February 2012 U.S. Treasury Statement and Debt Overview

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The United States’ public debt stood at $15.223 trillion as of the end 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 OPEC countries 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 4Q2011: Domestic private investors, and state and local governments remained on the sidelines. The Federal Reserve. with its purchases of $548 billion (55 percent of the total 2011 incremental change), and foreign and international investors bought up most of the new debt.
 

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The fiscal picture has continued to worsen since December. Indeed, the red ink deepened again in February 2012 as outlays of $335.1 billion and receipts of $103.4 billion added another $231.7 billion to the federal budget deficit. The total public debt outstanding grew to $15.489 trillion by the end of February.
 

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U.S. treasury purchases by foreign investors have been gradually rising, finally breaching the $5 trillion mark in January. All six of the largest holders were net buyers in January. China remained the largest foreign creditor with$1.160 trillion.
 

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The Federal Reserve has surpassed China in terms of U.S. Treasury holdings ($1.638 trillion). Interestingly, the Fed was a net seller of Treasuries in January.
 

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Evidence of somewhat stronger foreign interest in U.S. debt comes from the Treasury International Capital (TIC) accounting system. Three-month-average flows climbed to $42.4 billion in January. Essentially all of the inflows occurred in long-term public securities.
 

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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 still positive, it is well off the peak of 3Q2011 and appears to be returning to the 50-year trend of declining contributions.

January 2012 U.S. Treasury Statement and Debt Overview

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Outlays of $261.7 billion and receipts of $234.3 billion added $27.4 billion to the federal budget deficit in January. The federal debt held by the public stood at $15.223 trillion at the end of December.
 

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Foreigners held $4.732 trillion, or 31 percent of the U.S. public debt at the end of December. China remained the largest foreign creditor ($1.101 trillion) despite shedding $31.9 billion (2.8 percent) of Treasuries. The U.K., often considered a proxy for China, also sold $11.1 billion (2.6 percent) in December. Japan was the biggest buyer in both absolute and percentage change terms ($3.5 billion; 0.3 percent).
 

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The Federal Reserve “stood pat” with its holdings of U.S. Treasury securities in December.
 

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Central banks controlled 68 percent of the foreign-held U.S. Treasuries, down from 72 percent a year earlier.
 

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According to the Treasury International Capital (TIC) accounting system, net flows into the United States for all types of investments amounted to $87.1 billion in December; that brought the three-month moving average to $28.9 billion.
 

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Delving into the TIC report details revealed that short-term securities experienced a net outflow of $18.3 billion (bringing the three-month moving average to -$7.1 billion).
 

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Long-term U.S. public debt saw net inflows drop to $10.6 billion (3-month average = $30.3 billion), while private equities saw net outflows of $31.7 billion (3-month average = -$13.9 billion). This begs the question: How could net TIC flows be increasing if the components were all down? The answer appears to lie with the observation that banks’ own net dollar-denominated liabilities to foreign residents increased by $103.8 billion.
 

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Foreigners seem to be wavering in their commitment to hold Treasuries with the Federal Reserve, thereby creating considerable volatility in the monthly change of custodial holdings.
 

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A substantial share of the explanation for why U.S. interest rates fell to their current low levels came from foreign investors’ willingness to buy and hold U.S. Treasuries. (Note that the monthly change axis in the graph above is inverted to better show its correlation with the 10-year Treasury rate.) Rates could rise if those investors get “cold feet” and park more of their funds in other vehicles.

December 2011 U.S. Treasury Statement and Debt Overview

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Outlays of $325.9 billion and receipts of $240.0 billion added $86.0 billion to the federal budget deficit in December. The federal debt held by the public stood at $15.223 trillion at the end of December.
 

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Foreigners held $4.751 trillion, or 31 percent of the U.S. public debt at the end of November. China remained the largest foreign creditor ($1.133 trillion). Japan was the biggest buyer in both absolute and percentage change terms ($59.9 billion; 6.1 percent) in November, followed by the United Kingdom ($18.2 billion; 4.4 percent). The U.K. is often considered a proxy for China, which sold $1 billion in November.
 

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Even the Federal Reserve trimmed its holdings of U.S. Treasury securities slightly (-$6 billion, or -$72 billion annualized) in November.
 

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According to the Treasury International Capital (TIC) accounting system, net flows into the United States for all types of investments amounted to $48.6 billion in November; that brought the three-month moving average to $24.0 billion.
 

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Delving into the TIC report details reveals that long- and short-term U.S. public debt saw net inflows. Long-term private equities, by contrast, saw net outflows.

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.

October 2011 U.S. Treasury Statement and Debt Overview

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Outlays of $261.5 billion and receipts of $163.1 billion added $98.5 billion to the federal budget deficit in October, the first month of fiscal year 2012. The federal debt held by the public stood at $14.994 trillion at the end of October.
 

