China has dropped 97 percent of its holdings
in U.S. Treasury bills, decreasing its ownership of the short-term U.S.
government securities from a peak of $210.4 billion in May 2009 to $5.69
billion in March 2011, the most recent month reported by the U.S. Treasury.
Treasury bills are securities that mature in one year or less that are sold by the U.S. Treasury Department to fund the nation’s debt.
Mainland Chinese holdings of U.S.
Treasury bills are reported in column 9 of the Treasury report linked here.
Until October, the Chinese were
generally making up for their decreasing holdings in Treasury bills by
increasing their holdings of longer-term U.S. Treasury securities. Thus, until
October, China’s overall holdings of U.S. debt continued to increase.
Since October, however, China has
also started to divest from longer-term U.S. Treasury securities. Thus, as
reported by the Treasury Department, China’s ownership of the U.S. national
debt has decreased in each of the last five months on record, including
November, December, January, February and March.
Prior to the fall of 2008,
acccording to Treasury Department data, Chinese ownership of short-term
Treasury bills was modest, standing at only $19.8 billion in August of that
year. But when President George W. Bush signed legislation to authorize a $700-billion
bailout of the U.S. financial industry in October 2008 and President Barack
Obama signed a $787-billion economic stimulus law in February 2009, Chinese
ownership of short-term U.S. Treasury bills skyrocketed.
By December 2008, China owned $165.2
billion in U.S. Treasury bills, according to the Treasury Department. By March
2009, Chinese Treasury bill holdings were at $191.1 billion. By May 2009,
Chinese holdings of Treasury bills were peaking at $210.4 billion.
However, China’s overall appetite
for U.S. debt increased over a longer span than did its appetite for short-term
U.S. Treasury bills.
In August 2008, before the bank
bailout and the stimulus law, overall Chinese holdings of U.S. debt stood at
$573.7 billion. That number continued to escalate past May 2009– when China
started to reduce its holdings in short-term Treasury bills–and ultimately
peaked at $1.1753 trillion last October.As of March 2011, overall Chinese holdings of U.S. debt had decreased to 1.1449 trillion.
Most of the U.S. national debt is
made up of publicly marketable securities sold by the Treasury Department and
I.O.U.s called “intragovernmental” bonds that the Treasury has given to
so-called government trust funds—such as the Social Security trust funds—when
it has spent the trust funds’ money on other government expenses.
The publicly marketable segment of
the national debt includes Treasury bills, which (as defined by the Treasury)
mature in terms of one-year or less; Treasury notes, which mature in terms of 2
to 10 years; Treasury Inflation-Protected Securities (TIPS), which mature in
terms of 5, 10 and 30 years; and Treasury bonds, which mature in terms of 30
years.
At the end of August 2008, before
the financial bailout and the stimulus, the publicly marketable segment of the
U.S. national debt was 4.88 trillion. Of that, $2.56 trillion was in the
intermediate-term Treasury notes, $1.22 trillion was in short-term Treasury
bills, $582.8 billion was in long-term Treasury bonds, and $521.3 billion was
in TIPS.
At the end of March 2011, by which
time the Chinese had dropped their Treasury bill holdings 97 percent from their
peak, the publicly marketable segment of the U.S. national debt had almost
doubled from August 2008, hitting $9.11 trillion. Of that $9.11 trillion, $5.8
trillion was in intermediate-term Treasury notes, $1.7 trillion was in
short-term Treasury bills; $931.5 billion was in long-term Treasury bonds, and
$640.7 billion was in TIPS.
Before the end of March 2012, the
Treasury must redeem all of the $1.7 trillion in Treasury bills that were
extant as of March 2011 and find new or old buyers who will continue to invest
in U.S. debt. But, for now, the Chinese at least do not appear to be bullish
customers of short-term U.S. debt.
Treasury bills carry lower interest
rates than longer-term Treasury notes and bonds, but the longer term notes and
bonds are exposed to a greater risk of losing their value to inflation. To the
degree that the $1.7 trillion in short-term U.S. Treasury bills extant as of
March must be converted into longer-term U.S. Treasury securities, the U.S.
government will be forced to pay a higher annual interest rate on the national
debt.
As of the close of business on
Thursday, the total U.S. debt was $14.34 trillion, according to the Daily
Treasury Statement. Of that, approximately $9.74 trillion was debt held by the
public and approximately $4.61 trillion was “intragovernmental” debt.
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