US Federal debt – By Mikkel Egesberg – In this article we will look at the holders of US federal debt. Let’s start by looking at how the Federal debt has developed since 1970 to 2012 in percentage of the US GDP:

As you can see, the debt as % of GDP has gone from around 40% in 1970, to around 60% in 2007 and then exlploded to 104,8% in 2012.

Below I have divided the holders into 3 groups. Here is a chart showing who owns the debt:

– As you can see, the “Federal Reserve and Intragovern-mental Holdings” owns the bigger part of the pie with 6,4 trillion US dollars (red part). 4 trillion US dollars are “Privatly hold” (green part) and 5,1 trillion USD of debt is hold by foreign holders (orange part).

– If we take a closer look at who the foreign holders are (orange part), we get this picture:

As you can see above, China is the biggest foreign holder of US federal debt, with 1.154 billion US dollars in August 2012, down from 1.279 in August 2011. As number 2 China is closely followed by Japan, which owns 1.122 billion US dollars, up from 907 billion dollars in August 2011.

– So China has been selling US treasury securities over the year, but in the same period the total owned by foreigners has increased from 4,8 trillion USD to 5,4 trillion, an increase of around 666 billion US dollars, because other countries like Japan has been increasing their stock. But has this been enough to cover the huge US demand for debt? If we take a closer look at the red part, Federal Reserve and Intragovern-mental Holdings, we can see that FED has been increasing it’s holdings of US treasuries too:

From January 2009 to October 2012 FED’s holding of US treasuries has increased from 476 billion US dollars to 1.659 billion USD, an increase of almost 1,2 trillion US dollars.

As you can see in the first figure, the US debt as percentage of GDP is exploding. The US has a current debt limit of 16.394 billion USD, but Congress has been raising this limit 13 times since 2000. USA is about to hit the new limit, unless US Congress just agree to raise the limit one more time. In this article we saw who holds this debt. Since 2009 the US FED has been buying more than 1 trillion dollars in treasury securities, and foreigners have been buying 666 billion of treasury securities from August 2011 to August 2012. Should Japan or other countries decide to limit their exposure to the US debt, like China has done over the year, FED will have to print more than the 1,2 trillion USD, it has already printet. As it is right now, FED has decided to buy up 40 billion USD worth of bonds a month. It’s hard to say what will happen, but unless the US gets it’s budget in order, FED will have print even more US dollars and buy up more US treasuries. Foreigners have helped so far, but what happens if this change? This will force FED to print even more, and sooner or later there should be an inflation preasure, some of which the US exports to the holders of US dollars around the World…

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