the current program of quantitative easing is due to end, the Federal Reserve will hold about $1.6 trillion in U.S. government debt, or about as much as China and Japan hold now combined.

Which is kind of scary when you remember that the Federal Reserve will have to shrink its balance sheet one day. That will mean managing the sale of some part of the world’s largest portfolio of Treasuries without sending interest rates shooting up (and the U.S. dollar shooting down) as buyers demand higher yields if they’re going to swallow all that debt.

That sale should be especially tricky since there’s no evidence that the other big holders of Treasury debt—China, for instance—are eager to add to their already large portfolio holdings.

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  • TLA on 2 February 2011

    Why does it matter? The equities market is going up and our economy is growing again. Sounds like it is working to our benefit.

  • CPA on 2 February 2011

    Reinflation is the Fed’s goal. Hyperinflation is why it matters.

  • The Limiting Factor on 3 February 2011

    This is disconcerting news. So, Jim, should we be shorting the dollar? How should one invest given this long-term trend?

  • KFed on 3 February 2011

    The bigger question is who is holding the remaining 11 trillions and what are they going to do about it?

    US has 14 trillions in IOU – (2.9 trillions from US treasurer, China, and Japan)

  • yx on 3 February 2011

    The “Black Swan” author said today that avoid treasury and dollar. I forgot which website report it. Either CNBC or TheStreet or MarketWatch. You can find out yourself.

  • kykerkent on 3 February 2011

    It seems to me this “high powered” money creation is doomed for failure. Perhaps the great flaw of Keynesian economics. It will be a miracle if they can pull off reducing the balance sheet without the poisionous side effects.

  • ogreggy on 3 February 2011

    While I am still optimistic about the US in the really long term, stories like this (and some of the comments) make me very worried about the near term.

    Who cares that the debt is out of control as long as stocks go up? Who cares that our Visa debt keeps growing as long as we get to buy designer clothes and fancy tech gadgets. Its not like Visa ever expects to get paid back, right?

    This same stupid logic was used to justify dot-com stock prices … it doesn’t matter if they have profits or even a business plan, the stocks are going up! You just don’t understand the power of the internet!

    A handful of people managed to sell their dot-com ponzi schemes at the peak, but a much larger group got burned.

    We heard the same “logic” used to justify home prices that had climbed 4-5x as fast as our ability to pay for them. Doesn’t matter, we will all take out bigger and bigger mortgages, because home prices never go down.

    Now we have clowns telling us that it makes no difference that debt is out of control — so long as equity prices go up

    That people with this kind of thinking still have the courage (lack of shame?) to post these comments tells me the day of reckoning hasn’t hit the US yet.

    We will know we are at the bottom of a new bull market when no one publishes such cheer leading nonsense.

    meanwhile, you know the market is ripe for a major pull back when this sort of thinking exists. Its tough to call the precise top, but we know its soon.

    PS … the Fed’s bond position pretty much prevents clueless Bernanke from normalizing interest rates anytime soon. Even if we got an 8% CPI print (CPI is bogus, but that’s the index talking heads like to push). Even if we got an 8% CPI print, Bernanke is no longer able to raise rates

    Higher rates would devastate the Fed’s balance sheet, likely rendering the Fed technically insolvent. It would have to print money like a banana republic to “recapitalize” itself

    Higher rates would also put Uncle Sam out of business. We have a $1.5 trillion deficit with interest rates artificially low. Imagine the interest costs on the debt when interest rates get normalized?

    Clueless Bernanke is the guy who told us the subprime contagion was well contained, that Bear Stearns was a one off event, that FNMA/FHLMC were solvent, and that the economy was recovering last spring (shortly before he said we needed emergency QE2 stimulus)

    But even broken clocks are right twice a day, so lets say Bernanke gets lucky enough to actually spot 8% CPI inflation … like maybe it will be on the cover of Time magazine like the housing bubble was.

    When inflation gets out of control, there is nothing Bernanke can do about it. Normalizing interest rates would destroy the Fed and leave the US government in the same position as Greece. Forget about making monetary policy restrictive to fight inflation.

    Bernanke arrogantly thought he could fix a structural problem using monetary policy. We will be paying for his oversized ego and under sized skill set for at least a decade

    In the meantime, investors (as opposed to speculators) would be wise to make a distinction between debt based “growth” (which has to get paid back via austerity or inflation) and actual growth.

    After the debt crisis of the past 2-3 years, one would hope this distinction would be self evident.

