August 2011 U.S. Treasury Statement and Debt Overview

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The United States’ public debt stood at $14.343 trillion as of the end of June 2011, up from $14.025 trillion at the end of 2010 and more than double the level of a decade earlier. As can be seen from the charts above and below, nearly 89 percent of that 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, a.k.a., Social Security), and foreign and domestic investors of various types. The Federal Reserve held the remaining 11.3 percent. China, Japan and the United Kingdom were the three largest foreign holders of U.S. debt.
 

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The sea change in the distribution of U.S. public debt purchases among investor types that began in 1Q2011 continued in 2Q2011: Year to date, private investors divested themselves of an estimated $305 billion (or -96 percent the total incremental change among all of the investor classes). Intragovernmental holdings also shrank by $37 billion (-12 percent of the total), while foreign and international investors picked up an additional $83 billion (26 percent) in debt. The disappearance of the other investor classes left the Federal Reserve as “the last man standing” with its purchases of $601 billion (189 percent of the total incremental change).
 

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The debt picture has continued to worsen since June. The total public debt outstanding grew to $14.684 trillion by the end of August 2011, a change of $341 billion in just two 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 August as outlays of $303.4 billion and receipts of $169.3 billion added another $134.2 billion to the federal budget deficit.
 

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Foreign investors appeared to be losing their “taste” for U.S. debt during the past few months. The amount of U.S. public debt held by foreigners peaked at $4.512 trillion in May, but has retreated slightly since then. The six largest holders continued to add to their positions, whereas the rest of the world was a net seller. China remained the largest foreign creditor ($1.174 trillion), having picked up $8.0 billion of Treasury securities in July.
 

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The Federal Reserve has surpassed China in terms of U.S. Treasury holdings ($1.638 trillion). Interestingly, the Fed’s pace of purchases has slowed considerably in the past few months. Earlier this year it would have doubled its holdings had the pace of purchases been maintained for 12 months; that is no longer the case. Nonetheless, more recent data shows the Fed has continued to add U.S. Treasury debt since July, and held $1.659 trillion as of mid-September.
 

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More evidence of waning foreign interest in U.S. debt comes from the Treasury International Capital (TIC) accounting system. Flows swung from a net +$106.0 billion in April to -$51.8 billion in July; i.e., foreigner investors have been moving more funds out of than into the United States since May. Essentially all of the net outflows occurred in short-term securities (e.g., T-bills) since long-term public debt instruments and private securities have continued to exhibit small inflows.