Foreign Holdings of Federal Debt

^Pr^ep^ar^{ed f}^o^r^M^e^m^b^ers^an^d^Com^mⁱ^t^t^ees^of^C^ong^r^e^ss

This report presents current data on estimated ownership of United States Treasury securities and
major holders of federal debt by country. Federal debt represents the accumulated balance of
borrowing by the federal government. To finance federal borrowing, United States Treasury
securities are sold to investors. Treasury securities may be purchased directly from the Treasury
or on the secondary market by individual private investors, financial institutions in the United
States or overseas, and foreign, state, or local governments. Foreign investment in federal debt
has grown in recent years, prompting questions on the location of the foreign holders and how
much debt they hold.

Foreign Investment in U.S. Federal Debt: Why Is It an Issue of Concern?..............................3
Selected CRS Reports...............................................................................................................4
Figure 1. Breakdown of Official vs. Private Foreign Holdings of U.S. Federal Debt.....................3
Table 1. Estimated Ownership of U.S. Treasury Securities.............................................................1
Table 2. The Top 10 Foreign Holders of Federal Debt, by Country................................................2
Author Contact Information............................................................................................................5

ederal debt represents, in large measure, the accumulated balance of federal borrowing of
the United States government. The portion of gross federal debt held by the public consists ¹
primarily of investment in U.S. Treasury securities. Investors in the United States and F

abroad include official institutions such as the United States Federal Reserve, financial
institutions such as private banks, and private individual investors. Table 1 provides December

2007 data, available as of March 2008, on estimated ownership of U.S. Treasury securities by ²

type of investment and the percentage of that investment attributable to foreign investors.
As the table shows, during the past five years, foreign holdings of debt increased by just over $1
trillion to more than $2.3 trillion from December 2002 to December 2007. During the same
period, total privately held debt increased by approximately $1.4 trillion to $4.4 trillion.
In December 2002, total foreign investment in U.S. federal debt was approximately $1.2 trillion
(41.3%) of the total $3 trillion in privately held debt. By December 2007, total foreign investment
in U.S. federal debt grew by 11.8% to approximately $2.335 trillion (53.1%) of all debt held by ³
private investors.
Table 1. Estimated Ownership of U.S. Treasury Securities
^{(in billions of dol}^l^ars)
^{End of}^{Total Public Debt}^{Held by All}^{Total Debt He}^{ld by}^{Foreign Holdings as a}^{Share of T}^otal
^Month^{Private Inves}^tors^{Foreign Investors}^Privatel^{y He}^{ld Public Debt}
^{Dec. 200}⁷^$4,39^5.7^$2,35^5.3^53.1%
^{Dec. 200}⁶^$4,12^2.1^$2,10^5.0^51.1%
^{Dec. 200}⁵^$3,97^0.6^$2,03^6.0^51.3%
^{Dec. 200}⁴^$3,69^0.6^$1,85^3.4^50.2%
^{Dec. 200}³^$3,37^7.9^$1,53^3.0^45.4%
^{Dec. 200}²^$3,01^8.5^$1,24^6.8^41.3%
^Source:^{Table OFS-}^{2: Estimated}^Owners^{hip of U.S. Treasury Sec}^u^{rities from the Ma}^rch²⁰⁰⁸^{Treasury Bulletin.}
^{See link for “Owners}^{hip of Feder}^{al Securities” tables at htt}^{p://www.fms.treas.gov/}^bulletin/^{index.html. Data in the}
^{table above re}^prese^{nt estimated f}^{igures cu}^rre^{nt as of Ma}^rch^{5, 2}⁰⁰^{8. For the most c}^urre^{nt data, con}^{nect to the}
^{link listed above. Percentage shar}^{es calculated by CRS.}
^Notes:^{Although gross federal debt is the}^{broadest meas}^{ure of t}^h^e^{debt, it may not be}^{the most im}^{portant one.}
^{The debt meas}^{ure t}^{hat is releva}ⁿ^t^{in an economic se}^{nse is debt}^he^{ld by the}^pu^{blic. This is the meas}^{ure of debt}
^{that has a}^{ctually bee}^{n sold in cre}^{dit markets and has}^influe^{nced int}^{erest rates a}^{nd p}^{rivate investme}ⁿ^t^decisions.
^{This table reflects t}^{hat portion of}^pu^{blic debt held by all p}^{rivate inv}^{estors in federal sec}^{urities and th}^{e portion of}

