After successfully raising the debt ceiling, the United States has temporarily averted the risk of defaulting on its debt. However, this also means that the United States will no longer be restricted in issuing debt, and the long-suppressed path of debt expansion is set to restart and accelerate.

At the same time, the data on foreign holdings of U.S. Treasury bonds for April has been released. Japan continues to increase its holdings, while China and the United Kingdom are consistently reducing theirs. Russia is also accelerating its liquidation, with its holdings of U.S. Treasury bonds dropping to a low point.

U.S. Debt Scale Exceeds $32 Trillion for the First Time

On the 15th of this month, the U.S. debt scale surpassed $32 trillion for the first time. Within just two weeks of the United States announcing the increase in the debt ceiling, the debt quickly soared from $31.4 trillion to $32 trillion.

This means that in less than half a month, the United States has expanded its debt by $600 billion.

Looking at historical data, in 2008, U.S. national debt first broke through the $10 trillion mark, in 2017 it surpassed $20 trillion, and in 2022 it broke through $30 trillion. It took 9 years to go from $10 trillion to $20 trillion, and only 4 years to go from $20 trillion to $30 trillion. The rate of U.S. debt expansion is accelerating.

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If we project based on the current expansion rate, it is expected that by 2030, the U.S. debt scale will exceed $50 trillion, and this is a conservative estimate.

The higher the scale of U.S. national debt, the more interest needs to be paid. According to a prediction by a U.S. foundation, U.S. debt is expected to exceed $120 trillion within 30 years, with the interest payments reaching 40% of the U.S. federal treasury's revenue. If the interest cannot be paid, debt default will become a reality.

In addition, overseas investors hold $7.5 trillion in U.S. Treasury bonds. Whether overseas investors will increase or decrease their holdings of U.S. Treasury bonds in the coming decades is crucial.

China and the United Kingdom Consistently Reduce Holdings of U.S. Treasury BondsIn the middle of this month, the US Department of the Treasury also released the data on US Treasury bonds for April this year. Due to a two-month delay in the data, the April data is currently the latest, and the May data will not be announced until mid-July.

The overseas investors mentioned in the text include major countries holding US Treasury bonds, such as China, Japan, and the United Kingdom. Currently, more than 30 countries hold US Treasury bonds, with a total of $7.5 trillion, accounting for 23.4% of the total scale of US Treasury bonds. Many years ago, this proportion was as high as 30%, and now it has further declined.

In March, almost all overseas investors were increasing their holdings of US Treasury bonds, and the top ten holders of US Treasury bonds all increased their holdings collectively, which can be said to be a very rare scene.

However, in April, due to the internal disputes in the United States over raising the debt ceiling, the risk of debt default was almost imminent. This risk changed the attitudes of many overseas investors, so many countries began to reduce their holdings of US Treasury bonds in April.

According to the data released by the US Department of the Treasury, Japan continued to increase its holdings of US Treasury bonds in April, increasing by $39.3 billion that month. Japan remains the largest overseas creditor of the United States. China reduced its holdings by $400 million that month, reducing its holdings to $869.3 billion and resuming the sale of US Treasury bonds.

As the third-largest overseas holder of US Treasury bonds, the United Kingdom significantly reduced its holdings by $30.4 billion that month, further reducing its holdings.

Russia accelerated the clearance of US Treasury bonds.

If we talk about the country that has reduced its holdings of US Treasury bonds the most thoroughly, it should be Russia. In April, Russia reduced its holdings by $42 million, with only $3.5 million left in its holdings, almost clearing all US Treasury bonds. Russia is also the major country with the least holdings of US Treasury bonds.

Due to the long-standing sanctions imposed by the United States on Russia, as early as 2014, Russia initiated a plan to sell US Treasury bonds, and the selling force was very decisive. The hundreds of billions of US Treasury bonds held by Russia were almost all cleared in just a few years.

Since the joint sanctions by Europe and the United States against Russia last year, Russia has almost no US dollars to use. Since they cannot be used, they might as well continue to sell and cash out. At the same time, due to financial sanctions, Russia is also unable to use US dollars for trade settlement with other countries. Therefore, the US dollar in Russia's foreign exchange reserves has also significantly decreased. With the increasing frequency of trade with China, Russia has begun to significantly increase its reserves of RMB assets.Not long ago, Russia made dividend payments for an oil project to Japanese companies using the Chinese yuan, and Japan did not explicitly object but accepted it directly.

Summary

The United States will continue to issue U.S. Treasury bonds crazily next. Some experts believe that many countries will start to increase their holdings of U.S. Treasury bonds again in the second half of the year. There are also voices suggesting that countries will continue to reduce their holdings of U.S. Treasury bonds, but whether China will increase or decrease its holdings is more important.

After all, the risk of U.S. Treasury bond default has not been truly eliminated. With the continued expansion of debt, the risk is also increasing. Therefore, reducing holdings of U.S. Treasury bonds should be the general direction in the future, while continuing to increase gold reserves and further diversifying foreign exchange reserves is particularly important.