Excerpt
The $64 Trillion Question: With Foreigners Stepping Aside, Who Will Buy U.S Treasuries?
During its latest, quarterly meeting, the Treasury Borrowing Advisory Committee (aka the TBAC, which many years ago we dubbed the Supercommittee That Really Runs America, an assessment which 8 years later Bloomberg now generally agrees with), released minutes of its Jan. 29 meeting held at the Hay-Adams Hotel in conjunction with the U.S. government’s quarterly refunding announcement.
While there were many topics of discussion (discussed previously here), the TBAC highlighted two key areas of concern: i) the soaring US budget deficit, and specifically the possibility of significant financing gap over next 10 years amounting to over $12 trillion and the potential need for more domestic investor participation if foreign reserve growth slows; and tied to that ii) the worry that since "foreign investors already hold significant dollar debt", and have been paring back substantially on their Treasury purchases in recent years, the US will have to increasingly rely on domestic savings to fund its future budget deficits.
Of particular note, the TBAC said, tongue in cheek, that while the "USD is still the dominant reserve currency", reserve managers have been very gradually increasing allocation to other currencies, and that the USD share of FX reserves has steadily come down from 72% in 2000 to 62% now. It also pointed out that other countries with significant debt issuance needs (as a share of GDP) depend far more on domestic savings. As a result, "the Treasury should plan to meet financing needs more domestically than in the recent past."
All the views expressed in, and at the source of, this article may not necessarily reflect those of T.E.A. Watchers.
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