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Yet another milestone has been reached in the ever-evolving global economy: China has passed Japan to become the largest foreign owner of U.S. Treasuries, the U.S. Treasury Department announced Tuesday. China added $43.6 billion in U.S. Treasuries in September to about $585 billion in U.S. government debt, ahead of Japan's $573 billion.
Economist David H. Wang says the increased demand for U.S. Treasuries reflects both a global trend and an effort on China's part to increase high-rated bond holdings.
"In general, of course, during the financial crisis we've seen a global flight-to-safety by institutional investors, which has increased demand for U.S. government bonds," Wang said. "Also, China has made it known that it will be adding to existing U.S. bond positions, and the September data is further confirmation of this investment stance."
That global demand, led by China, has enabled the United States to have perhaps the most unique of all possible financing circumstances: moderate interest rates to finance its debt despite rapidly increasing borrowing to pay for the U.S. bank rescue and related financial stabilization programs, Wang said. For example, despite record government borrowing, the yield on the 10-year U.S. Treasury note is lower today, at 3.68%, than it was in August, 3.88%.
Still, Wang cautioned that while China may have a longer-term investment view of its U.S. bond holdings, other investors, foreign and domestic, may not. "The flight-to-safety phenomenon is by no means permanent or universal. When regional economies start to recover, risk appetite will reappear, prompting some investors to exit Treasuries, which will put upward pressure on U.S. interest rates," Wang said. "That's all the more reason for the U.S. to get its fiscal house in order."
Fiscal Policy Analysis: As noted earlier, the U.S. is fortunate in that strong demand still exists for its debt, reflecting investor confidence in the U.S.'s ability to repay that debt. It's led to a condition in which the U.S. can finance $1 trillion in new debt for as little as $40 billion in interest per year. But the aforementioned should not deflect the new U.S. Congress from 'getting the budget chart lines headed together' with an income tax increase on upper income groups and selected spending cuts, after the economic recovery begins.
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Reader Comments (Page 1 of 1)
11-18-2008 @ 1:28PM
Virgil Bierschwale said...
What happens when they call that note due and payable in full and we can't pay it ?
Virgil
http://www.KeepAmericaAtWork.com
11-18-2008 @ 2:05PM
Jason said...
Things get ugly when that happens. We have to start selling assets to pay the bill.
www.eeinvesting.com
11-18-2008 @ 5:02PM
wakeup said...
You know were in the last days when third-world poverty China owns so much of America. This was done by stupid Americans who allowed it and those fake government officials who diliberately gave America away so that Europe and third-world nations who never could make money on their own - this was done so that America is no longer the superpower. We don't owe China anything - they owe us. That's our dang money they were wrongly given. Us real Americans won't our country and money back. We made the best products here and they learned from us. We do not need to buy their crap. Since Reagan and Bush and Clinton got into office all these third-world poverty nations now have lots of money and our growing along while being allowed by the multi-millions to migrate over here which has caused America much more problems. Tell these countries we want OUR Money back and throw the fake American governing officials in JAIL till they rot!
11-20-2008 @ 1:46AM
jj said...
it is wakeup's moronic attitude that gets us in trouble in the first place.
No respect to the world's members and ignorant to global events.
China's no longer a third world nation, perhaps not first world either.The Japanese (again, not third world) is the second largest creditor of US debt. Not europeans as he accuses.
If we Americans really want the debt snowball to stop, then stop consuming and save! It is that easy.