Prompted by this post at Thought-Mesh, I went looking for some information about foreign ownership of US Treasuries. I found this slide show, prepared for the Treasury Borrowing Advisory Committee. The facts are very interesting, and indicate that there isn't much here to worry about.
Foreigners, both governments and private entities, own a little better than half our outstanding non-intergovernmental federal government debt. As of today, the public debt is $4,920,983,368,955.71, or about $5 trillion. So foreigners own about $2.5 trillion and foreign governments approximately 60% of that, or about about $1.5 trillion. US 2005 GDP was about $12.46 trillion, so foreigners own debt equal to approximately 20% of GDP and foreign governments own debt equal to about 12% of GDP. That doesn't seem problematic to me.
A couple of other facts make it even less problematic. First, foreigners have clearly been crowding out domestic buyers of US debt. As a result, our total cost to service the debt is less than it otherwise would be and there is a currently untapped market for US Treasuries if foreigners, for some reason, decide to stop buying Treasuries. Domestic buyers actually own fewer Treasuries, absolutely, than they did ten years ago.
Second, Treasuries are a decreasing factor in the domestic securities market. Treasuries now account for less than 10% of the total amount of marketable domestic securities. This, too, indicates that the domestic market would be able to sop up any excess Treasuries if foreign governments stopped buying them.
It also seems clear that the point made at Thought-Mesh is questionable. Foreign purchase of US Treasuries can be meaningfully compared to the rates Americans receive for other investments. As noted, foreign purchase of our public debt decreases the interest rates the government has to pay. This saves the tax payers' money and decreases our deficits. Also, assuming that in the absence of foreign purchasers of our public debt the government would fill the gap by either taxation or more domestic borrowing, it is worth noting that the money freed up by foreigners lending us money can be profitably invested by individual Americans.
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3 comments:
I suppose the option of less spending is too ludicrious to bring up, but one does note that worries about the debt did lead to less prolifigate spending during the Clinton years.
I think that in a theoretically sense, we'd be better off with no foreign debt if the money was not spent at all. I will concede that if we're going to spend it and borrow to do so, it's a clear win to have foreigners fork over the cash to do that.
SH: The option of less spending isn't ludicrous (much), but it's not this issue.
Also, I'm skeptical that "worries about the debt did lead to less proligate spending during the Clinton years." Looking at this handy-dandy historical chart (warning, PDF) we see that spending grew from $1.4 trillion to $2 trillion during the Clinton years, and that there was no year in which spending actually decreased. I agree that the rate of growth is less, but I don't think that that had much to do with worries about the debt. Remember that, because of our weird treatment of social security receipts, the total national debt grew each year despite the much-ballyhooed surpluses.
I think it is the same issue. The options for the federal government are
1. Spend less.
2. Borrow domestically.
3. Borrow internationally.
My preference ordering is 1, 3, 2.
My original objection was to the concept that the money loaned to the federal government via T-bills was "invested". It's not, it is to a large extent consumed. If foreigners didn't buy the T-bills to cover this consumption spending, then disinvesting domestic funds could be avoided by less spending. It is only because the decision to spend has already been made that foreign purchase of T-bills increases the rate of return for domestic investment. Absent that decision to spend, it would be a moot point.
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