When it comes to the unsustainable US government debt levels, the popular narratives among financial journalists for the past decade was the huge amount of US government-issued debt held in the form of US treasury bonds by China, so much so, that if you ask most Americans the question, Who is the larger holder of US Treasury debt, most people still answer China. By 2019, Japan surpassed China as the largest foreign holder of US Treasury debt, holding $1.16 trillion of US treasury bonds versus the $1.13 trillion held by China at the end of last year. Still, Japan would not be the correct answer to the question, Who holds the largest amount of unsustainable US government debt?
The correct answer, of which most Americans are still unaware, is the US Central Bank, with nearly $2.5 trillion of US treasury issued debt, more than the total of China and Japan combined. After that, the second largest holder of US treasury issued debt are US pension plans, with possession of $2.01 trillion. Most Americans falsely believe that China or Japan is the largest holder of American debt because US mainstream financial media almost never discusses the massive domestic holdings of unsustainable US government debt but instead, chooses to focus on the largest foreign holders of this debt.
But nearly 20% of all US government issued debt is held by Americans, in which the massive amount of Treasury debt owned by US Central Bankers is literally a case of the right hand passing the buck to the left hand. Even worse is that this near 20% holding is growing every day, as the US Central Bank has resorted to more sleight of hand in recent times, in buying back from US banks, after just a few days, US Treasury bonds that they have purchased through primary dealer auctions. Thus, the charade continues of foreigners continuing to cut back their US Treasury bond purchases, and the need for US Central Bankers to engage in deceit and to buy issued US Treasury bonds, even through covert means, to hide the declining demand for US Treasury bonds and unsustainable US government debt.
The situation that is occurring in which the US Central Bank, is by far and away the largest purchaser of US Treasury bonds, would be similar to a hypothetical one in which Apple’s failure in marketing campaigns led to a sharp drop in demand for iPhones, but one in which, quarter after quarter, Apple continued to report a stable or growing demand for iPhones simply by using $10B of cash from its enormous cash reserves to buy iPhones directly every quarter. Or, closer to the case of US banks buying Treasury bonds from the US Treasury, only to be re-purchased by US Central Bankers at a higher price just a few days later, a similar situation at Apple would be if its marketing executives ran a secret campaign in which they told their iPhone clients to buy the next release of the iPhone with the promise from Apple executives that they would re-purchase all of the new iPhones at a higher price, just days later. This secret, artificial boost in iPhone sales, completely deceitful, is the exact same scam that US Central Bankers are running in the US Treasury bond auction market right now.
So the next time someone tells you everything is awesome because the US stock market has been on a roll as of late, though the next big crisis may not happen until H2 2020, understand that everything is NOT copacetic underneath the veneer of delusion being presented to the public by the financial media.