Official Fed Reserve/US Treasury Report On Foreign Ownership of US Bonds

May 5, 2008

Elaine Meinel Supkis

I signed up for the Federal Reserve and the Treasury Department's list of people who get their statistical releases instantly. Yesterday, I got the first, new joint Fed/Treasury statistical report which is a break down of how much US assets, equity and debts are owned by which foreign powers and pirates of the Caribbean. The numbers are dire! This situation is totally, nearly hopelessly out of control. Both the percentage and gross amounts are rising at a rapid pace. In particular, the people who own our government debt are our top trade rivals and even outright challengers to US global power. Um, this should be a flashing red light, eh? Instead, the people issuing this report will work with politicians to insure next year's report is even worse.

Report on Foreign Portfolio Holdings of U.S. Securities as of June 30, 2007

Department of the Treasury & the Federal Reserve Bank of New York & the Board of Governors of the Federal Reserve System

April 2008

This report presents data and analyses regarding the latest annual survey of foreign portfolio holdings of U.S. securities, which measured positions as of June 30, 2007.1 Survey data were collected at the individual security level, permitting both detailed editing and reporting. Data in this report are presented by country, currency, security type, remaining maturity, type of foreign holder, and industry. Data from surveys dating back to December 1994 are also included. Data dating back to the first such survey conducted in 19742 can be found on the Department of the Treasury’s website at http://www.treas.gov/tic/shlhistdat.html.

This report includes some additional data on foreign portfolio holdings. It presents for the first time tables that indentify foreign holdings of fund shares separately from common stock and other forms of equity, and that identify foreign holdings of both total commercial paper and asset-backed commercial paper . Additional details on foreign official holdings are presented in memo lines to many of the tables. Several of the appendix tables have also been slightly reconfigured, and provide for the first time summaries of foreign holdings by region.

They used to issue this report every five years. But Congress twisted arms last year and it will now be annual. We already know in the news that the rate at which foreign powers are buying up and buying out America is rising rapidly. In the last 7 years, thanks to the GOP and Bush, things have gotten seriously worse. In particular, due to both the trade deficit and government over-spending, the need for foreign money to plug this annual trillion+ dollar gap has forced the US to conduct and international fire sale. I have drawn bitter cartoons about this in the past. But seeing the numbers in this report makes it crystal clear: we are in a very dire crisis. One that can't be solved by allowing the stupid Japanese Carry Trade to resume. Nor can it be fixed by increasing the government misspending or fixed by increasing consumer spending.

Anyone looking at this report can see that the only solution is for belt-tightening via both higher interest rates and higher taxes. Both of which are anathema for the American public who want to be spendthrifts. And we vote only for Santa Claus. And there as no bigger Santa than the satanic Bush. He is the one who waved dollar bills at us and said we could afford tax cuts! Not one of the last fools standing in the present election are promising tax hikes. Not one is promising to raise gasoline taxes in order to get rid of gas guzzlers. Not one is suggesting a VAT [value added tax] which all our successful trade rivals have at home and which actively prevents excessive importations undermining local industries. No, they are all promising cheaper loans, more lending and more spending.

So let's get down to the actual numbers. I am not including all the charts here and I do hope readers look at the PDF report. It has a lot of eye openers! In today's story, we will look at the aggregate statistics which are nasty enough to make my cat's hair stand on end. CLICK ON ALL IMAGES TO ENLARGE.

Long term securities:SECURITY - Any bill, note, bond, debenture, stock, negotiable money market instrument, or similar instrument that is commonly referred to as a security:

a) bearer bonds;

b) subordinated bonds, often referred to as subordinated debt;

c) bonds with optional maturity dates, the latest of which is more than one year away;

d) undated or perpetual bonds;

e) floating rate notes (FRNs); [such as Freddie Mac and Fannie Mae issue these]

f) index-linked securities, where the value of the principal is linked to a price index, the price of a commodity, or to an exchange rate index;

g) deep-discount bonds and zero-coupon bonds;

h) eurobonds. A bond issue that is placed simultaneously on the market of at least two countries and is denominated in a currency which need not be that of either, [ie: dollars] usually through international syndicates of financial corporations of several countries;

i) privately issued bonds, that is bonds restricted by bilateral agreement to certain investors, if they are at least potentially transferable; if not, they are treated as long-term loans;

j) loans that have become negotiable de facto. This should be interpreted to mean only if they are traded on an organised secondary market ;

k) securities resulting from the conversion of loans. A conversion involves two financial transactions: the liquidation of the loan and the creation of the new securities;

l) debentures and loan stock convertible into shares, whether shares of the issuing corporation or shares of another corporation, so long as they have not yet been converted. A conversion involves two financial transactions: the liquidation of the debenture or loan stock and the share issue. Where separable from the underlying bond, the conversion option should be regarded as a separate financial asset classified in the sub-category financial derivatives ;

m) shares or stocks that pay a fixed income but do not provide for participation in the distribution of the residual value of a corporation on dissolution, including non participating preference shares.

