The continuing increase in foreign holdings of U.S. debt indicates a confidence among overseas investors in the economy of the U.S., despite the pending fiscal cliff issue.
San Francisco, CA (PRWEB) November 30, 2012
The U.S. Treasury Department reported on November 16th, 2012 that the demand from foreign investors for U.S. Treasuries has increased for the ninth straight month. Total foreign holdings of U.S. Treasury debt rose 0.1 percent from August to a record $5.46 trillion. The continuing increase in foreign holdings of U.S. debt indicates a confidence among overseas investors in the economy of the U.S., despite the pending fiscal cliff issue.
China remained the largest holder of U.S. debt, however the increase in their holdings was just $0.3 trillion bringing the total holdings to just shy of $1.16 trillion. Japan, on the other hand continues to rapidly accumulate U.S. debt and may soon surpass China as the largest holder of U.S. debt. Japan increased their holdings by nearly $0.8 trillion and now holds $1.13 trillion in U.S. Treasuries.
Though the economy, budget cuts, and tax increases remain uncertain in the U.S., investors remained confident. U.S. lawmakers in Congress are at odds with the President Barack Obama regarding the 2013 budget, however economists are predicting that foreign demand for U.S. debt will continue to climb, given the even greater uncertainties present in the European economies.
According to Louis Basenese, Chief Investment Strategist for Wall Street Daily; “…foreign buyers looking to park literally hundreds of billions of dollars in relatively safe, liquid assets have no other choice. It’s U.S. Treasuries or nothing else.”
Also of note is the fact that the U.S. will reach its $16.39 trillion borrowing limit by the end of 2012. The debt ceiling caused concerns in 2011 as well, until lawmakers were able to reach a compromise. The U.S. Treasury Secretary said he will use the same measures as in 2011 to avoid a U.S. debt default, the first ever if Congress won’t raise the debt ceiling.
That 2011 debt ceiling standoff caused a downgrade of U.S. debt by the credit ratings agency Standard & Poor’s from AAA to AA+. This was the only time that U.S. government debt has been downgraded, though ratings agency Fitch has also stated that they will have no choice but to downgrade U.S. debt from its current AAA rating with them should Congress and the President fail to reach an agreement on the budget.
Washington leaders are already in talks to resolve the looming budget and fiscal cliff issues, and so far investors remain confident that a resolution will be found. Based on the continuing purchases of U.S. debt by foreign nations, they too seem optimistic that the U.S. will find a way to resolve its budget and economic woes.
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