The Chicago thug is a bad roll of dice!

Foreign holders of American debt














By Valentin KATASONOV


As has already been noted, in recent years the share of non-American holders of US Treasury securities has been wavering around the 50 percent mark. However, there has also been a visible trend to reduce the share of non-residents (from 52.9 percent at the end of 2008 to 47.9 percent in the middle of 2013). The overwhelming majority of US Treasury securities held by non-residents are securities on the balance sheets of central banks and finance ministries in other countries. These are the so-called official holders of the US government’s marketable debt. The share of official holders among all foreign holders of US Treasury securities in 2008 amounted to 74.6 percent, while in the middle of 2013 it was 71.6 percent. It is possible to conclude that private foreign investors are not investing in US Treasury securities particularly willingly, since these securities have an extremely low rate of return. 
 
 
Main country holders of US Treasury securities (in billions of dollars, as of the end of July 2013).
 
Country 2013 20122011
1. China1,277.31,160.01,307.0
2. Japan1,135.41,119.8881.0
3. Caribbean banking centres287.7247.6196.3
4. Oil-exporting countries257.7268.4242.6
5. Brazil256.4256.5216.2
6. Taiwan185.8194.4146.6
7. Switzerland178.2184.8118.1
8. Belgium167.7141.388.8
9. Great Britain156.9135.4135.7
10. Luxembourg146.8135.1121.7
11. Russia131.6156.2151.7
12. Hong Kong120.0137.1112.4
13. Ireland117.993.253.9
14. Singapore81.596.464.4
15. Norway74.668.226.5
16. Canada65.561.344.7
17. Mexico63.353.931.2
18. India59.159.338.9
19. Germany56.366.563.8
20. Turkey55.030.341.9
 
Notes on the table: 
“Oil-exporting countries” refers to the total amount of US debt on the balance sheets of the following countries: Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, UAE, Algeria, Gabon, Libya and Nigeria.
“Caribbean banking centres” refers to the following jurisdictions: the Bahamas, Bermuda, the Cayman Islands, the Netherlands Antilles, Panama and the British Virgin Islands. 
 
 
It follows from the above table that: 
 
1. China and Japan are the main holders of US Treasury securities outside of the US. Of the total amount of Treasury securities in the hands of foreign holders, equal to US 5,590.1 billion (as of the end of July 2013), these two countries accounted for USD 2,412.7 billion, or 43.2 percent. The year before, this figure was 42.4 percent. 
 
2. While the total amount of Chinese investment in US Treasury securities did not change much for 2011-2013 (there were only temporary moderate fluctuations in both directions), the total amount of Japanese investment in these securities over the same period increased by almost 1.3 times. 
 
3. The majority of countries listed in the table above increased their investment in US Treasury securities over the period 2011-2013. Countries like Norway, Ireland, Mexico, Switzerland, India and Belgium increased their holdings of US treasuries particularly dramatically. Thus Norway increased its holding of securities by 2.8 times, Ireland by 2.2 times, Mexico by 2 times, Belgium by 1.9 times and Switzerland by 1.5 times. 
 
4. Only two countries from the whole list cited above reduced their investment in US Treasury securities over the period 2011-2013 – Germany and Russia (by 11.8 and 13.2 percent respectively). While Russia was in 6th place among foreign holders of US Treasury securities in the middle of 2011, by the middle of 2012 the country was in 8th place and by the middle of 2013 - 11th place. In other words, Russia has been consistently reducing its financing of the US government.
 
 
 
On individual foreign holders of US Treasury securities
 
 
Enough has already been said about China as the US government’s largest foreign creditor. China’s enormous reserves in the form of US Treasury securities are, at one and the same time, both China’s strength and its weakness. Its strength because these securities are Beijing’s trump card in talks with Washington on all kinds of issues – trade, economic, political and military. The threat of the dollar collapsing, along with the US fiscal system, by means of a sharp reduction in China’s reserves of US Treasury securities is a persuasive argument for Beijing in talks with its American partner. The weakness of China’s position, meanwhile, lies in the fact that if the dollar and the fiscal system do collapse for reasons independent of Beijing, then China will suffer enormous losses. Its vast portfolio of US Treasury securities makes it possible for China to achieve tactical victories, but also threatens the country with a strategic defeat. 
 
As far as Japan is concerned, meanwhile, it is following Washington’s instructions calling for the Japanese to build up its reserve of Treasury securities much more obediently. 
 