  • rolfer1 on 3 February 2011

    Jim – a rather incestuous relationship when a nation’s federal bank holds the vast majority of its nation’s debt. Is there a historical precedence that might provide insight on the eventual unravelling?

  • masgt96 on 3 February 2011

    Jim – Isn’t the Social Security Administration the largest holder? I thought SSA had about 3 Trillion of IOUs in the vault instead of the money they should have. We all know they have no money in the vault, if not secuities, then what is it. Either way, the right hand is holding a lot of promises from the left hand and somehow we expect both to get paid in the end…..Sounds like a major bubble for sometime in the future!

  • kykerkent on 3 February 2011

    Artifically keeping price “levels” sufficiently above wage “levels” to keep the economy spinning creates irregular increases in prices long before the economy has nearing “full capacity”. You just go from one extreme to the other. This is contributing to the increases in food prices, oil, and other commodities. We may not feel the immediate impact of inflation, but the rest of the world will. I think the result will be continued chronic deficts and chronic inflating of the money supply.

  • yx on 3 February 2011
  • Jim Jubak on 3 February 2011

    masgt, the Social Security Trust fund doesn’t actually hold Treasuries but instead holds special issues from the Treasury that don’t trade publicly. Debt is debt, you might say, but when the SSA administration needs to sell it isn’t selling into the Treasury market but instead to the Treasury itself.

  • Jim Jubak on 3 February 2011

    ogreggy, I’m not a Bernanke fan, but it is important to recognize that he’s been stuck with using monetary policy on a fiscal problem because Congress has completely punted on its fiscal responsibility for decades.

  • ogreggy on 3 February 2011

    Mr Jubak — you can ask your plumber to fix an electrical problem for you… but if your plumber is even average skilled he will tell you that is not his area of expertise, and you should hire an electrician.

    Plumber Bernanke went and loosened the fixtures in your bathroom — then acted surprised when that caused water leaks but did not fix the electrical problem

    After careful “analysis”, this plumber next announced at Jackson Hole that what he needed to fix your electrical problem was a much bigger plumbing wrench so he could loosen even more fixtures.

    I don’t know many homeowners that would allow the plumber to continue. 99% of us would call the home owner an idiot if they reasoned that “the plumber has to do something, the earlier efforts didn’t work!”

    The biggest plumbing wrench in the world is not going to fix an electrical problem. Any competent plumber would not try. They would tell you to call an electrician.

    The biggest “emergency” liquidity move in the Fed’s history is not going to fix a structural problem. Any competent Fed Chairman would know this and wouldn’t try. Wrecking the country’s currency is not going to fix structural problems, it is creating lots of new problems. Because the US dollar is the global reserve currency, Bernanke is creating problems all over the world

    Bernanke is an arrogant and clueless fool. He evidently wasn’t getting enough spotlight, so earlier today his ego held a press conference

  • KFed on 4 February 2011


    You got it backward. The congress is the care taker of the house and an irresponsible one at best. Bernanke is the electrician with electric wire tape as his only tool. He is doing dangerous thing with taping the megawatt electrical wire, but he has no choice because to do what he can because the care taker isn’t doing his job.

    So blame it on congress for playing politic and not being fiscally responsible.

  • Ehoff on 4 February 2011

    To: Jubak, Ogreggy, KFed.

    The Fed and the U.S. government are part of the same regime (along with the mass media). They are on one side, we the people are on the other. Most of the politicians (including the President) are in the back pocket of the corporate elite. So, if the congress is not doing its job, it’s because that is the way the real rulers want it to be. Bernanke doesn’t own the Fed, he just works for them, just like the politicians do.

    Also, Bernanke is not stupid, he knows what’s he’s doing. To most people (because they are honest with good intentions) it seems like he doesn’t know because his strategy is flawed, and cannot possibly correct our economic problems. But that is the plan. He was hired to continue the policy of debt enslavement, both public and private.

    The best way to understand what is really going on is to view Bernanke and the secret owners of the Fed as mafia leaders – because that is what they really are! The politicians are lawyers taking bribes, and the main stream media covers for their fellow syndicate members. These are organized criminals – plain and simple.

    I’m sorry gentlemen, the representative government that we’re supposed to have was co-opted many years ago. We no longer have a government representing us. Only they have representation, that’s why they get the bailouts, tax breaks, etc, and the people and businesses who are not members of their club get nothing.

    Watch the Godfather movies to get an idea of what kind of people Bernanke, Bush, Obama, etc, are really like. There is nothing else to explain our situation.

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