November 2011 U.S. Treasury Statement and Debt Overview

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The United States’ public debt stood at $14.790 trillion as of the end of September 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 10.8 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 3Q2011: Domestic private investors, and state and local governments remained on the sidelines. Also, foreign and international investors and intergovernmental holdings bought up only a small portion of the new debt. The lack of participation among the other investor classes left the Federal Reserve as “the last man standing” with its purchases of $649 billion (65 percent of the total incremental change).
 

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The fiscal picture has continued to worsen since September. Indeed, the red ink deepened again in November as outlays of $289.7 billion and receipts of $152.4 billion added another $137.3 billion to the federal budget deficit.
 

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U.S. treasury purchases by foreign investors picked up slightly, rising to $4.660 trillion in September but appear to have stalled (falling back to $4.656 trillion) in October. Four of the six largest holders sold some of their holdings; the rest of the world was a net seller. China remained the largest foreign creditor ($1.134 trillion) despite selling $14.2 billion of Treasury securities in October.
 

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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 October, and held $1.673 trillion as of mid-December.
 

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Evidence of vacillating foreign interest in U.S. debt comes from the Treasury International Capital (TIC) accounting system. Flows swung from a net +$106.0 billion (inflows) in April to -$51.8 billion (outflows) in July and back to +$85.0 billion in August. The pendulum appeared to be swinging back to greater outflows in October, when outflows amounted to $48.8 billion. Essentially all of the outflows occurred in short-term securities (e.g., T-bills) and long-term private equities.
 

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We continue to monitor the contribution to GDP of each new dollar of total credit market debt. Although that contribution is again positive, we doubt the nearly 50-year trend of declining contributions has been permanently reversed.