by Kenneth Rudich
At the same time the United States has been grappling with a major recession, it has also racked up a staggering amount of debt. The Obama administration budget plan released on Feb. 1 projected an unprecedented deficit of $1.56 trillion for this year. On top of that, the outlook for getting relief from having to repay it…never mind.
According to an article in the Huffington Post written by AP Business Writer Bernard Condon, this may be dampening the appeal of U.S. Treasury Bills.
Foreign holdings of U.S. Treasury Bills saw a record plunge of $53 billion in December. It surpassed the last record drop in April 2009, at $44.5 billion. If these trends continue, the U.S. may have to pay a higher interest rate on its Treasury Bills, which could have the dual consequence of making the national debt soar even higher while stock prices tumble. If you don’t know what that means, just assume it will drive the wedge ever so deeper.
China stood at the front of the reduction line and shed its holdings of U.S. Treasury Securities by $34.2 billion in December. Carnegie Mellon University economics professor Alan Meltzer regards this as a sign that China may be worried the U.S. has “an unsustainable debt level and no real plan for dealing with it.”
Japan, on the other hand, doesn’t appear to share China’s trepidation. It actually increased its holdings by $11.5 billion, making it America’s biggest creditor once again. Japan now holds $768.8 billion in treasurys as compared to China’s paltry $755.4 billion. Neither of these stunning figures strike me as oozing with fear about recouping a handsome gain on their investments.
And yet, for all of 2009, foreign holdings in U.S. Treasury Bills still decreased by $500 million.
Just by virtue of how whopping these numbers really are, it does beg the question: what is the U.S. left holding after all this…a maxed out credit card in one hand and a mortgaged future in the other?
Economists as a whole seem divided about the severity of this circumstance. Some don’t believe too much should be read into it. They argue that the drop was in short-term treasury debt, which tends to be volatile from month to month. They claim the trend could easily be reversed in the coming months.
They also pointed out that longer-term U.S. treasury debt purchases climbed by $70 billion in December (is this a good thing? isn’t the general outcome of selling more debt…well, more indebtedness?).
Other economists see these trends as an early indication of growing unease over the depth and weight of the current U.S. debt.
Me? I’m thinking the U.S. might want to consider revamping its marketing strategy, up to and including, finding something else to sell other than debt. Maybe something with a return on investment for a change. Just a thought.
What do you think? How would you characterize the U.S. prospects for staying marketable in the years ahead?