Who Will Buy America’s Debt Now?
BY: Alex Gloy
US government debt: $31.3tn, with $12tn owned by US private investors, $6tn by the Fed, $7tn by US agencies/trusts, $7tn by foreign holders.
Regulators forced banks to hold US government debt after the financial crisis, but rising interest rates caused massive losses.
Fed owns $8.4T of US debt, including $6T of US gov debt and $2.4T of GSE debt, causing over $1T in unrealized losses.
Federal Reserve's capital deficiency is treated as an asset. If the bank incurs a loss, it accumulates a "deferred asset."
Federal Reserve's large share of outstanding debt could hurt credibility. Private investors might question the bond prices' legitimacy.
BOJ owns over half of JGBs, its balance sheet exceeds 120% of Japan's GDP, resulting in a lack of trading.
Central banks must consider market domination, credibility, and liquidity of bonds. Social Security Trust Fund holds $3tn of US debt.
Foreign investors hold $7.4T of US government debt, accounting for 23.6%. Each official and private account held $3.7T.
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