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Foreigners held $4.660 trillion, or 31 percent of the U.S. public debt at the end of September. China remained the largest foreign creditor ($1.148 trillion). The United Kingdom was the biggest buyer in absolute terms ($24.4 billion; 6.1 percent), while the Caribbean banks had the largest percentage change ($11.8 billion; 7.3 percent). Holdings by the “other” (aggregated) category inched up for a second month in September.
 

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The Federal Reserve continued to add to its holdings of U.S. Treasury securities. However, the Fed’s pace of net Treasury purchases has slowed considerably.
 

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According to the Treasury International Capital (TIC) accounting system, net flows into the United States for all types of investments amounted to $57.4 billion in September.
 

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Delving into the TIC report details reveals that long-term U.S. public debt was the only category with positive net inflows. Long-term private equities and short-term public debt saw net outflows.
 

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The large sell-off of U.S. Treasuries in September and October appears to have been reversed. The Federal Reserve holds those securities in custody for various foreign central banks. That sell-off had raised red flags in the markets for two reasons: 1) The August 2007 divestiture either triggered -- or at least was associated with -- the first credit crisis that eventually turned into the December 2007 recession. 2) Had central bank selling continued, the Fed could have become the buyer of last resort, likely resulting in much higher interest rates and inflation.

September 2011 U.S. Treasury Statement and Debt Overview

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Outlays of $304.7 billion and receipts of $240.2 billion added another $64.5 billion to the federal budget deficit in September, a month that typically sees revenue slightly exceeding outlays. That brought the FY2011 U.S. federal deficit to $1.299 trillion ($5 billion higher than FY2010), and the federal debt held by the public stood at $14.790 trillion at the end of September.
 

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Foreigners held $4.573 trillion, or 31 percent of the U.S. public debt at the end of August. China remained the largest foreign creditor ($1.137 trillion). The United Kingdom was the biggest buyer in absolute terms ($43.8 billion; 12.4 percent), while the Caribbean banks had the largest percentage change ($32.5 billion; 25.3 percent). Holdings by the “other” (aggregated) category inched up in August after having trended lower since last November.
 

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The Federal Reserve continued to put more distance between itself and both China and Japan during August in terms of U.S. Treasury holdings. However, the Fed’s pace of net Treasury purchases has slowed considerably. China divested itself of some Treasuries (although the U.K. often serves as a proxy buyer for China) while Japan added modest amounts to its holdings.
 

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According to the Treasury International Capital (TIC) accounting system, flows into the United States for all types of investments broke off a four-month slide and amounted to $89.6 billion in August -- evidenced by the sharp jump in the three-month-average of net inflows.
 

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One item that bears watching is the large sell-off of U.S. Treasuries since September. The Federal Reserve holds those securities in custody for various foreign central banks. Since September, those central banks have divested themselves of $73.9 billion in Treasuries, the greatest amount on record. The concern over this development is two-fold: 1) The August 2007 sell-off either triggered -- or at least was associated with -- the first credit crisis that eventually turned into the December 2007 recession. 2) Should central bank selling continue, the Fed may become the buyer of last resort, which would likely result in higher interest rates and inflation.

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.

July 2011 U.S. Treasury Statement and Debt Overview

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Outlays of $288.4 billion and receipts of $159.1 billion added another $129.4 billion to the federal budget deficit in July. The U.S. federal debt held by the public stood at $14.342 trillion at the end of July.
 

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Foreign investors held $4.499 trillion, or a little less than one-third of the U.S. public debt at the end of June. China remained the largest foreign creditor ($1.166 trillion). China was the biggest buyer in absolute terms ($5.7 billion), but the United Kingdom was the largest in percentage terms (0.8 percent). Holdings by the “other” (aggregated) category have been trending lower since last November, dropping $103.0 billion over that time period.
 

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The Federal Reserve put more distance between itself and both China and Japan during June in terms of U.S. Treasury holdings. Moreover, were the Fed to maintain its June rate of Treasury purchases for a year, it would nearly double its current holdings. China added modest amounts to its holdings while Japan was a net seller.

More recent data shows the Fed has slowed purchases of U.S. Treasury debt since June, but still held over $1.6 trillion as of the end of July.
 

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Flows into the United States for all types of investments were overwhelmed by outflows in June, as evidenced by the sharp drop-off in three-month-average net inflows shown by the Treasury International Capital (TIC) accounting system. Net flows were -$29.5 billion in June.
 

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Short-term U.S. securities (e.g., T-bills) continued to decline in June. With the exception of October, foreign investors have been net sellers of short-term U.S. debt during every month since September 2010.
 

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Net inflows into long-term public debt declined rather quite noticeably (to -$4.741 billion) in June. Purchases of private equities also fell, to -$6.74 billion.