Trillions flying by so fast, it’s hard to even count them. But somebody had to buy these Treasury securities. And it wasn’t just the Fed. Here’s who. By Wolf Richter for WOLF STREET. In the 12 months through February, before the Pandemic started – those were the Good Times when a government shouldn’t have to borrow heavily – the US government added a breath-taking $1.4 trillion to its already huge pile of debt. And then came the Pandemic and the bailouts and the stimulus payments and all the other stuff, and over the six months since then, the US government added another $3.3 trillion to the Incredibly Spiking US Gross National Debt that now amounts to $26.8 trillion: With the release yesterday afternoon of the Treasury Department’s Treasury International Capital data through July 31, Fed balance sheet data, bank balance sheet data from the Federal Reserve, and the Treasury Department’s data on Treasury securities, we can sort out who bought those trillions of dollars in Treasury Securities over the past 12 months. Foreign investors: Foreign investors all combined – central banks, government entities, companies, commercial banks, bond funds, other funds, and individuals – added $287 billion to their holdings in July compared to July last year, including $48 billion during the month of July. This brought their holdings to a record of $7.087 trillion (blue line, right scale in the chart below). But due to the Incredibly Spiking US National Debt ($26.5 trillion on July 31), their share of this debt (red line, right scale), after plunging in June to the lowest since 2008, only held steady in July, at 26.7%: America’s biggest foreign creditors, Japan and China: Japan increased its holdings in July by $32 billion, to a total of $1.29 trillion. Over the 12 months, its holdings increased by $162 billion. China whittled down its holdings further in July. Over the 12-month period, its holdings fell by $37 billion, to $1.07 trillion, following the trend (green line) since 2015, with exception of the plunge and recovery around its capital-flight phase. Combined, Japan and China held 8.9% of the Incredibly Spiking US debt, the second-lowest share in many years, with the lowest having been in June (8.8%): The next 10 largest foreign holders (in parenthesis their holdings as of July 2019): UK (“City of London” financial center): $425 billion ($406 billion) Ireland: $330 billion ($257 billion) Hong Kong: $267 billion ($235 billion) Brazil: $265 billion ($309 billion) Luxembourg: $265 billion ($229 billion) Switzerland: $251 billion ($228 billion) Cayman Islands: $213 billion ($233 billion) Belgium: $211 billion ($203 billion) Taiwan: $210 billion ($179 billion) India: $195 billion ($160 billion) This list is studded with tax havens and financial centers, including those where US corporations have mailbox entities that hold assets in an effort to dodge US taxes. So some of these “foreign” holders are US entities, such as Apple in Ireland, with accounts registered in their mailbox operations there. Missing from this list are Germany and Mexico, which hold only $78 billion and $48 billion respectively in Treasuries, despite their mega-trade surpluses with the US. US government funds The Social Security Trust Fund, pension funds for federal civilian employees, pension funds for the US military, and other government funds shed $15 billion in July and $21 billion over the 12-month period, which whittled down their holdings to $5.89 trillion (blue line, left scale), amounting to 22.2% of total US debt (red line, right scale). Even though the Treasury holdings of these government pension funds have more than doubled over the past 20 years, their share, given the Incredibly Spiking US National Debt, has dropped from over 45% in 2008 to 22.2% in July: These Treasury securities, often called “debt held internally,” are assets that belong to the beneficiaries of those funds. They’re an actual debt of the US government, despite the old nonsensical saw that “it doesn’t count because we owe this to ourselves.” These are funds that the US government owes American beneficiaries, just like the funds that the US government owes Japan and China. The Federal Reserve. In July, the Fed added $89 billion to its Treasury holdings, bringing its total holdings at the end of July to $4.29 trillion (blue line, left scale), amounting to a record of 16.2% of the Incredibly Spiking US National Debt (red line, right scale) – that’s the portion of the US debt that is has monetized. Over the 12-month period through July, the Fed added $2.18 trillion in Treasuries to its holdings, most of it since March, doubling its pile: US Commercial Banks. US commercial banks added $66 billion in Treasury securities to their holdings in July, and $228 billion over the 12-month period, to a total of $1.14 trillion, according to the Federal Reserve’s data release on bank balance sheets, amounting to 4.3% of the total US debt. Other US entities & individuals Above, we covered all foreign investors, plus US government funds, the Fed, and US banks. What’s left are other US investors – both individuals