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China's US Debt Holdings Hit Record, But Fed Holds Most Of All

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China's US Debt Holdings Hit Record, But Fed Holds Most Of All

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The financial media is headlining the fact that China's holdings of U.S. debt hit a record in November, according to information just released by the Treasury Department. This may be to soothe markets whose nerves were jangled by China's call to "de-Americanize" international trade, and the announcement that it was no longer in China's interest to grow its forex reserves.

As the chart above shows, the largest holder of U.S. debt is actually the Federal Reserve. Although it denies it is monetizing the government's debt, that is basically what is happening as it "invents" money with which to buy Treasury bonds from the Wall St. banks.

The latest Treasury report on foreign holders of U.S. debt cites figures fromĀ  November. Therefore, we pulled up the numbers for November from the New York Fed website, in order to compare apples to apples. The Fed held $2.114 trillion in bonds, while China, the largest foreign buyer of U.S. debt, held a record $1.317 trillion. Next highest was Japan, at $1.186 trillion. After that, the totals fall off dramatically.

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For the month of November, China bought $12.2 billion in U.S. debt, while Japan bought $12 billion. During this same time period, the Fed bought $45 billion. The much-celebrated "taper" by the Fed will only knock $5 billion from that monthly purchase.

Next time someone says "China would never sell it's U.S. debt, as it would destroy its #1 market," ask yourself "How is the FED going to "shrink its balance sheet" i.e., sell the U.S. debt it holds, without devaluing the dollar completely, or having the government default?

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