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Can Russia Cause a Run on US Debt?

March 19th, 2014 by 
PK

Recently, we (re-)found this linked article which referenced a canned 2008 plan in which the Russian Government had semi-seriously considered triggering a run on Fannie Mae and Freddie Mac Treasury debt, and had made initial overtures to the Chinese.  That, of course, never came to fruition (although both companies were hugged even closer by the Federal Government without manipulation).

Since news events from the Crimean Peninsula have increased paranoia in the mainstream financial press, certain paranoid corners of the internet have wondered whether it's possible that through financial engineering by a foreign nation, US debt could be somehow manipulated.  Let's dive in!

The Good News?

Well, the good news is that such a scenario isn't highly likely.

As the largest economy in the world (encompassing around 25% of combined world GDP... or is it G'W'P?), the biggest economics guns still reside in the US - talk of losing our hegemony aside.  However, it's an interesting enough question to ask: who really owns the US's Debt?  When we say "$17,293,020,000,000.00" in Treasury debt was outstanding at the beginning of February 2014... who was holding it?  Is there any risk of a problem?

Not highly likely.  For starters, ~$5 Trillion is held by other government agencies (the largest being Social Security and the Civil and Military retirement trust funds, ~$4.1 Trillion of that).  Another ~$2.2 Trillion?  Held by the Federal Reserve.  Add US corporations and typical citizens, and you get somewhere in the neighborhood of $4.2 Trillion more held in America.

That last $5,832.7 TrillionThat's the portion of the debt held by other countries (technically, the amount of debt sold in other countries).  "Just" 33.729% of the total... if every other country banded together to commit financial shenanigans against the United States.

American Treasury debt, by country

All others includes domestically held debt. (Sources above)

Everything In Perspective

And here is the full foreign holdings chart, straight from the Treasury and cleaned up a bit (let me put some thought into visualizing it - I'll return to this topic when I come up with something):

Treasury Debt HeldPercentage of Total
China, Mainland$1,273,500,000,000.007.36%
Japan$1,201,400,000,000.006.95%
Belgium$310,300,000,000.001.79%
Caribbean Banking Centers 1
$293,300,000,000.001.70%
Oil Exporters 2
$246,400,000,000.001.42%
Brazil$246,000,000,000.001.42%
Taiwan$179,100,000,000.001.04%
Switzerland$173,700,000,000.001.00%
United Kingdom$162,900,000,000.000.94%
Hong Kong$160,300,000,000.000.93%
Luxembourg$135,300,000,000.000.78%
Russia$131,800,000,000.000.76%
Ireland$108,800,000,000.000.63%
Norway$88,200,000,000.000.51%
Singapore$85,900,000,000.000.50%
India$68,100,000,000.000.39%
Mexico$67,200,000,000.000.39%
Germany$63,900,000,000.000.37%
France$57,500,000,000.000.33%
Korea$55,600,000,000.000.32%
Canada$55,300,000,000.000.32%
Turkey$48,900,000,000.000.28%
Thailand$47,800,000,000.000.28%
Philippines$38,700,000,000.000.22%
Sweden$34,900,000,000.000.20%
Colombia$32,900,000,000.000.19%
Netherlands$32,300,000,000.000.19%
Poland$31,200,000,000.000.18%
Australia$31,000,000,000.000.18%
Italy$30,400,000,000.000.18%
Kazakhstan$29,800,000,000.000.17%
Chile$27,100,000,000.000.16%
Israel$24,200,000,000.000.14%
Spain$23,200,000,000.000.13%
Denmark$14,100,000,000.000.08%
Peru$13,800,000,000.000.08%
South Africa$11,500,000,000.000.07%
Malaysia$10,800,000,000.000.06%
Vietnam$10,600,000,000.000.06%
All Other$174,900,000,000.001.01%

Also straight from the Treasury, these footnotes:

1/  Caribbean Banking Centers include Bahamas, Bermuda, Cayman Islands, former Netherlands Antilles and Panama.
     Beginning with new series for June 2006, also includes British Virgin Islands.
2/  Oil exporters include Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar,
     Saudi Arabia, the United Arab Emirates, Algeria, Gabon, Libya, and Nigeria.

Not a Huge Threat

When it comes down to our debt, we're the adult playing in the sandbox.  Fannie and Freddie or other quasi-Government agencies might be more exposed to manipulation than the US in general, but we have the resources to put a quick halt to any manipulation.

So, "myth busted".  Let us know what else you're wondering about in the comments!

      

PK

PK started DQYDJ in 2009 to research and discuss finance and investing and help answer financial questions. He's expanded DQYDJ to build visualizations, calculators, and interactive tools.

PK is in his mid-30s and works and lives in the Bay Area with his wife, two kids, and dog.

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