So, this is what 'securities' really are: debts. Red ink or the instruments for judging what to charge for red ink. Or differentials between red ink and savings. As well as instruments designed to gain benefits from uncertainties between the value of currencies between trading partners. A huge industry has grown up in this sector. Since there is no powerful central currency anymore, everything is in constant flux and uncertainty is very high. Exploiting this to either gain monetary advantage or to produce more money without making 'loans' the old way where they are attached to something solid and physical, this is the open door for money creation which is at the basis of global inflation since no one is trying to slow this machine down.

So of course, when we look at the bottom line of the US ledger in the field of securities [which are increasingly insecure, by the way...we call this 'risk'] we see the red ink of US trade and spending has been translated into a shift of US wealth to our trade partners and assorted people like pirates. First, let's compare 1994 with 2007: Long-term securities held by foreign powers was already over $1.2 trillion. Over six years, it rose to $3.5 trillion. In the following six years, it rose to $7.1 trillion and in 2007, to an astonishing $9.1 trillion! The first six years, it tripled. The second six years, it only doubled but the aggregate amount is huge. From 2000 to 2007, it rose by $5,578 trillion. So the rate of increase is not as swift in as 12 years ago but it is still in the 'hockey stick' configuration. If anything doubles every year, if you make a chart, the line rises gradually but then takes off, if one is tracking not the rate of growth but the aggregate accumulation of growth. This sort of situation can never continue forever. Mother Nature forbids this. Eventually, it consumes all possible things or space and collapses. This is why scientists like to say, 'If a glass is filled with drops of water and we double the amount of drops with every drop, and we start at 0 minutes doing this and if the glass is half full at 59 minutes, how many minutes does it take to fill the half full glass?' The answer is, '1 minute'.

Since these instruments are being doubled in size every six years and since they represent future wealth, we can see our wealth frittering away. Eventually, we will have no wealth to fritter away. For the last six years, I have heard our leaders and the media crowing that 'foreigners are INVESTING in America' when all they are mostly buying our debts and holding them in anticipation of us paying THEM back and losing all this wealth as we have to dig deeper and deeper into our own pockets to pay everyone back. So, in six years, we accumulated an extra $5.5 trillion in obligations to foreigners.

Note also how short term debt purchases also grew but not nearly so fast. Together, they grew from $4.3 trillion to $9.7 trillion. So our total obligations in various forms, held by people outside of our political system and people who have some very nasty future hopes and agendas for us, is now nearly $10 trillion. This happens to be nearly exactly the size of our national public debt thanks to Bush and Congress misspending on wars and the Pentagon. Right now, we see stupid debates about destroying Social Security or other services in order to 'fix' our deficits but no talk about cutting vast military spending that is used to run a huge external empire. These debts for this massive military protection is expressed in the form of foreigners holding various debt instruments because the US public can't hold them.

Also, it is a sign that the off shore banking which is all about tax evasion, is destroying our nation. For many of these bonds are held by Americans using foreign banks on islands swearing fealty to Queen Elizabeth or Switzerland, Ireland, etc. If we go to the PDF documents we can see the list of these nations and pirate coves and see the huge amounts of bonds, etc. being held there for Americans seeking to evade paying off our $10 trillion in obligations. This is unprecedented, dangerous and utterly insane. The US is in grave economic danger thanks to this. There is no way the American working public with no savings can pay off these debts to fellow Americans who are hiding the profits from all this at off shore banking sites!

Fed Treasury report on foreign holdings of US debts:

Between June 2006 and June 2007 the proportion of total outstanding U.S. long-term securities held by foreign residents increased for each security type. This continues a well established trend, as the share of total U.S. securities that are foreign-held has increased in each of the last seven surveys conducted since 1994. Overall, the share of total U.S. long- term securities held byforeigners has more than doubled since the 1994 survey, increasing from 7.9 percent of the nearly $16 trillion in U.S. securities then outstanding to 18.8 percent of the nearly $49 trillion outstanding as of June 2007. Foreign holdings of long-term marketable Treasury securities held by the public increased notably to almost 57 percent of the total amount outstanding as of the most recent survey date, by far the highest percentage of foreign ownership in any security type. This high concentration of foreign ownership is explained in large part by holdings of foreign official institutions, discussed in greater detail below and shown in Table 6. Over the past five years, U.S. government agency debt has shown the fastest rate of growth on the basis of percentage foreign-owned, increasing from slightly more than 10 percent in June 2002 to more than 21 percent in the latest survey.