Offshore zones in the Caribbean – the Bahamas, Bermuda, the Cayman Islands, the Netherlands Antilles, Panama and the British Virgin Islands – have become the third largest investor in US Treasury securities. Over a period of three years, they have increased their portfolio of these securities by almost 1.5 times. After Barack Obama was elected to the White House, Washington declared the start of a crusade against tax havens which experts estimated were causing the American budget to miss out on up to USD 100 billion annually. However, the support that these Caribbean tax havens provide to the US Treasury is almost three times greater. Evidently, the purchase of securities to the tune of almost USD 300 billion could be regarded as payoffs for tax havens to remain so close to America. 
The positions of the group of oil-exporting countries as holders of US Treasury securities over the period 2011-2013 have not changed particularly.
 
Many countries in Western Europe are major holders of American Treasury securities. At the end of July 2013, Switzerland, Belgium, Great Britain, Luxembourg, Ireland, Norway and Germany as a whole owned securities to the tune of USD 898.4 billion. If we add to these France, Sweden, the Netherlands, Italy and Spain, which are not included in the table, then we get USD 1,058.8 billion. Large-scale investments by European countries in American Treasury securities seem rather strange against the background of a severe debt crisis in the European Union. Many of these European countries are themselves up to their ears in debt, with the majority of the debt external, to non-residents. At the beginning of 2012, the external debt of individual countries equalled (in trillions of dollars; the relative level as a percentage of GDP is given in brackets): 
 
Great Britain – 9.84 (416); France – 5.63 (188); Germany – 5.62 (159); the Netherlands – 3.73 (470); Italy – 2.68 (101); Spain – 2.57 (165); Ireland – 2.36 (1308); Luxembourg – 2.15 (4605); Belgium – 1.40 (267); and Switzerland – 1.35 (271). 
 
Switzerland, Belgium, Great Britain, Luxembourg and Ireland each have a bundle of securities amounting to more than USD 100 billion, and each of them has external debt that far exceeds their GDP. (Against this background, even Greece’s relative level of external debt looks rather modest at 167 percent of GDP.) So is this benevolence towards America? Absolutely not. It is one of the main indicators of Europe’s dependence on the United States. And more than that, a number of European countries are not just tributaries of America, they are still acting as tax collectors for the US in other countries. Tiny Luxembourg, for example, purchased US Treasury securities totalling almost USD 150 billion, with a GDP of less than USD 47 billion. Luxembourg is a typical tax collector. It borrows money from other countries on a colossal scale, while Luxembourg’s external debt exceeds its GDP by 46 times! For a long time, Great Britain was the biggest investor in US Treasury securities in Western Europe, but in recent years it has been overtaken by Switzerland and Belgium. 
 
Among the largest holders of US Treasury securities are the BRICS countries (Brazil, Russia, India, China and South Africa). At the end of July 2013, the amount of such securities in their reserves totalled USD 1,738.2 billion. This equalled 31 percent of all US Treasury securities which at that time were in the hands of non-residents. China was the largest holder, of course, with almost three quarters of all US Treasury securities in the BRICS group. From 2011-2013, every BRICS country with the exception of Russia built up their holdings of US Treasury securities. 
 
There were times when Russia had a rather modest bundle of US Treasury securities in its international reserves. At the end of 2007, their amount did not exceed USD 32.7 billion. However, by the end of 2008 their volume had increased to USD 116 billion, or by more than 3.5 times, in other words. Later, by the middle of 2012, holdings of American Treasury securities in the reserves of the Russian Federation grew slowly, slightly exceeding the level of USD 150 billion, but started to come down again over the last year (going down to the level of USD 131.6 billion, or by USD 24.6 billion). An example worthy of emulation! A reduction in the holdings of Treasury securities over the last year has also been recorded in Taiwan, Switzerland, Germany, Hong Kong, Singapore, and the group of oil-exporting countries, but in all of these instances, the size of the reduction has been significantly less than in Russia... 
 
 
 
Conclusion
 
 
USA is now experiencing an acute fiscal crisis, once again demonstrated that it is able to exist merely in the context of constant borrowing from abroad and a build up of its government debt to other countries. America’s colossal government debt is a threat to the stability of the global economy. Unfortunately, Beijing, Tokyo and London have virtually become hostages to this model of financing the US government. In the first half of October, the leaders of China, Japan, India and a number of other countries called on the US President and US congressmen to come to a decision as soon as possible regarding an increase of the government’s debt ceiling – so in practice, they were asking Washington to let them continue paying a tribute to America through the purchase of Treasury securities. 
 
 
Bill Clinton used to refer to Obama as a Chicago thug, and compared voting for Obama to a roll of dice. It turned out the Chicago thug is a bad roll of dice! Basil Venitis, venitis@gmail.com, http://themostsearched.blogspot.com, @Venitis
 

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