Who really controls America?

Total federal debt compared to the percentage of debt owned by foreigners, 2002 to 2012, quarterly

Everyone knows the US now has a little more than $16 trillion dollars of debt, but who is funding this? I previously refuted the notion that China, of all nations, holds the most US Treasuries (I think the Chinese are far too smart for that), pointing out that America itself held the most US debt. But what about foreigners’ holdings? The chart above shows Total Federal Debt (black line) compared to the % of that debt held by foreigners (red line) over the past ten years. Before the 2007 Credit Crunch foreigners held on averaged 22% of Total Federal Debt, but since July 2007 that number has surged, with foreigners – rushing to put funds into a nation they perceive as a safe haven – now holding over 30% of Total Federal Debt. How long can this go on? Well, an expression on Wall Street goes along the lines of “the markets can stay irrational longer than you can stay liquid”, meaning its tough to time these things but someday foreigners will find an alternative and perhaps dump US Treasuries, or just refuse to purchase. Either way the outcome would be clear and many market professionals are in fact planing on it: surging bond yields as demand for and the price of US Treasuries fall sharply. Some folks think this market event could lead to a takeover of The United States.

Even though I’ve long been sceptical of US treasuries (and at the same time long gold, silver and tangible, cash flow generating assets) I’m not so apocalyptic, however James Garfield, 20th President of the United States pointed out that “He who controls the money supply of a nation controls the nation”. America, it would seem, is losing some degree of control over its own future.

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