Summer 2014: Who Really Owns the U.S. National Debt?

Who are the major holders of debt issued by the U.S. federal government going into the summer of 2014?

The answer is presented graphically below:

On the whole, there haven’t been many changes since our previous edition. We see that the debt reported to be held by Belgium is still considerably inflated over historic levels, as this nation’s banks would appear to have acted on behalf of Russian interests seeking to place their U.S. government-issued debt holdings in non-Russian financial institutions ahead of and in the months following Russia’s actions to seize control of Crimea from Ukraine.

Tapering the Federal Reserve’s Quantitative Easing Program

Our special area of focus on this update of our irregular series on the ownership of the U.S. national debt looks at the role of the Federal Reserve’s Quantitative Easing (QE) programs as the central bank of the U.S. has gone from holding a low of $478.7 billion in U.S. government-issued debt securities on 18 June 2008 up to an astounding $2,414.8 billion on 28 May 2014. As of that date, the Federal Reserve held a a combination of $2,370.7 billion in U.S. Treasury securities and $44.1 billion in debt securities issued by other federal government agencies.

The Federal Reserves holdings of these securities now accounts for 13.8% of all the total public debt outstanding for the U.S. federal government, which totals $17.490 trillion as of 31 May 2014. On 1 January 2014, the U.S. national debt stood at $17.352 trillion, of which the Federal Reserve held some $2.266 trillion, or 13.06%.

The Federal Reserve also holds some $1,648 billion in mortgage-backed securities, which are primarily issued by government-backed entities, including the Government National Mortgage Association (Ginnie Mae), which is owned by the U.S. federal government, and the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), which are nominally private institutions, but which have been operating under government conservatorship since 2008. Although these government-backed entities issue mortgage-backed securities, their role is to collect and bundle the mortgages of U.S. homeowners and firms for the money they’ve borrowed into pools, which are then securitized and traded on the open market – it is not money borrowed by the U.S. Treasury or federal government agencies.

The Federal Reserve began its most recent round of QE government-issued debt buying in the fourth quarter of 2012, which it began doing to keep the U.S. economy from falling into a full-fledged recession at the time. Beginning in January 2014, the Federal Reserve has been steadily reducing the amounts its QE purchases every six weeks, as it believes the risk of falling into recession has diminished.

Even though the Federal Reserve has been reducing its purchases of U.S. government-issued debt securities since the beginning of 2014, as of 28 May 2014, it has boosted its net holdings of the federal government’s liabilities by $148.8 billion. Meanwhile, the U.S. federal government borrowed an additional $138.1 billion from 1 January 2014 through 28 May 2014.

Or rather, the Federal Reserve has acquired 107.7% of the net new debt that has been issued by the U.S. Treasury and other federal government agencies during the first five months of 2014.

That’s possible because of two factors. First, with the bills for U.S. federal income taxes coming due on 15 April 2014, the federal government experiences a surge of tax revenue during this part of the year, which can be enough to allow it to run a short-term surplus, reducing its need to borrow money during this period of time.

Second, the Federal Reserve is displacing other entities that lend money to the U.S. government, who are seeing their share of debt issued by the U.S. government fall as the debt they hold matures. That allows the U.S. Treasury to roll over a portion of the existing national debt and borrow more money, in this case, from the Fed, which doesn’t show up as a net increase in the overall size of the national debt.

And that is how the U.S. Federal Reserve can lend more money to the U.S. federal government than the U.S. government appears to have borrowed, even as the Fed is reducing the amount it lends to the government!

Data Sources

Federal Reserve Statistical Release. H.4.1. Factors Affecting Reserve Balances. Release Date: 5 July 2013. [Online Document]. Accessed 16 July 2014.

U.S. Treasury. Major Foreign Holders of Treasury Securities. Accessed 16 July 2014.

U.S. Treasury. Monthly Treasury Statement of Receipts and Outlays of the United States Government for Fiscal Year 2013 Through May 31, 2014. [PDF Document].