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^{that debt}^{held by foreign}^investor^{s. See CRS Report RL3159}^0,^The^{Federal Government Debt: Its Size a}^{nd Economic}
^Significance^{, by Brian W. Cashell.}
Data on major foreign holders (investors) of federal debt by country are provided in Table 2.
According to the data, the top three estimated foreign holders of federal debt by country, ranked
in descending order as of December 2007, are Japan ($581.2 billion), China ($477.6 billion), and
the United Kingdom ($157.4 billion). Based on these estimates, Japan holds approximately 24.7%
of all foreign investment in U.S. privately held federal debt; China holds approximately 20.3%;
and the United Kingdom holds approximately 6.7%.
Table 2. The Top 10 Foreign Holders of Federal Debt, by Country
^{(Data cu}^{rrent as of M}^{arch 5,}²⁰⁰⁸⁾
^Amou^nt^{Percentage of}^Amou^nt^{Percentage of}
^Country^{Held ($ in}^{billions; as of}^{all foreign}^{holdings in}^Country^{Held ($ in}^{billions; as of}^{all foreign}^{holdings in}
^{Dec. 200}⁷⁾^{federal debt}^{Dec. 200}²⁾^{federal debt}
^{Japan $58}^1.2^24.7%^Japan^$37^8.1^30.6%
^{Mainland China}^$47^7.6^20.3%^{Mainland China}^$11^8.4^9.6%
^{United Kingdom}^$15^7.4^6.7%^{United Kingdom}^$80.0^6.5%
^{Oil Exporters}^$13^{7.9 5.9%}^Carribean^{$50.3 4.0%}
^{Banking Center}^s
^{Brazil $12}^9.9^5.5%^Oil^Exporters^$49.6^4.0%
^{Carribean Ba}^nking^$11^{6.7 5.0%}^Hong^Kong^$47.5^3.8%
^Centers
^Luxem^{bourg $69.7}^3.0%^Korea^$38.0^3.1%
^{Hong Kong}^$51.1^2.2%^Taiwan^$37.4^3.0%
^Germa^{ny $41.7}^1.8%^Germa^ny^$37.3^3.0%
^{Singapore $39.8}^1.7%^Switzerland^$34.0^2.8%
^{Total T}^{op 10}^{Total T}^{op 10}
^{Countries of}^$1,80^{3.0 76.6%}^{Countries of}^$87^{0.6 70.5%}
^{Foreign Investors}^{Foreign Investors}
^{in Federal Debt}^{in Federal Debt}
^{Total Al}^{l Foreign}^{Total Al}^{l Foreign}
^Investme^{nt in}^$2,35^{3.8 100}^%^Investme^{nt in}^$1,23^{5.6 100}^%
^{Federal Debt}^{Federal Debt}
^Source:^{The Treas}^{ury De}^partm^{ent In}^{ternational Capital System}^{provides data on estimated foreign holders of}
^{federal debt historically by mont}^h^{on its website at}^{http://www.tre}^as.gov/^tic/mfhhis^{01.txt. Cu}^rre^nt^monthly
^{estimates are available at htt}^{p://www.treas.gov/}^tic/mfh.txt.
^Notes:^Data^{, including historical}^{data, in these Treasu}^{ry Depa}^rtm^{ent tables ar}^{e pe}^riodical^{ly adjusted. Data in the}
^{table above re}^prese^{nt estimated}^{amounts c}^urre^{nt as of}^Marc^{h 5,}²^{008. For t}^{he most c}^urre^{nt data c}^{onnect to the}
^{link listed above. Percentage app}^r^{oximations calculated by CRS. Pe}^rcentages^{may vary}^{slightly due t}^o^rounding.
Foreign investment as estimated by the Treasury Department can be divided into official
(governmental investment) and private sources. Figure 1 provides data on the current breakdown
of estimated foreign holdings in U.S. federal debt. As the figure shows, 69.7% of foreign holdings
in U.S. federal debt are held by governmental sources. Private investors hold the other 30.3%.