and institutions such as US bond funds, US pension funds, US insurers, cash-rich US corporations, private equity firms to park cash, hedge funds to use them in complex trades, etc. During the market tumult, they all piled into Treasury securities, some possibly in panic, others to engage in or get out of risky trades, adding $1.8 trillion over the three-month period through June. But in July, they shed $93 billion, bringing the holdings down to $8.1 trillion (blue line, left scale), amounting to 30.6% of total US debt (red line right scale). The surge in holdings was followed by the spike in the US debt, and the percentage that these investors held in July (30.6%) was roughly level with their share at the end of the year (30.5%): The chart below shows Treasury holdings by category of holder combined into one chart, with the US debt piled up in all its majesty: Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how: Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
“Rapid growth is no longer possible” and “inflation is not going to be tolerated” in societies with slow wage growth: head of central bank of Singapore. It has been said out loud. By Wolf Richter for WOLF STREET. The solution now to the enormously ballooning debts in developed economies: Firing up consumer price inflation and let it run hot, according to the newest dogma trotted out incessantly by the Fed and other central banks, and hope that rapid economic growth will take care of the rest. The US federal government debt alone has ballooned by $3.5 trillion in just eight months, and by $4.2 trillion in 12 months, to a breath-taking $26.7 trillion today: Rising inflation and high economic growth worked during the decades after the Second World War in bringing down debt levels in highly indebted countries, such as the US, but it won’t work this time, said Tharman Shanmugaratnam, a Senior Minister in the Singapore Cabinet, Chairman of the Monetary Authority of Singapore (Singapore’s central bank), and Deputy Chairman of the Government of Singapore Investment Corporation (Singapore’s sovereign wealth fund). He was speaking at the opening day of the virtual Singapore Summit. “I think the big issue in the next decade is how to ensure that debts are sustainable,” he said. “First, it’s obvious that you can’t just keep increasing your debts. I don’t believe that the new high levels of debt that many countries are now moving towards are going to be sustainable without imposing a significant cost on growth as well as on equity within their societies.” The question of “equity” is how these costs are being distributed over society. In other words, who’s going to get slammed by those costs, and who benefits. “It’s not like the post-war period,” he said. “In fact, after the Second World War, many of the advanced countries started at very high levels of debt – the United States, the UK, many European countries – but they brought it down dramatically over 30 years. How did they do it? Rapid growth and inflation. And both of those are not possible anymore.” “Rapid growth is no longer possible; these are now aging societies; productivity growth is much lower than before,” he said. “And inflation is not going to be tolerated by older societies,” he said. “They may be tolerated when societies are young and everyone’s incomes are going up, but it’s not going to be tolerated now. So that option isn’t there.” “Neither can we assume that today’s low interest rates remain low forever.” Interest rates will rise to more normal levels at some point, and this will raise the costs of this debt, she said. Governments must find a way to grow their economies without simply expanding the deficit. “It’s a very serious issue,” he said. “You’re going to need fiscal reforms – not simply cutting down on spending. But you need quality spending and ways of raising revenue that don’t dent growth,” he said. So there you have it. What everyone already knew has now been said out loud at an official event. The new dogma won’t work. There are solutions, as Tharman Shanmugaratnam pointed out, but they’re more complex to implement and don’t involve the ever so convenient printing press. But borrowing and printing money forever, and hoping for consumer price inflation to reduce the debt burden, aren’t going to work in creating a healthy economy and prosperity. What consumer price inflation does in today’s developed economies is destroy the purchasing power of the currency, and thereby the purchasing power of already struggling labor paid in that currency, and thereby dent consumption and create more social frustrations and inequities, that would then be addressed with even more borrowing and printing and inflation? Still a lot of fawning coverage, but big dissenters are now given prominent spots, and loaded questions are used to politely hammer Powell into telling obvious nonsense. Read... Have You Noticed How Push-Back Against Powell-Fed’s Actions Is Getting Louder in the Mainstream Media, from NPR to CNBC? Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how: Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.