On top of the aggregate amount doubling, the percentage has doubled: this is double trouble, boil and bubble time! And the buying and holding of government debt has jumped from 10% to 21%? Wow. I would think Congress should be holding hysterical hearings about this! I would think someone besides Ron Paul should be talking to voters about this. Do we think we can do this forever? This is nuts. Also, note the $16 trillion in 'U.S. securities outstanding'. Which is nearly 20% for all our outstanding obligations which are now at hideous $50 trillion this year. And the government debt is rising by half a trillion this year alone, a record. If we run half a trillion in red ink in DC for the future, how many years will it take to reach $50 trillion? 100 years. But once we are used to overspending by half a trillion, we double this rate. Just as we never spent over $100 billion before Bush, now we shrug when we overspend by half a trillion. So I would project that in 8 years, we will be overspending by a trillion a year. And in 16 years, by $2 trillion a year so long as foreigners buy these debts and hold them all offshore.

This is one of several root causes of global inflation and the dying dollar. Like a drug addict, once someone is used to an infusion, they need to double this over and over again. This is why the cure for such insidiousness is a total break, not slowing down, but either the Volcker solution or the Argentine-style repeated bankruptcy cycles.

I circled all the beginning percentages and the most recent to show how all have mushroomed in size. Note that by far and away, the biggest percentage growth is in US Treasuries! Rapidly moving to 60%. In other words, all our trade rivals and governments hoping we die now hold OVER HALF of all our Treasuries! MY GOD. Talk about insanity. Feel the claws of dragons and bears around our necks yet? Arab oil kings, Japanese exporters, the Chinese communists [argh!] and assorted others have increased their death grip on us. The aggregate amount of Treasuries rose only by one trillion dollars since 1994 but the proportion owned by alien powers seeking to dominate and control us has tripled. Since it is tripling every 12 years, how many years before it reaches 100%? Well, the glass is more than half full, isn't it? It can't triple. Or rather, at this rate, it will reach 100% in less than 2 years.

This is a national emergency. The President should be on TV explaining all this and telling us, we can't let this happen. Congressional leaders should be standing behind in unity on this. 'We MUST cut our military obligations by 75% immediately. All troops will be summoned home unless all our allies holding our debts forgive them immediately. China and Russia will have to be paid back. This is what happens when we spend too much. Our ships, planes and troops will protect America. But Europe will have to start paying for their own protection. The same with Japan and all other trade partners. In addition, we consider this debt forgiveness to simply be pay back for the money we spent trying to protect international shipping and commerce. Thank you.'

This is what Europe and Japan dread. This is what China and Russia plan to have happen. The Chinese planned this YEARS ago. And are happily charging ahead with this grand scheme. And they are succeeding. This is why I am astounded that our government is wasting time attacking me or ignoring my warnings which I have sounded way back in the 1980's. Hey! The numbers don't lie! They are very, very alarming when considered as a record of the Decline and Fall of Great Powers.

The Fed/Treasury report:

Given these caveats, the data show that residents of Japan were the largest portfolio investors in U.S. long-term securities, followed by residents of mainland China and the United Kingdom, respectively. The United Kingdom had been one of the top two investing countries in U.S. securities since country-level data became available (1978), but the United Kingdom fell into the third position behind the rapidly growing stock of holdings of mainland China in the 2006 survey. The United Kingdom remained the largest holder of U.S. equities, as both Japanese and Chinese holdings are concentrated in debt securities.

Japan and China are pursuing the identical policies for opposite reasons. Last week's joint declaration that they will further the euroization of Asian currencies is a stark warning that both parties are in agreement that they will replace the dollar as the chief currency used in Asia. This is another tremendous loss of US power and control. Our banking collapse is intimately tied into all this business. The US assumes that Japan will be our friend forever no matter what. Yesterday, Admiral Mullen who is the head of the Joint Chiefs of Staff said,

"The US has has been at Israel's side for all of 60 years, it will be for the next 60 years, 100 years and 1,000 years."

No nation has 1,000 year alliances just like no empire lasts 1,000 years without going bankrupt. To go just 400 years without bankruptcy is a miracle. Most last only 100 years. And no empire's alliances last very long, either. 200 years ago, 100 years ago, the US and England were at each other's throats. Germany and Japan tried to destroy us just 50 years ago. This is why no nation wishing to be a global power should allow any allies much less obvious rivals to accumulate financial power over the empire. The fact that the US has enabled this and is happy about this is a sign of our joint senility as an imperial overlord. The childish view of history and the misunderstanding of what an alliance is characterizes all dying empires. They don't understand that the core financial problems are breeding future difficulties with all allies and subject peoples.

