Pie chart of who owns the National Debt

[ THIS PAGE IS OBSOLETE; click here to see the latest pie chart. ]

The chart below is a snapshot of who owns our National Debt (versus the time-series chart I posted in an article a few weeks ago).  It’s beyond me how anyone can conclude that the foreign holdings of US Treasury bonds, broadly diversified among many different countries, represent some kind of economic danger to us.  In fact, my take is quite the opposite.

Click to enlarge.  [Data source: US Treasury]

When I look at this chart, I feel grateful that so many people outside the USA are delighted we’re electing to finance a portion of our federal spending with debt instead of equity (i.e., with borrowing instead of taxes).  In other words, I’m glad they’re willing to help us keep our tax rates lower, and our economic growth rate higher, by lending us their dollars to help us finance such things as the war on terror, Katrina repairs, and yes, even the Big Dig in Boston. 

Should I be afraid of that diverse array of foreigners willing to invest in the spending priorities you and I have set for the US government?  I don’t see why, and I’ll need a lot more evidence than Greenspan’s and Bernanke’s rhetorical hedging in the article titled “Economists worry foreign investors may abandon U.S.”—which, ironically, buries the following not-so-scary comment way down at the end of the article:

A recently released Treasury Department report suggests that foreigners still have a strong taste for U.S. investments, and thus remain willing to lend the U.S. money to finance its deficits.

I think Alan Reynolds, in his article “Doomsday is doomed,” has a prognostication at least as plausible as any of the doom peddlers' disaster scenarios:

...we already found out what happens when foreign central banks cut back sharply on their purchases of U.S. Treasury securities.  The answer is nothing happens -- absolutely nothing. On April 26, The Wall Street Journal reported, "In recent months, private investors have replaced with gusto official institutions as the driver behind foreign flows into Treasuries.”

Later in the same article, Reynolds gives us a logical explanation for what’s behind the scary stuff we keep reading regarding debt held by foreigners:

Facts don't matter when business news is really politics in disguise. Whenever the wrong political party controls the White House and Congress, the mainstream media feel compelled to predict some looming economic disaster, and to keep doing so shamelessly and erroneously year after year.

In any case, even though I'm with Alan Reynolds on this issue, my mind is still open, so please email me if you know why I should be scared by the pie chart above.  Until then, I remain optimistic, and grateful to the foreigners who (rightly) view the USA as a terrific place to invest their dollars.

Comments

[Ryan Miller]

I agree with you--purely from a government debt perspective, the scare-mongering is nonsense. Do you have any idea what the pie chart looks like for the debt financing the current account deficit? That's where most of the fear I've been hearing is centered. Most of it doesn't even seem to indicate understanding of what 'current account' means, which inclines me not to be too worried, but I'd be interested to see the chart.

[Eric]

Great commentary on this article at reddit
http://reddit.com/info/6mn5/comments

[JoeBlack]

How about instead of investing in US, the decide to buy oil to help their own country and bump up the price, which cause oil backed US dollar to lose value, which in term cause inflation in US?

[SmartAlex]

Oh you have got to be kidding me. The "US Citizens" do not own that large of a portion of the debt. A PRIVATELY HELD (by foreigners) FOR PROFIT bank called the Federal Reserve System holds the largest portion of the debt. The FED is NOT NOT NOT NOT NOT a part of the United States government. It is a private institution, not a government one. The fact is that over 60% of the national debt is owned by foreigners because the FED is largely controlled by foreign bankers.

[SmartAlex]

One other comment. Your source for this chart is only of "MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES". It doesn't take into account the FED's piece of the pie nor of things such as pension funds, Savings Bonds, or Mutual Funds. This is a more accurate representation of who owns the debt: http://www.brillig.com/debt_clock/faq.html.

[Philipp]

The data is from 2005.

Still, it shows two things:
1) The rise in debt from 6 to 8 t. came as a large part from foreigners
2)the rise from 6 to 8 occured in just 5 years.

What would we see having data of summer 2006? Foreign holding of US treasuries up sharply!!! From 2 t as you state to about 2.5 t. or even higher! Thus, the deficit does not create equity in the us, but in China, Japan, Russia...

[Doug Hengehold]

Hi Mr. Tanner, I would like to know if you would like to help other countries finace there dept and spend money like we do. Maybee you could send them some money for a big dig. That alone should tell you something is not right. Second I dont believe your pie chart I dont know any Americans saving right now.I sure dont belive the treasury Dept if that where your pie chart came from. Doug

[Maria Agosto]

Mr. Tanner,

I find this confusing. If the Social Security Trust Fund has been used to finance other governmental needs, we end up owing the money to ourselves. We can't cancel that debt as I am constantly hearing predictions of an eventual D-Day when there will be no funds left to finance Social Security.

I understand that some debt is workable, even preferable. But when, in your view, do we reach the point of "too much?"

Respectfully yours,

Maria

[John Wayne]

I believe this breaches all protocols for vector seven! LOL!!!