China and US Debt

Contrary to myth, China holds only 8 percent of US federal debt.

July 26, 2011

Comments

One point Dave Schuler repeatedly hammered home in the old OTB Radio podcast was that the notion that China holds most US debt is a myth. TPM’s Kyle Leighton expounds:

[T]he debt to ourselves, over $9.747 trillion, is eight times the amount we owe China. The Chinese actually own about 8% of American debt, compared to the nearly 68% of the debt held domestically. Not to say that the $1.16 trillion we owe China isn’t real money. To be sure, the overall amount the U.S. is in debt to other countries is large: we owe $4.595 trillion of the overall $14.343 trillion to foreign states.

China is actually the third biggest individual creditor to the U.S., behind the Social Security Trust Fund and the $2.67 trillion the government owes it, and the $1.63 trillion in Treasuries the Federal Reserve has purchased, many through a process called “quantitative easing,” used to increase the money supply in the financial system and subsequently stimulate the economy. Business Insider did a great rundown of the top holders of our debt, and right behind China is U.S. households with $959.4 billion in holdings. And so on.

It’s an idea that won’t die, alas.

One response to “China and US Debt”

Stormy Dragon

July 26, 2011 at 12:08 pm

If you own any sort of mutual fund, either directly or through some sort of IRA, 401k, 403b, etc. you probably own a ton of treasure securities. Even if it’s in an account that wouldn’t seem like it. For example my 401k offers a fund that tracks the The Dow Jones-AIG Commodity index. If you look in the details, 60% of it is being held in short term treasury securities.

I wonder what’s going to happen if there is a default and large swaths of the middle class wake up the next day and discover half of their retirement savings have been wiped out overnight?

I’ve put most of my money in a stable value fund for the time being, which is ironically still mostly invested in treasury securities, but at least they’re insured against default by a third party. Although I wonder if the insurers won’t go under with everyone claiming at once following a government default.