December 2010 U.S. Treasury Statement and Debt Overview

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The United States’ public debt stood at $13.562 trillion as of the end of September 2010, more than double the level of a decade earlier. As can be seen from the charts above and below, almost 90 percent of that fiscal year-end 2010 debt was held by federal intra-governmental holding accounts (over half of which was comprised of the Federal Old-Age and Survivors Insurance Trust Fund), and foreign and domestic investors of various types. China, Japan and the United Kingdom were the three largest foreign holders of U.S. debt.
 

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Interestingly, nearly all (92 percent) of the debt added during the first nine months of 2010 was underwritten by foreign and private domestic investors. Since Europe’s sovereign debt problems heightened during that timeframe, we suspect safe-haven buying of U.S. Treasuries was an important explanation for why those investor classes behaved as they did.
 

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The debt picture has continued to worsen since September. The debt grew to $14.025 trillion by the end of December 2010, a change of nearly $0.5 trillion in just three months. Because the debt is growing, tax receipts since the beginning of FY2011 (i.e., October 1, 2010) obviously have not kept pace with budget outlays. Indeed, the red ink deepened again in December as outlays of $316.9 billion and receipts of $236.9 billion added another $80.0 billion to the federal budget deficit.
 

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Foreigners have been stepping into the funding gap. The amount of U.S. public debt held by foreigners is homing in on $4.5 trillion. China remained the largest foreign creditor in November ($896 billion) despite selling $11.2 billion of Treasury securities. Great Britain, on the other hand, purchased $33.3 billion in November -- a 7 percent increase from October.
 

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Central banks control nearly 65 percent of the foreign-held U.S. Treasuries, down from almost 75 percent a year earlier.
 

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In November the Federal Reserve overtook both China and Japan in terms of U.S. Treasury holdings ($901 billion). Furthermore, were the Fed to maintain its November rate of Treasury purchases for a year, it would nearly double its current holdings. As mentioned above, China was a net seller in November, while Japan’s pace of purchases was comparatively slow. Like the Fed, the U.K.’s pace of purchases picked up in November, and would nearly double its holdings if maintained for another year.

More recent data shows the Fed has ramped up purchases of U.S. Treasury debt since November, and held nearly $1.1 trillion as of mid-January.
 

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Even though foreign investors have been net buyers of Treasury debt, they could potentially be pulling funds out of other types of U.S. investment vehicles. Actually, that has not been the case since June 2010, as evidenced by the positive three-month-average net inflows shown by the Treasury International Capital (TIC) accounting system.
 

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What is apparent, however, is that short-term U.S. securities (e.g., T-bills) seem to be losing their international appeal, perhaps in part because of the paltry yields associated with those investments. Foreign investors were net sellers of short-term U.S. debt in September and November, hence why the three-month average went negative in November.
 

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Net inflows into long-term public debt nearly doubled (to $75.9 billion) in November, but the three-month average dropped anyway because of October’s weak inflows. Purchases of private securities have been relatively stable for the three months leading up to and including November -- averaging $18.5 billion.