Figure 1. Breakdown of Official vs. Private Foreign Holdings of U.S. Federal Debt
Billions of Dollars
$712.80

30.3%

$1,641.00

69.7%

Debt Held by Official Foreign Investors
Debt Attributed to Private Foreign Investors
^Source:^Treasu^{ry Depa}^rtment^I^{nternational Capital System, http:}^{//www.treas.gov/}^tic/mfhhis^01.txt.
^Notes:^{Data in the chart re}^pres^{ent estimated figure}^{s cu}^rren^{t as}^{of March}^{5, 2}⁰⁰^{8. Data in the Tr}^easury
^Department^{tables are}^periodicall^{y adjusted. For the most cu}^rrent^{estimates, click on the URL address listed}
^above.
^{The estimated combined total of all foreign holdings for December}²⁰^{07 was}^$2,³⁵^{3.8 billion. Data}^{consist of}
^{reported Decem}^ber²⁰^{07 figu}^res^{from the Trea}^sur^{y Depart}^ment^I^{nternational Capital System}
^{http://www.treas.go}^v/^tic/^mfh.txt^{. The b}^{reakdown betwe}^{en esti}^{mated official and private holdings is not}
^{publically available on a country-}^b^y-country^{basis. Percentages}^ap^pr^{oximated by CRS.}
Foreign ownership of federal debt has become a growing concern among some Members of
Congress because of the nation’s large and rising trade deficit. During the past three decades, U.S.
national saving has not been adequate to finance its capital investment needs and borrowing from
abroad has covered the gap. In order for foreigners to invest in the U.S. economy on net, the
United States must import more than it exports (run a trade deficit). When the government runs a
budget deficit, as it has done since 2002, it reduces the national saving rate. This implies that ⁴
domestic investment must fall, unless private saving rises or borrowing from abroad increases.
As seen in Table 1, as the national debt has increased, foreign ownership of U.S. Treasuries has
followed closely, suggesting that the budget deficit has been financed, in part, through borrowing
abroad. By June 2004, foreigners held more than 50% of the public debt held by private investors
for the first time. Although this percentage has no particular economic significance, it may have
other significance.

⁴^C^R^S^R^e^por^{t R}^S²¹⁴⁰^9,^T^h^e^Bu^dg^e^t^De^fic^{it an}^{d t}^h^e^Tra^d^e^De^fic^it:^W^{hat Is T}^h^eⁱ^{r Re}^latⁱ^oⁿ^shi^p^?^,^by^Ma^r^c^L^a^bonte^a^nd
^G^a^{il E. Ma}^kⁱ^ne^n.

