The importance of these numbers cannot be understated. If one segregates the buyers of U.S. debt into its four main categories foreign buying is most important. Presently, it is believed that foreigners own 31.2 percent of outstanding U.S. debt. American households and businesses own 29.1 percent; Social Security and other government pension funds own 27.5 percent; and the Federal Reserve holds 14.2 percent. There is 2 percent double counting in the figures mainly in the amount held by Americans.
This fiscal year due to the tax cut, higher interest rates and possibly other new fiscal programs, it is expected that the government must raise possibly another trillion dollars along with refinancing a portion of the $20 trillion already owed.
The Federal Reserve does not want to contribute. The Social Security funds may not have much in incremental dollars to contribute. Americans want higher interest rates to contribute. So the expectation is that foreigners will not only not sell the U.S. debt that they have but they will add more.
Thus, the Treasury Department’s new figures are very encouraging and more than a little surprising. Cutting through the rhetoric, if foreigners believe in the Trump economic program and are willing to contribute to make it work, interest rates at the long end of the curve may not move as high as is now currently projected by many.
If the foreigners do not step up, then there will be problems. Someone has got to buy the increased debt. The federal government does accept voluntary contributions.
— Richard X. Bove is an equity research analyst at Vertical Group and the author of “Guardians of Prosperity: Why America Needs Big Banks” (2013).