Foreign Holdings of US Debt

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Before I get to today’s blog, several people sent me a link to this Op-Ed piece by David Stockman.  Stockman was the Director of the Office of Management and Budget under President Reagan.  HIS PIECE IS A MUST-READ.  If you only have two minutes, read his piece and not mine.  Here’s the link.  Stockman is a Republican who blasts what the Republican party has become.  This isn’t support of the Democrats.  This is consistent with my blog a couple of weeks ago – that both parties are terrible.  He makes many great arguments.  One argument is that old-school Republicans would not have fought about a 3% tax increase for the highest income tax bracket when we were in the midst of a fiscal crisis.  Well said.


Now on to my thoughts…


Today, I’m writing about some issues related to an article that I was interviewed for (last week).  I was interviewed by Politifact.  Politifact examines comments by politicians and rates them as either true or false.  Last week, they were investigating a comment by Representative Jeb Hensarling (R – Dallas, TX) that almost half our debt is owned by foreigners.  Poltifact was trying to determine whether the (approximately) $4 trillion of debt owned by foreigners should be divided by:


(A) the publicly held debt ($8.6 trillion); or


(B) all debt, which includes the amount loaned by Social Security and other trust funds (approximately $13 trillion)


If the answer is the publicly held debt, the statement was correct.  If the answer was all debt, foreigners own a smaller percentage (approximately 30%).


If you want to read the article, here is the link.


I expressed several opinions about this, including:

1. it is fair to use either and I can’t criticize someone for saying it either way
2. it is impossible when you are speaking or writing to explain every single caveat and exception – so if you say it in a fair way, we can’t find fault;
3. Geithner and Bernanke always use publicly held debt
4. You can think of the US as having $8.6 trillion in debt and nothing in Social Security or you can think of us as having $13 trillion and some US Treasuries in Social Security (and other “trust funds”)
5. If you think about the debt that we financed from the public, foreigners financed half of it
6. If we say that this Congressman’s comment is a lie, we are diminishing the problem that we have

One of the interesting questions that the writer asked me was why it even matters that foreigners own our debt.  While this wasn’t part of the article, I told him that there were several reasons, including:

1. As our debt grows (see prior blog about our debt increasing to 185% of GDP), more and more interest is going to foreigners.  We are moving to a situation where foreigners will own more of our bonds and stock.  That means interest and dividends will go overseas and will not result in spending in our economy.




2. Foreigners don’t hold our Treasuries out of loyalty to our country – so they could be quicker to sell.  We are more likely to have mass selling of our debt by foreigners than by domestic investors.  Japan has a VERY high debt-to-GDP ratio, but virtually all of their debt is held by Japanese citizens and Japan’s pension fund.




3. Some foreigners seem to be cutting back on their holdings of US Treasuries.  China holds $60 billion less debt now than they did in October.  In other words, foreign demand can change.  It’s a problem when we need to borrow more and creditors want to lend us less.

Below, I have put the chart that has the most recent foreign holdings of our debt.  While this is May’s records, this is the most recent federal release of the data.  I’ve only included the largest foreign holders.  If you want the entire list, here’s the link to the data.

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