Since 2002, some observers have been concerned that the nature of foreign purchases of U.S.
Treasuries has changed. Beginning in that year, a significant fraction of the trade deficit was
financed through official purchases of U.S. assets, such as purchases by foreign central banks.
Although no direct data on official purchases of Treasuries by country exist, one can infer that the
Treasuries may have been purchased by certain Asian and oil producing countries because they
were the only countries that had large increases in their foreign reserves during that period.
Although the effect on the U.S. economy of official purchases of Treasuries is the same as private
purchases, the motivations behind the purchases are different. Whereas private purchases are
typically motivated by the profit incentive, official purchases may be motivated by a country’s ⁵
desire to keep its exchange rate constant or mitigate its rise against the dollar. Many observers
are concerned that the large fraction of national debt held by foreigners has the potential to be
harmful to the U.S. economy. Specifically, they fear that if foreigners suddenly decided to stop
holding U.S. Treasury securities or decided to diversify their holdings, the dollar could plummet
in value and interest rates would rise. Others are concerned that China’s accumulation of hard
currency assets will allow it to undertake activities in the foreign affairs and military realms that
are not in the U.S. interest. Some economists argue that foreign borrowing at current levels is ⁶
unsustainable and could cause problems for the U.S. economy down the road.
When foreigners purchase U.S. Treasuries, or any other U.S. asset, the interest rate is lower than
when borrowing is financed domestically out of national saving. Thus, when overall interest rates
are lower as a result of net capital inflows, more interest-sensitive spending is undertaken.
Interest-sensitive spending includes capital investment (e.g., production plants and equipment),
residential investment (e.g., new homes), and durable consumption goods (e.g., automobiles and
appliances). On the other hand, U.S. foreign borrowing induces a trade deficit by reducing
exports and import-competing production. The trade deficit occurs because foreigners must first
purchase U.S. dollars before purchasing U.S. assets. When the demand for dollars increases, the
dollar appreciates, making U.S. exports and import-competing goods relatively more expensive.
Thus, foreign borrowing shifts production out of the trade sector and into the interest-sensitive ⁷
sector.
CRS Report RS21409, The Budget Deficit and the Trade Deficit: What Is Their Relationship?, by
Marc Labonte and Gail E. Makinen.
CRS Report RL31590, The Federal Government Debt: Its Size and Economic Significance, by
Brian W. Cashell.
CRS Report RL34319, Foreign Ownership of U.S. Financial Assets: Implications of a
Withdrawal, by James K. Jackson.
CRS Report RL33186, Is the U.S. Current Account Deficit Sustainable?, by Marc Labonte.

⁵^Se^e^C^R^S^R^e^por^{t R}^S²¹⁹⁵^1,^Fi^na^nc^ing^the^U^.^S.^Tr^ade^D^e^fic^it:^Rol^e^{of F}^o^r^e^{ign G}^o^v^e^r^nm^eⁿ^ts^,^by^Mar^c^L^a^bonte^a^nd
^G^a^{il E. Ma}^kⁱ^ne^n.
⁶^Se^e^C^R^S^R^e^por^{t R}^L³³¹⁸⁶^,^I^s^t^h^e^U^.^{S. C}^u^r^r^e^{nt Ac}^c^o^unt^D^e^fic^{it S}^u^s^t^ain^able^?^,^by^Ma^r^c^La^bonte^.
⁷^C^R^S^R^e^por^{t R}^L³¹⁰³²^,^T^h^e^U^.^S^.^Tr^ade^D^e^fic^it:^C^aus^e^s^{, C}^o^ns^e^que^nc^e^s^{, an}^{d C}^u^r^e^s^,^by^Craⁱ^g^K^.^Elw^e^ll.

CRS Report RL30520, The National Debt: Who Bears Its Burden?, by Marc Labonte and Gail E.
Makinen.
CRS Report RL31032, The U.S. Trade Deficit: Causes, Consequences, and Cures, by Craig K.
Elwell.
CRS Report RS21951, Financing the U.S. Trade Deficit: Role of Foreign Governments, by Marc
Labonte and Gail E. Makinen.
^Ju^s^tⁱⁿ^Mu^rra^y ^{Marc L}^a^bon^t^e
^In^f^o^r^m^a^tion^R^e^s^earch^Specialⁱ^s^t^Specialis^{t i}ⁿ^Macroecon^o^mⁱ^c^P^o^licy
^j^m^ur^r^a^y@c^r^s.^l^o^c^.^go^v^{, 7-}⁴⁰⁹²^m^l^abon^t^e^@^c^rs^.l^oc.g^o^v^{, 7-}⁰⁶⁴⁰