[Congressional Record Volume 142, Number 105 (Wednesday, July 17, 1996)]
[Senate]
[Page S7928]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                  FOREIGN OWNERSHIP OF U.S. TREASURIES

  Mr. DOMENICI. Mr. President, while much attention has been given to 
the trajectory of our budget deficit in recent months, very little has 
been said about how we are financing this deficit. I think this latter 
point is crucial because there are some very troubling trends in the 
ownership of U.S. Treasuries which could spell trouble down the road.
  Foreign ownership of U.S. Treasuries has surged in the last 3\1/2\ 
years. As a percent of the total private holdings, this ratio soared 
from 19 percent in 1992 to 25 percent by 1995. To put this in 
perspective, foreign treasuries and their holdings held within a fairly 
stable, and narrow range of 15 to 20 percent during the 12 years 
previous to 1992.
  Some may argue that this recent rise is not worrisome. Indeed, we 
should be grateful, some would say, for foreign participation. However, 
this ignores two very key facts.
  One, this money must be paid back with interest at a future date, and 
interest payments abroad are an unambiguous loss to American incomes. 
This is not the case with interest paid to domestic residents and 
domestic institutions. As such, continued purchases of Treasuries 
amount to mortgaging away our future standard of living a little bit at 
a time.
  The second reason is that it is usually a bad sign to see a country 
find itself predominantly with foreign central bank money, because when 
they buy our Treasuries, they lend us their money. So it is usually a 
bad sign to see a country find that a foreign central bank is a 
predominant lender of money to us.
  This usually bespeaks a lack of sufficient private investment and is 
a warning of unsustainable fiscal policies. Witness Mexico in 1995. 
That is why I view the first quarter's current data with such alarm. It 
showed that foreign central banks bought $55 billion in U.S. Treasuries 
from January to March of this year alone--$55 billion. That is nearly 
double the amount that central banks bought in all of 1994 and is over 
80 percent of 1995's yearly total.
  Let me put it another way. First quarter foreign official bond 
purchases amounted to 6.5 percent of the entire stock of foreign 
treasury holdings which had been built up over time. This goes a long 
way toward explaining why the treasury market was so resilient 
initially to the collapse of the balanced budget talks that we were 
having with the administration at the start of this year.
  Why were central banks buying so many of our Treasury bills, so many 
of our IOU's? While some may have viewed United States debt as a good 
investment, the main player was the Bank of Japan. It was not buying 
our Treasury bills because it wanted to, but only did so to prop up the 
dollar and keep the yen weak as a way of aiding its ailing exporters 
and its banking sector.
  The Bank of Japan has been forced into such defensive dollar buying 
ever since the Clinton administration forcibly devalued the dollar in 
1993. Since 1993, the Bank of Japan's reserves have tripled from $69 
billion, Mr. President, to $208 billion, underpinning our bond market 
with those huge quantities of purchases.
  Since these reserves are held in dollars, this translates into a 
similar amount of treasury purchases. At present, these Japanese 
treasury purchases are very stable. The Bank of Japan cannot sell them 
without precipitating a fall in the dollar versus yen. However, once 
its banking sector reserves and its exporters adjust to the current yen 
level, there will be less need for the Bank of Japan to be buying 
Treasuries. Since the U.S. bond market has been accustomed to their 
steady purchases, this will come as a blow to the Treasury market of 
the United States. Indeed, we have already seen a mild example of what 
might happen when foreign central banks scale back their dollar 
purchases.

  In April through June of 1996, official Treasury purchases were only 
one-tenth as large as in the first quarter. It was no accident that 
bonds fell sharply during this period, with the 30-year yield soaring 
from 6.6 to 7.2 percent.
  The recent example stresses the importance of reducing the amount of 
U.S. debt issuance now. Only in this way will we be able to prevent a 
sharp future bond market selloff if foreign central banks scale back 
their enormous appetite for our securities, which appetite is not 
singularly predicated upon their confidence in us but, rather, in this 
case, the Japanese purchases are in their own self-interest for the 
time being, for they are attempting to effect the value of the yen 
versus the dollar their way.
  When that all gets stabilized, who will fill the gap as they begin to 
dispose of these inordinate holdings of American Treasuries?
  Mr. President, I yield the floor and thank the Senate for the time.
  The PRESIDING OFFICER. Who seeks recognition?
  Mr. DOMENICI. I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mr. STEVENS. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER (Mr. Grams). Without objection, it is so 
ordered. The Senator from Alaska.
  Mr. STEVENS. What is the pending business now?

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