That geek’s delight, the Treasury Department’s newest monthly report on international capital flows into and out of the United States, just came out this afternoon, and the data for September showed something that hasn’t happened since last June: The U.S. Treasury debt holdings of China, Japan, foreign governments and central banks overall, and all foreign purchasers, went down on a monthly basis. All four categories of U.S. creditors hadn’t decreased their holdings on net since June, 2013.
These declines aren’t yet anywhere near big enough to endanger the nation’s ability to borrow heavily to finance its expenses and living standards. In fact, total foreign holdings of U.S. official debt, along with the holdings of most major creditors, remain near record highs. Further, these modest September declines followed substantial foreign net purchases in August. The massive monetary easing program announced by the Bank of Japan at the end of October could significantly change the global picture all by itself. And no one should forget that Americans still hold about two-thirds of all the debt issued by the federal government.
But for now, the September figures add to evidence that willingness abroad to finance American over-spending is waning. For example, between December, 2013 and this past September, total foreign holdings of U.S. Treasury debt rose by 4.62 percent. That’s higher than the 1.42 percent increase during the same period between 2012 and 2013. But it’s less than half the 9.37 percent jump between December, 2011 and September, 2012.
Foreign government holdings of Treasury debt have followed the same pattern. From last December to September, 2014, they rose by 2.10 percent. During the same period the year before, they fell a bit (by 0.43 percent). But from December, 2011 through September, 2012, their holdings grew by 9.32 percent.
Finally, America’s two largest foreign creditors, China and Japan, respectively, have become more reluctant to hold Treasury securities as well. From December, 2013 to September, 2014, Chinese holdings fell by 0.30 percent, after rising by 6.01 percent during the previous comparable period. From December, 2011 to September, 2012, they increased by only 0.15 percent – but they still rose.
Japan’s changes look less dramatic. During the September-December periods of 2011 to 2012, and 2012 to 2013, its Treasury holdings increased by a robust 6.65 percent and 6.02 percent, respectively. During this latest such period, the grew more slowly, but the rate was still 3.26 percent. Yet nearly half the increase occurred between December and January alone.
The strongest reason not to overreact to signs of diminished foreign appetite for U.S. Treasury debt is that overall global demand for this debt remains healthy – as evinced by its historically strong prices and low yields, and by the recent surge in thd dollar. Indeed, I remain as confident about this continuing demand as when I wrote about it earlier this year.
But it’s inarguable that the foreign holdings numbers now look somewhat different. If overseas investors remain more standoffish creditors, their American counterparts and possibly the Federal Reserve will need to do even more heavy lifting to keep the national credit card humming. Which means they’ll have to assume more of the risk, too.