Fed/Treasury report:

At $1,197 billion, holdings attributed to Japan continued to exceed those attributed to any other country, although the increase in Japanese holdings between June 2006 and June 2007 ($91 billion) was a relatively small 8 percent. In contrast, holdings attributed to the second largest holder, mainland China, increased by $223 billion, or nearly 32 percent. China's holdings of U.S. securities have nearly tripled in the three-year period between the 2004 and 2007 surveys, growing from $341 billion to $922 billion.

Holdings attributed to the United Kingdom and the Cayman Islands showed especially large increases between the 2006 and 2007 surveys in both dollar terms ($281 billion and $255 billion, respectively) as well as in percentage terms (44 percent and 53 percent). In both cases, holdings of both U.S. equities and corporate debt securities grew notably. Holdings attributed to Ireland also showed rapid growth between the two surveys ($110 billion, or 47 percent). The sizable increase in holdings attributed to Ireland likely reflects Ireland’s importance as a rapidly growing European financial center. Other large increases measured between the two most recent surveys were attributed to Luxembourg ($154 billion), Canada ($93 billion), Switzerland ($67 billion), Belgium ($65 billion), and the Middle East oil-exporting countries (also $65 billion).

England is in even greater financial difficulties than the US. The debt overhang there is nearly as big as the US and per capita, far, far greater. England isn't buying our debts and bonds, they are the channel for others who are buying but don't want us to know who they are. The English are intermediaries. This report even admits this! One would imagine our government would be furious and scared by all this. But instead, the sleepwalking off the cliff continues. I detect no anxiety, fear or fury in this report. It is all 'gee whiz, look at that!' style of reporting. It is illegal to yell 'Fire' in a theater that isn't on fire but if one is burning down like Rome and Nero is fiddling on stage, it is very appropriate to yell 'FIRE' at the top of one's lungs! Instead, we see our top Pentagon officials boasting that we shall be supporting the Zionist war machine for 1,000 years. At $3 billion a year at present rates, this translates into $3 trillion. Except it grows and grows so it will be about $30 trillion, at least.

We have to have a national conversation about all this. We can't take on trillions and trillions in future obligations while running up trillions and trillions in trade debts and government overspending. And we can't let trillions of dollars move through the pipeline to pirate islands that pay no taxes on the profits. All of this offshoring of profits and onshoring of debts is leading us to bankruptcy. The flood of money into the US wasn't money coming here, it was mostly other nations and people buying our debts and parking the profits offshore! This is weakening, not strengthening America.

In 1984, the total involvement of foreign money in our financial systems was only $712 billion. Last year, it was $13.6 trillion and rising by over a trillion a year and this year will be much, much worse. While visiting the government web sites, I saw this job ad at the Export/Import Bank of the United States:

Required Knowledge, Skills, and Abilities(KSA's)

Knowledge of macroeconomic principles, concepts, and policies, particularly open economy macroeconomics and international monetary economics.

Skill in applying economic theory, econometrics, and/or statistical techniques, particularly to international economic issues.

Skill in analyzing the economic and political factors that affect country repayment risks.

Demonstrated experience utilizing statistical software packages (e.g., excel, Stata) to manipulate data and to conduct statistical/econometric research.

Ability to communicate effectively, both orally and in writing, to both technical and non-technical audiences.
*snip*
B. Combination of education and experience--courses shown in A above, plus appropriate experience or additional education. The experience should have included a full range of professional economic work such as:

(a) individual economic planning, information assembly, analysis and evaluation, conclusions and report preparation; (b) supervisory or project coordination assignments involving a staff of professional economists, and requiring the evaluation and interpretation of economic information; or (c) Specialized experience would include such work as analyzing issues and problems associated with macoeconomics and international economics; performing country risk analysis; conducting applied statistical or econometric analysis; and presenting information or analytical conclusions before diverse audiences.

Hey! Maybe I should apply! I can talk to non-professional audiences, government officials and even trade chit chat with Ron Paul! I can even discuss money matters with Bernanke so long as someone restrains me from jumping out of my chair and pop him one. They want someone who understands macro-economics! International finance! Wow! And imagine the Chinese if they come into the room and see me sitting there? They would rather talk to the Dalai Lama.

There is one draw back with this job: I would have to live in Washington, DC. This would be rather a chore for me. I happen to like this mountain out here. I also don't like living in Ground Zero in any nuclear war.

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Comments

[Pete Murphy]

Great post, Elaine! One piece of data that I'd dearly love to know is this: what is the total net worth of the United States? I'm interested in learning what percentage of that net worth is now owned by foreign interests. I'm talking about government issued bonds and securities, private equities and bonds, all private property, etc. My concern is what happens as foreign ownership begins to get anywhere even close to 100%. My feeling is that the global economy will grind to a halt as American assets become worthless. What do the owners of worthless assets do if no one will buy them? They shut them down, abandon them and walk away. Just imagine if that happened with, say, U.S. infrastructure. Scary!