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US$ billion<br />
US$ billion<br />
India<br />
Strategy Note | January 1, 2019<br />
It appears the rest of the world, which has been financing the<br />
US, is turning its back on the country<br />
Until now, the rest of the world and trade deficits (true trade deficits) have been<br />
financing the US budget, and the American consumer has been living the<br />
“American dream” of low inflation, low interest rates and state-funded social<br />
security.<br />
Figure 4: Foreign holdings of US treasuries are at the same level as they were in CY14. While China and Japan are reducing their<br />
holdings, new buyers, such as India, have stepped up.<br />
6,000<br />
5,000<br />
China Japan Ireland Brazil UK<br />
Switzerland Luxembourg Hong Kong Taiwan Cayman Islands<br />
Saudi Arabia India Singapore Belgium Russia<br />
Korea<br />
Others<br />
4,000<br />
3,000<br />
2,000<br />
1,000<br />
0<br />
882 1,058<br />
1,111 1,183 1,231 1,122<br />
1,091<br />
1,062<br />
766<br />
626<br />
690 670 623 580<br />
1,160 1,152 1,220 1,270 1,244 1,246<br />
551<br />
318 318 378<br />
727<br />
895<br />
1,058 1,185<br />
223 310 397 478<br />
CY00 CY01 CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17<br />
SOURCES: CIMB RESEARCH, Bloomberg, IMF and world bank data<br />
As such, the incremental deficit is being financed by the<br />
American public and institutions at large<br />
The impact of the financing of budget deficits by US institutions has been the<br />
crowding out of private investment. It is possible that President Trump’s<br />
repeated criticism of the US Federal Reserve and his unhappiness over what he<br />
perceives to be unnecessarily high interest rates stems from the fact that the US<br />
Government deficit has been crowding out private investments (Please see the<br />
link).<br />
Figure 5: The chart below shows the incremental purchases of US bonds by various entities. Foreign buying of US treasuries and<br />
long-dated bonds has declined significantly over the years.<br />
3,000<br />
2,500<br />
Private Depository institution US Saving Bonds Private<br />
State and Local Governments Insurance compnaies Mutual Funds State and Local Governments<br />
Foreign Holdings<br />
Other Investors<br />
2,000<br />
1,500<br />
1,000<br />
500<br />
0<br />
-500<br />
-1,000<br />
CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 Mar- CY18 June - CY18<br />
SOURCES: CIMB RESEARCH, Bloomberg, World bank and IMF<br />
3
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