Tuesday, November 18, 2008

Major Foreign Holders of Treasury Securities


Note: An updated version of the following post can be found at this link.


Each month, the Treasury Department posts updated estimates of the foreign holdings of U.S Treasuries by country at this link. It also posts estimates going back to March 2000 at this link. The following graph shows the totals for all countries by the type of treasury security and the totals for the three countries with the largest holdings.




The purple line shows the grand total of all treasury securities held by all foreign countries, private and public. As can be seen, it has been increasing steadily since early 2002 and has accelerated somewhat in the past year. The yellow line shows those securities held by "official institutions", defined on page 7 of the Report on U.S. Portfolio Holdings of Foreign Securities at End-Year 2004 as follows:


Official institutions consist primarily of national government and multinational institutions involved in the formulation of international monetary policy, but also include national government-sponsored investment funds and other national government institutions. Data on such institutions are collected separately because the motivations behind holdings of official institutions may differ from those of other investors.


The dark blue line just below the yellow line shows the totals for bonds and notes which are that portion of the total securities that are long-term debt securities, with an original
maturity of over one year. More details on short-term and long-term debt securities can be found on page 7 of the Report on U.S. Portfolio Holdings of Foreign Securities at End-Year 2007.


The other three lines show the holdings of the three countries with the largest holdings. These can be seen in more detail in the following graph which shows the holdings of the eight countries with the largest holdings:




The actual numbers and sources for both of the above graphs can be found at this link. As can be seen, the holdings of Mainland China has risen steadily since early 2002, increasing about seven-fold from $76.5 billion in February of 2002 to $541 billion now. It appears that they are just about to pass up Japan as the largest foreign holder of Treasuries. In fact, Japan's holdings reached a maximum of $699.4 billion in August of 2005 and have fallen to $585.9 billion now. Also, I noticed a few other interesting things in the data. The United Kingdom's holdings have soared from $50 billion in June of 2007 to $307.4 billion now. However, there seems to be a large discontinuity between each annual survey for the United Kingdom causing a large saw-tooth effect in the graph. If anyone knows the reason for this, please leave a comment.


In any case, there are a number of other countries whose holdings have increased rapidly for some portion of the past eight years. The holding of Oil Exporters have more than quadrupled from $43.9 billion in January of 2004 to $179.8 billion now. The holdings of Brazil have gone up by a factor of ten from $14 billion in January of 2005 to $146.2 billion now. The most recent rapid increase has been in the holdings of Russia which has gone up by a factor of ten from $7.4 billion in March of 2007 to $74.4 billion now. I would guess that most of this investment from Oil Exporters, Brazil, and Russia came from income from resources, chiefly oil. With oil having fallen from a high of $147 per barrel last July to below $56 a barrel now, it would seem likely that future investment in Treasuries by these nations will fall. In addition, it would seem possible that China's future investment will fall due to its recently reported plan to implement a stimulus program of over a half-trillion dollars.


This does seem worrisome. I'm not an expert on the auction of Treasuries but it would seem that there is at least a risk of a significant rise in the interest rate that we have to pay on Treasuries. Due to the current flight to safety and strength in the dollar, this may not occur immediately. But it would seem to be a serious risk in the future. That risk is mentioned in this article.


This is all the more a concern because most of the increase in the public debt has been financed by foreign investors in recent years. From 2001 to 2007, the total public debt increased $1.716 trillion and the foreign-held public debt increased $1.235 trillion (see here). Hence, in effect, about 72 percent of the total increase in the public debt since 2001 has been borrowed from foreign sources.

Monday, November 3, 2008

Distribution of Family Net Worth (Part 2)

My prior post looked at the distribution of net worth according to the 2004 Survey of Consumer Finances. As mentioned, net worth appears to be heavily skewed such that about 80 percent of families had a net worth that was less than the average from 1989 to 2004. Whereas that result came from looking at net worth by percentiles of net worth, the following graph looks at net worth by percentile of income:




The actual numbers and their sources can be found at this link. As can be seen, there is a positive correlation between net worth and income. That is, those with higher income tend to have a higher net worth. The data also shows that the median net worth of the top ten percent of income earners more than doubled from 1995 to 2004. The median net worth of the 80 to 90 percentile nearly doubled and the net worth of the 60 to 80 percentile went up about 71 percent during that period. The median net worth of the other 60 percent of income earners gained much less with the net worth of the 20 to 40 percentile actually decreasing by over 18 percent.


The following graph looks at family net worth by the age in years of the family head:




As before, the actual numbers and their sources can be found at this link. The graph shows that the median net worth is relatively low for families whose head is under 35 but grows steadily until the head is 65 years or older. At that point, net worth starts to slowly drop off. However, even the median net worth of families whose head is 75 or more is generally more than it is for families whose head is 45 to 54 years of age. Hence, net worth does not drop off that quickly.


The following graph looks at family net worth by the education level of the family head:




As can be seen, the median net worth of families whose head is a college graduate is much higher than it is for other families. This net worth increased by over 75 percent from 1995 to 2004 while the median net worth of all other families stayed about the same. Still, families whose head had a high-school diploma had a much higher net worth than those who did not. In fact, the median net worth of families whose head did not have a high-school diploma dropped by 42 percent from 1989 to 2004. Hence, it appears that higher education is becoming a more important determinant of a family's net worth.


There are a couple of other interesting facts apparent from the table at this link. One is that the median net worth of white non-hispanic families is far above that of nonwhite or hispanic families. It has narrowed somewhat going from about 10.6 times as large in 1989 to 5.7 times as large in 2004. In addition, the median net worth of nonwhite or hispanic families has increased by about 2.5 times over that period, from about $9.8 thousand in 1989 to $24.8 thousand in 2004. Still, a large differential remains.


The second fact is that home owners have a much higher median net worth than renters. In fact, renters had a lower median net worth than any other group in the table, including nonwhite or hispanic families. That net worth ranged from $2.9 thousand in 1989 to $6 thousand in 1995.

About Me

I became interested in U.S. budget and economic matters back in 1992, the first time that I remember the debt becoming a major issue in a presidential election. Along with this blog, I have a website on the subject at http://www.econdataus.com/budget.html. I have blogged further about my motivations for creating this blog and website at this link. Recently, I've been working on replicating studies such as the analysis at this link.

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