Printing money when the economy is not doing well? The United States is doing exactly that, moving further and further down the path of money printing, much like an addict obsessed with drugs, unable to extricate themselves from the addiction. During the health crisis in 2020, the U.S. economy was significantly affected, with the stock market, the focal point of American wealth, experiencing a rare phenomenon of multiple circuit breakers as it plummeted dramatically.
Indeed, the U.S. resorted to its usual approach, with the Federal Reserve implementing unlimited quantitative easing (QE) measures, and the printing presses were immediately activated, injecting a large amount of capital into the market, especially into the stock market. This was also the main reason for the subsequent rise in the stock market. The Federal Reserve's underwriting has also accelerated the expansion of the U.S. debt scale.
The U.S. debt scale has expanded significantly, surpassing 28 trillion U.S. dollars.
In previous years, the Federal Reserve has maintained the "habit" of printing money, and the intensity of money printing only increases when facing an economic crisis, further exacerbating the expansion of the U.S. debt scale.
For the United States, there is no other way to stimulate the economy except to continue printing money. In March 2021, the U.S. debt scale exceeded 28 trillion U.S. dollars for the first time. According to data released by the U.S. Department of the Treasury in June, as of the end of April 2021, the U.S. debt scale had reached 28.2 trillion U.S. dollars, and the U.S. debt is heading towards the 30 trillion mark.
Since entering 2021, the global economy has been on the path to recovery. In the first quarter, China's GDP grew by 18.3%, while the U.S. GDP grew by 0.4% year-on-year. Although the U.S. economy has shown some signs of improvement, the Federal Reserve is still on the path of money printing. In March of this year, a 1.9 trillion U.S. dollar "economic aid plan" arrived, which was the sixth round of economic stimulus measures since last year.
According to statistics, from March 2020 to March 2021, over the course of a year, the Federal Reserve printed 4.7 trillion U.S. dollars, further accelerating the expansion of U.S. debt, with the debt growing like a snowball rolling larger and larger.
However, as the U.S. debt scale continues to rise, overseas debt holders are tirelessly increasing their holdings of U.S. debt. In the latest report on international capital flows released by the U.S. Department of the Treasury in June, more than 100 billion U.S. dollars flowed into U.S. debt in April this year, with overseas debt holders increasing their holdings by 41.8 billion U.S. dollars.
The United States may not have anticipated that its debt scale would continue to grow, printing 4.7 trillion U.S. dollars in a year, yet overseas buyers are still "picking up the tab." Among them, some buyers are increasing their holdings, while others are reducing them. So, has China sold any?
China has reduced its holdings of U.S. debt for two consecutive months.According to data from the U.S. Department of the Treasury, in April of this year, Japan increased its holdings of U.S. Treasury securities by $36.4 billion, becoming the "main force" in increasing U.S. debt in April. Japan remains the largest foreign creditor of the United States, with the scale of U.S. debt holdings maintained at $1.27 trillion.
China has reduced its holdings of U.S. debt for two consecutive months. In April of this year, China reduced its U.S. debt by $4.3 billion, and last month it continued to reduce. Currently, China holds $1.09 trillion in U.S. debt, making it the second-largest holder of U.S. debt.
Overall, the scale of China's holdings of U.S. debt is continuously declining and relatively stable, with a slight reduction every year. In addition to China, the United Kingdom is also continuously reducing its holdings of U.S. debt, and other major countries holding U.S. debt, such as Brazil and Ireland, have also taken actions to reduce their holdings.
So, who is paying for the $4.7 trillion printed by the United States, and who is "picking up the plate"? First, the strength of countries like Japan in increasing U.S. debt is very small, and compared with trillions of U.S. debt, it is a drop in the bucket and not worth mentioning. However, overseas buyers represented by Japan have also contributed to the $4.7 trillion debt.
In addition to overseas buyers of U.S. debt, the Federal Reserve, U.S. commercial banks, U.S. pension funds, individuals, and U.S. institutions are the largest buyers of U.S. debt. Among them, the Federal Reserve has increased its holdings of U.S. debt by $2.4 trillion since March 2020, accounting for half of the increase. The Federal Reserve is printing money crazily on the left hand and buying massively on the right hand. Can you understand this operation of the Federal Reserve?
In addition, U.S. commercial banks have increased their holdings of U.S. debt by $26 billion in more than a year, with a cumulative holding of U.S. debt exceeding $1.2 trillion, which is more than China's holdings of U.S. debt. U.S. pension funds also hold more than $6 trillion in U.S. debt, and have increased their holdings by nearly $100 billion in the past year, equivalent to the scale of holdings of overseas creditors excluding China.
However, U.S. institutions hold a large amount of U.S. debt. The increase in U.S. debt in the past year is comparable to that of the Federal Reserve, and its holding scale is as high as $8.7 trillion, higher than the holding scale of overseas creditors, accounting for about one-third of the total U.S. debt.
According to the description of the International Monetary Fund (IMF), a debt-to-GDP ratio exceeding 80% will sow the seeds of a debt crisis, and the current ratio in the United States has reached as high as 134%, far exceeding the weight of 80%. It can be predicted that the United States will not stop printing money, which means that the United States is not far from the outbreak of a debt crisis.