The U.S. is similar to a legacy Technology company whose best days are in the rear view mirror. A telltale sign of this reality is that fact that the Federal Reserve is the largest buyer of U.S. Treasuries.
There was a time when Japan and China were the largest holders of U.S. Treasury securities. Today, Japan is a distant number two and China is a distant number three to the Federal Reserve which is by far the largest buyer and holder of U.S. Treasuries. This game of financial musical chairs will eventually come to an end. That day may come sooner if we continue to pursue COVID lock downs only to subsidize the economy with debt-funded programs.
The chart below plots Federal Reserve holdings of U.S. Treasuries. The Fed’s Treasury holdings expanded from $2.1 Trillion in September 2019 to $4.6 Trillion as of November 2020. The Fed first broached the $1 Trillion mark in its early pursuit of quantitative easing coming out of the Financial Crisis of 2008/2009. Click the chart to expand or download.