Foreign Holdings of US Debt Hit Record High

The Treasury Department announced on June 15 that foreign demand for US Treasury securities rose to a record high in April. The Treasury reported that total foreign holdings of US debt rose 0.4% to $5.16 trillion. It was the fourth consecutive monthly increase.

Demand for US Treasury debt is rising largely because investors are worried about Europe’s worsening financial crisis. Obviously, some of this increase in foreign demand is coming as a result of bank runs in Greece and Spain.

US government debt is considered one of the safest investments in the world, despite the fact that we are running trillion-dollar deficits and our national debt is over $15 trillion. As I noted in my June 5 E-Letter, it helps to be the best looking horse in the glue factory.

China, the largest buyer of Treasury debt, increased its holdings slightly after trimming them for two straight months. China boosted its holdings by 0.1% to a total of $1.15 trillion in April. That followed a 1% drop in March and a 0.9% decline in February.

Japan, the second-largest buyer of Treasury debt, trimmed its holdings 0.9% to $1.07 trillion. Brazil, the third-largest individual buyer of Treasury debt, boosted its holdings 5.3% to $246.7 billion.

Britain increased its holdings 26.5% to $154.2 billion while France increased its holdings by 29.4% to $59.4 billion. Germany, the largest economy in Europe, boosted its holdings of Treasury securities 1.5% to $65.6 billion.

Here are the 12 largest foreign holders of US government debt (per Treasury Dept. data):

Demand for Treasury securities has remained strong despite the first-ever downgrade of the government’s debt last August. Standard & Poor’s lowered its rating on long-term Treasury debt one notch from AAA to AA+ following a prolonged debate in Congress over increasing the nation’s debt ceiling.

Earlier this month, S&P reaffirmed that rating and said it was keeping a “negative outlook” on the rating for the future. S&P warned that US political leaders were not addressing the federal debt burden. The rating agency predicted that the government’s debt held by the public , as a percent of the economy, would rise from 77% of GDP in 2011 to 83% this year and 87% by 2013.

These figures are misleading in that they don’t take into account Treasury securities of over $5 trillion owned by various government agencies. If we count that debt, the national debt is over 100% of GDP! The US national debt just topped $15.8 trillion, whereas annualized GDP was estimated at $15.4 trillion at the end of the 1Q.

The takeaway from the latest Treasury report is that there is still an appetite for US debt among foreign nations and their investors – at least for now. Unfortunately, the ability to borrow globally at very low interest rates allows politicians to keep spending like there’s no tomorrow.

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A number of leading liberals, including The New York Times’ Paul Krugman, are urging President Obama to issue yet another Executive Order which would mandate debt forgiveness for US homeowners who are “underwater” on their mortgages. What will the libs want next? I don’t think Obama will do this, but you should know about it. Here’s the story:

http://www.aim.org/aim-column/obamas-mortgage-debt-ploy-could-guarantee-re-election/

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Remember that the Supreme Court is scheduled to announce its decision on ObamaCare on Monday. The consensus continues to be that the High Court will strike down at least the individual mandate requiring Americans to buy health insurance or pay a penalty. But you never know. It will be most interesting to see how the stock markets react whichever way the decision goes.

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Feel free to forward this to as many people as you wish. Your comments and suggestions are always appreciated.

Have great weekend everyone!