China in the Lead Holding the U.S. Debt, Followed by Japan

From Zero Hedge:

As recently as 1970, foreign holders of U.S. debt were essentially non-existent. But their slice of our obligation pie has steadily increased, especially over the past two decades, until now foreign governments and international investors hold about 35% of Treasuries, as the following chart reveals...

Of about $11 trillion in U.S. debt, foreigners have about $3.8 trillion, with China in the lead at nearly $1 trillion and Japan not far behind at around $750 billion.

Most likely, though, this trend has already leveled off. The Chinese, Japanese, Russians, and Indians have openly announced their decision to cut back on further purchases and existing holdings of U.S. government debt. Beyond that, the source of funds previously allocated to their purchases -- trade surpluses -- has declined sharply with the recession. As a consequence, going forward, foreign buying is more apt to shrink than increase...

Adding it all together, even under the most conservative of assumptions, there are simply not enough buyers to cover the accelerating federal deficits. That leaves the lender of last resort, the Federal Reserve, as the only remaining candidate to satisfy the government’s grotesque appetite for funding. There is no viable alternative.

The Fed will take up the slack in the only way open to it, by printing money out of thin air and exchanging it for promises from the Treasury. That means an escalation of monetary inflation and, somewhere down the road, serious price inflation as well. We don’t know exactly when that will happen, only that it must...

www.zerohedge.com/article/guest-post-what-if-they-stop-buying-our-debt#comments