China Overtakes UK as 2nd Largest Holder of U.S. Securities

China has now replaced the United Kingdom as the second largest foreign holder of U.S. long-term securities. In the Treasury Department report released May 31, 2007, China holds $699 billion of U.S. stocks, bonds and U.S. Treasury notes, compared to the U.K., which holds $640 billion. Japan remains the largest holder, at $1.106 trillion in U.S. securities.

The Treasury Dept. reported that the holdings of Middle East oil-exporting countries, including Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates, totals $243 billion in U.S. securities. However, it is suspected their holdings are much larger. That is because the holdings of Belgium, Luxembourg, the Netherlands, Cayman Islands and Switzerland, are a whopping $1.907 billion. It is suspected that these countries are refuges holding companies that front for the oil-exporting countries. (Source: U.S. Treasury, Foreign Portfolio Holdings of the U.S. Securities, May 31, 2007)

What It Means to You

The massive foreign holdings of Japan, China and the oil-producing countries means that the U.S. economy is living on borrowed money. As long as the party lasts, we can continue to enjoy our higher standard of living. However, the U.S. economy is becoming more beholden to those from whom we buy our consumer products, automobiles and oil.

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