ABC's Matthew Jaffe reports from Washington:
Foreign owners of US government debt reduced their holdings by the largest monthly amount ever in December, with China offloading so many Treasury securities that it is no longer the largest foreign holder.
According to new data released Tuesday morning by the Treasury Department, foreign holdings of Treasury securities plunged by $53 billion in December, a record drop. China led the sell-off, reducing its holdings by $34 billion. Japan, meanwhile, increased its holdings by $11 billion to become the new largest foreign holder of Treasuries. As of the end of December, Japan held $768 billion of US government debt, followed by China at $755 billion, and then Great Britain at $302 billion, after increasing its holdings by $25 billion during the course of the month.
In the last year there have been consistent concerns that China and other nations might reduce their holdings of US government debt as the US continues to rack up record deficits in the wake of the recession. If foreigners were to undertake a massive unloading of US Treasuries, the country could have to make higher interest payments.
Earlier this month, Moody’s Investors Service cautioned that the US could be in danger of losing the triple-A rating for its Treasury bonds unless the nation’s deficit gets brought under control or the economy grows more than expected. However on February 7 Treasury Secretary Tim Geithner told ABC’s Jake Tapper on “This Week” that “that will never happen to this country.”
“When people were most worried about the stability of the world, they still found safety in the Treasuries and the dollar,” Geithner said. “That is a very, very important sign of basic confidence in our capacity as a country to work together to fix these problems.”