Fed Passes China as Top Owner of U.S. Debt

Terence P. Jeffrey | June 8, 2011 | 1:54pm EDT
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The Federal Reserve Building on Constitution Avenue in Washington, D.C. (AP photo)

(CNSNews.com) - In the period since the Federal Reserve announced in November that it intended to buy $600 billion in U.S. government debt by the end of this June, the Fed has surpassed mainland China as the top owner of publicly traded U.S. Treasury securities.

As of the end of March, according to data released by the Federal Reserve and the U.S. Treasury, the Fed owned $1.333 trillion in U.S. Treasury securities and the Chinese owned $1.1449 trillion. U.S. Treasury securities are the bills, notes and bonds sold by the Treasury Department to finance the debt of the U.S. government.

The $2.4779 trillion in U.S. Treasury securities owned by the Federal Reserve and the Chinese combined as of the end of March equaled 25.7 percent of the publicly-traded portion of the federal government's debt (which stood at $9.6516 trillion at that point).

The full U.S. national debt--which includes both the publicly traded debt and non-publicly traded “intra-governmental” debt that the U.S. Treasury owes to government trust funds such as the Social Security trust funds--stood at $14.270 trillion at the end of March and at $14.3447 trillion as of the close of business this Monday.

On top of the $1.1449 trillion in U.S. debt that China owned at the end of March, other foreign interests owned an additional $3.3343 trillion, according to the Treasury Department.

The combined U.S. debt holdings of the Chinese and other foreign interests plus the U.S. debt holdings of the Federal Reserve equaled $5.8122 trillion at the end of March—or 60.2 percent of America’s $9.6516 trillion in publicly traded debt at that point.

Japan, which owned $907.9 billion in U.S. Treasury securities, then trailed the Fed and China as the third largest creditor of the U.S. government.

A year ago, at the end of June 2010, according to data released by the Fed and the U.S. Treasury Department, the Fed trailed China by a wide margin, owning $777 billion in U.S. Treasury securities compared to China’s $1.1121 trillion.

But in August 2010 the Fed started marginally increasing its holdings of U.S. debt, according the Fed’s monthly balance sheets. By the end of August, the Fed owned $784 billion in U.S. debt. By the end of September, it owned $812 billion. And by the end of October, it owned $838 billion.

During these three months, the mainland Chinese also increased their holdings of U.S. Treasury securities, bringing them to a peak of $1.1753 trillion by the end of October.

But in November 2010, the Chinese began drawing down their holdings of U.S. Treasury securities.

That same month, the Fed announced it would significantly increase its own holdings of U.S. debt by buying as many as $600 billion in U.S. Treasury securities by the end of June 2011.

In a statement released Nov. 3, the day after the midterm congressional elections, the Federal Open Market Committee said: “To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month.”

From the end of October to the end of April, as reported on its balance sheets, the Fed purchased an additional $565 billion in U.S. Treasury securities. 

Meanwhile, in each month from November through March (the last month for which the Treasury has reported on the foreign ownership of U.S. debt), the Chinese decreased their holdings of U.S. Treasury securities, drawing them down from 1.1753 trillion to $1.1449 trillion. (While reducing their overall ownership of U.S. debt, the Chinese almost totally withdrew from short-term U.S. Treasury bills, which mature in one year or less, ending March owning only $5.69 billion in Treasury bills--down 97 percent from the $210.4 billion they owned in May 2009.)

As the Fed increased its ownership of U.S. debt and the Chinese decreased theirs, the Fed’s portfolio of U.S. Treasury securities surpassed the Chinese in February. By the end of that month, the Fed owned $1.213 trillion in U.S. debt and the Chinese owned $1.1541 trillion.

Of the $1.413 trillion in Treasury securities the Fed owned at the end of April, according to the Fed’s latest monthly report, $18 billion were in short-term Treasury bills that mature in one year or less, $65 billion were in Treasury Inflation-Protected Securities that mature in terms of 5, 10 and 30 years, and $1.33 trillion were in Treasury notes and bonds. Treasury notes mature in terms of 2 to 10 years and bonds mature in 30 years.

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