U.S. Treasury Debt by Holder (1985-2006)

I created this graph by taking the data from this source and inflation adjusting it to 2006 dollars. My thinking was that it would useful to visualize who owns the publicly available U.S. treasuries, and in what proportion.

Here are few observations I feel compelled to make:

1. Publicly held debt appears high, but not at record levels. Nor does it appear to be increasing dramatically (in real terms) as of 2006. This suggests to me that concerns over U.S. treasury debt spiraling out of control may be overblown.



2. While the proportion of foreign holdings has been increasing dramatically since 2000, domestic holdings have seen a similar dramatic decrease since 1994. It seems plausible that the domestic loss of interest in treasuries is related to the strong performance of other asset classes (namely stocks and real estate) since 1994. The implication of this may be that a decrease in foreign treasury ownership won't be a disaster for U.S. interest rates as some suggest - such a treasury "bailout" might cause rates to rise initially, but this could ultimately depress prices of other assets, increase real returns on treasuries (making them more attractive), and lead to a domestic increase in treasury ownership (the "pent up demand" theory). Taking this argument one step further and putting it into the context of a multi-decade bull market in U.S. assets that may be nearing a (possibly grisly) end, leads me to believe that concerns over dramatically rising interest rates due to declining foreign inflows or petrodollar recycling are also overblown (at least over longer time frames - I think a sudden interest rate "spike" is at least a possibility, however).



3. Federal Reserve holdings have been increasing over time, but are still a small proportion of overall holdings. I don't know if this means they've been monetizing the debt, but it suggests to me that they could (by buying more treasuries) to keep interest rates low if necessary (here I'm assuming the Fed has unlimited capacity to do so). I think this is yet another factor making an economically debilitating surge in interest rates unlikely.

These are just some conjectures I came up with after briefly looking at the data. Feel free to point out any flaws in the reasoning, make counterarguments, etc. I won't get my feelings hurt.

Notes: I believe this data set might understate foreign holdings by 5% or so. Also, Fed Holdings are also contained in Domestic Holdings, which is why they don't appear to contribute to the Total Holdings.