U.S. Debt Is Staying, for a Change, in U.S.
By FLOYD NORRIS
New York Times
August 20, 2010
Nearly a decade ago, when budget deficits ballooned in the United States, it was widely said that Washington — like Blanche DuBois in “A Streetcar Named Desire” — “depended on the kindness of strangers.” In Washington’s case, foreigners — mostly foreign governments — stepped in to buy most of the new Treasury securities being issued.
Budget deficits have ballooned again, but the story is different this time. Americans are buying most of the new Treasuries being issued. Foreign governments, whose purchases were once critical, were net sellers of Treasury securities in the first half of 2010, according to figures released this week.
That buying has reduced the Treasury’s need to attract foreign capital and has helped to keep interest rates very low.
It is not clear, of course, how much that appetite for Treasuries reflects an eagerness to lend money to the United States government as opposed to a fear of losses from alternative investments.
Before the financial crisis struck in 2008, neither Americans nor private foreign investors showed much eagerness to finance Washington’s deficits.
In calendar year 2007, the Treasury borrowed a net $237 billion. Of that 81 percent came from foreign governments, mostly from central banks. Private foreign investors took up the rest, as American companies, banks and individuals reduced their combined Treasury holdings by $13 billion.
In the first six months of this year, the Treasury numbers indicate that foreign governments reduced their holdings of Treasury securities by $10 billion. Not since 2000 — when the United States government was running a surplus and did not need additional funds — have foreign governments been net sellers for a full calendar year.
The figures are estimates by the Treasury and are subject to substantial revision. And they need to be interpreted with caution, because they do not necessarily reflect the ultimate ownership of securities. Holdings of a London-based money manager are attributed to Britain, even though that manager’s clients could live in New York, Hong Kong or Paris.
Over all, domestic investors purchased more Treasuries than did overseas ones — including foreign governments — in 2009 and again in the first half of this year. Those purchases came as government borrowing rose to pay for bailouts and recession-related spending.
By contrast, during the six years from 2002 — the first year that the United States ran a significant deficit after the years of surpluses — through 2007, three-quarters of the $1.7 trillion in new borrowing came from abroad, with $1 trillion of that coming from foreign governments.
In the two and a half years since the end of 2007, the Treasury has raised twice that amount in new money, $3.5 trillion. More than half of that came from American companies and individuals, double the proportion they contributed in the earlier period.
Even with those increased domestic purchases, 46 percent of the publicly issued Treasury debt is held overseas. That is down from 49 percent in early 2008, just before the financial crisis began, but it is way above the 31 percent proportion at the end of 2001.
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