Introduction
Last week, the Federal Reserve released its latest "Z.1" ("Flow of Funds Accounts of the United States"), with data current through the March 2004 quarter. The numbers are subject to revision, but the data are more than adequate for the usual "big-picture" purposes.
Many investors remain concerned about the United States' large and growing trade and current-account deficits, and whether foreign investors will continue to fund them in an orderly manner. This is certainly a concern I share. So with this in mind, let's look at what our friends abroad were doing during this year's first quarter with regard to our markets.
_____
Some Numbers
* As of 3/31/04, foreign investors held a total of $8.427 trillion of US financial assets, up about $423 billion from revised holdings of $8.004 trillion as of 12/31. From 3/31/03, the increase was approximately $847 billion. (See graph below and Table 1 at the end of the text.)
* As of 3/31, foreign liabilities totaled $3.255 trillion, resulting in a net foreign claim against the US of $5.172 trillion. (See following graph and Table 1.)
* The dollar's exchange-rate value put in a major bottom in the spring of 1995, commencing a steep rise into early 2002. Note in the above graph and in the data in Table 1 how the expansion in the growth of foreign holdings of US financial assets paralleled the dollar's rise.
* As the above graph and the data in Table 1 indicate, the United States, in its modern economic history, became a net debtor during 1985.
* Table 2 segregates the classes of capital-market assets that are readily salable by foreigners, or where a significant slowing in the rate of accumulation could adversely influence domestic prices. As of 3/31, these totaled $5.787 trillion, or a very healthy 68.7% of total US financial assets held by foreigners. This illustrates the sizable exposure US markets would have to any substantial net reduction in these holdings.
(NOTE: The following graph shows the distribution as of 3/31 of foreign holdings of US capital-market assets in relation to the total $5.8 trillion held as of that date.)
* As of 3/31, foreign investors held the following respective percentages of total outstandings of Treasuries, agencies, US corporate bonds and US equities: 39.9%, 11.6%, 25.8% and 12.1%. Combined holdings of Treasuries and agencies were 23.0% of total outstandings.
By comparison, going back to 12/31/94, not long before the dollar put in the major bottom mentioned above, foreigners held the following respective percentages of total outstandings of Treasuries, agencies, US corporate bonds and US equities: 18.3%, 5.7%, 13.8% and 7.0%. At that time, the combined holdings of Treasuries and agencies were 13.4% of total outstandings.
* As of 3/31, the 10 largest foreign holders of US Treasury debt had total holdings of $1.304 trillion. (Refer to the graph below and to the data in Table 3.)
_____
The following tables break out foreign holdings of US financial assets as of the end of given periods. These are dollar values outstanding at the end of those periods. In a coming missive, I will present data breaking out the actual dollar flows from foreign sources into US financial assets during a given period, as well as into the classes of capital-market instruments shown in the second table below.
Table 1.
------------------------------------------
FOREIGNERS' U.S. FINANCIAL
ASSETS/LIABILITIES*
(Billions of Dollars, Latest Data
Released 06/10/04 Through 03/31/04)
------------------------------------------
Total Total
Financial Financial
Assets Liabilities Difference
------------------------------------------
1Q04 8426.6 3255.0 5171.6
------------------------------------------
As of
12/31
-----
2003 8003.7 3414.3 4589.4
2002 7375.3 3757.1 3618.2
2001 6979.2 3566.9 3412.3
2000 6590.6 3488.0 3102.6
1999 5819.9 3147.8 2672.1
1998 5199.8 2776.1 2423.7
1997 4627.3 2562.0 2065.3
1996 4042.1 2316.8 1725.3
1995 3434.5 2011.7 1422.8
1994 2909.6 1743.0 1166.6
1990 1998.4 1388.8 609.6
----------------------------------------
1985 967.4 869.7 +97.7
1984 805.3 841.6 -36.3
----------------------------------------
1980 492.8 672.8 -180.0
1970 104.8 140.5 -35.7
1960 38.9 63.5 -24.6
1950 17.4 31.4 -14.0
-----------------------------------------
*Source: "Flow of Funds Accounts
of the United States" (Federal
Reserve "Z.1" release).
-----------------------------------------
Table 2.
-----------------------------------------------
FOREIGN HOLDINGS OF US FINANCIAL ASSETS
AS OF 03/31/04* (Billions of Dollars
-- Latest Data Released 06/10/04)
-----------------------------------------------
% of
Total
Total US Financial Assets -----
Held by Foreign Investors 8426.2 100.0
===============================================
Credit-Market Instruments# 4131.7 49.0
------ ----
Open Market Paper 158.6
US Govt. Securities 2361.5
Treasury 1652.7
Agency 708.8
US Corporate Bonds 1611.6
-----------------------------------------------
US Corporate Equities 1655.4 19.7
------ ----
Credit-Market Instr.
+ Corp. Equities 5787.1 68.7
====== ====
-----------------------------------------------
Detail of US Government Securities
-----------------------------------------------
Treasury 1652.7
Official 934.6
Private 718.1
Agency 708.8
Official 231.4
Private 477.4
------
2361.5
======
-----------------------------------------------
*Source: "Flow of Funds Accounts of the United
States" (Federal Reserve "Z.1" release.) #For
the purpose of this analysis, the category
"Loans to US Corporate Business" has been ex-
cluded. As of 3/31/04, this category had tot-
al outstandings of $111.9 billion.
-----------------------------------------------
Table 3.
------------------------------------
10 LARGEST FOREIGN HOLDERS OF U.S.
TREASURY DEBT AS OF 03/31/04*
------------------------------------
Amount Held
Country (In Billions)
------------------------------------
( 1) Japan $ 639.8
( 2) United Kingdom 153.8
( 3) Mainland China 148.4
( 4) Caribbean Bank-
ing Centers@ 80.6
( 5) Hong Kong 58.6
( 6) Taiwan 49.7
( 7) Germany 45.5
( 8) OPEC 45.4
( 9) Switzerland 41.8
(10) Korea 40.5
------------------------------------
Total $1304.1
------------------------------------
* Estimated foreign holdings of
US Treasury marketable and non-
marketable bills, bonds and notes
based on Treasury Foreign Port-
folio Investment Survey benchmarks
and on monthly data reported under
the Treasury International Capital
(TIC) reporting system. Totals
comprise both official and private
holdings. @Includes Bahamas, Ber-
muda, Cayman Islands, Netherlands
Antilles, and Panama.
------------------------------------
|
