42 percent of foreign-owned U.S. debt held by China, Japan

Published: Monday, Oct. 22 2012 10:54 p.m. MDT

In this April 15, 2010 file photo, a man walks past a collage of copies of Chinese RMB, U.S. dollar and other foreign bills at a money exchange store in Hong Kong.

Associated Press

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Issuance of U.S. government debt is conducted by the U.S. Department of the Treasury. Debt issuance is needed when the U.S. government is spending more than it is taking in. Foreign domiciled purchasers are significant owners of U.S. government debt obligations.

As last reported by the U.S. Treasury, foreign owners held more than $5.4 trillion of U.S. government-issued obligations.

Chinese domiciled entities hold approximately $1.15 trillion of U.S. government debt.

This represents slightly more than 21 percent of all the debt owned by foreign entities.

About one year ago, Chinese owners held just less than 27 percent of all foreign-owned U.S. government debt. The total owned by the Chinese one year ago was reported to be $1.28 trillion, or $130 billion more than the most recent figure.

Right behind the Chinese — and gaining over the past year — are the Japanese domiciled owners of U.S.-issued government debt. Current holdings of $1.12 trillion are reported. This is a meaningful increase of more than $214 billion from a year ago.

Based on these figures, each person in the U.S. owes our foreign creditors more than $17,400. Within that total amount owed, we each owe the Chinese debt-holders about $3,700, and we each owe the Japanese debt-holders approximately $3,600.

When domestic holders of U.S. government debt are included, the total per capita debt burden currently exceeds $53,000.

Servicing the interest payments on these sizable debt balances is becoming a significant concern. Given the ongoing need to issue more and more U.S. government-guaranteed debt obligations to fund the increasingly large government deficit, any material increase in interest rates will cause the rates on new-issued debt to become more expensive.

Purchasers of the higher interest rate bearing debt will enjoy increased yields, while the servicing costs of this debt will likely consume a greater and greater portion of the U.S. government's overall budgeted spending.

Foreign entities have a wide range of motivations for purchasing and owning U.S. government-issued debt.

As can be seen by the year-over-year decrease of approximately $130 billion in the total U.S. debt owned by the Chinese, there is some interest in decreasing holdings of U.S. debt on the part of some of our largest foreign creditors.

Living on $1 less than one's income is relatively peaceful as compared to attempting to live on $1 more than one's income.

When employed prudently and strategically, debt can be a powerful ally. Profligate, debt-fueled spending will eventually lead to pain and difficulties.

Kirby Brown is the CEO of Beneficial Financial Group in Salt Lake City.

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