Federal deficit: who owns what?

Timothy Geithner, US Treasury Secretary

Amidst the financial crisis, reports from last month reveal that the US federal deficit had been catapulted to record territory in August, hitting $1.38 trillion with just one month left in the budget year.

It remains a concerning figure - not least because of the worries it has raised regarding the willingness of foreigners to continue purchasing Treasury debt. For that is where the debt comes from: US Treasury securities - a government debt issued by the United States Department of the Treasury, which other countries and institutions then buy.

In essence then, Treasury securities (in this case, Treasury bonds) are nothing more than glorified loans - and as the US Treasury releases data pertaining to this - it is becoming increasingly hard for the American people to get a grasp on the fact this is how their country borrows money.

If its any consolation, it should be noted that this is how all governments borrow money, so the US isn't alone: but with America's deficit now soaring to an incredulous height, concerns seem to not only be justified but also gaining impudence.

As such, the Chinese - now the largest foreign owners of US Treasury securities - have expressed concerns about runaway deficits, sparking US Treasury Secretary Timothy Geithner to insist that once the financial system has stabilized, the administration will move "forcefully" to see the deficits remain under control.

But it was back in March when, ahead of the London G20 meeting, Chinese premier Wen Jiabao urged Washington to safeguard the value of China's assets.

At the time he said: "We have made a huge amount of loans to the United States. Of course we are concerned about the safety of our assets. To be honest, I'm a little bit worried."

In his speech he continued by calling upon Washington "to honour its words, stay a credible nation and ensure the safety of Chinese assets."

Wen's concerns seem justified too, given that the US needs to continue selling treasury notes to fund its $787 billion stimulus package. And just the month before Wen expressed concern, Hillary Clinton, secretary of state, had urged Beijing to maintain its stock when she visited China.

Furthermore, echoing Wen's anxieties at the time, Frank Gong, a JP Morgan economist, told Reuters, "They [the Chinese] are worried about forever-rising deficits, which may devalue treasuries by pushing interest rates higher.

"As such, inside China there has been a lot of debate about whether they should continue to buy treasuries."

But it isn't just China who owns US debt. While the US national debt is owned predominantly by Asian economies, countries from across the globe also own huge loans to the economic giant.

Republican critics aren't helping the matter either, suggesting the administration does not have a credible plan to address future deficits. In fact, as House Republican Leader John Boehner of Ohio said in a statement last month: "The $9 trillion question is when will the White House do more than just pay lip service to tackling these jaw-dropping deficits that threaten our economic stability."

What's more, while in August the Obama administration trimmed its forecast for this year's deficit to $1.58 trillion from an earlier $1.84 trillion, many analysts agree that 2009's deficit will be a record-holder by a significant amount.

Its an interesting point, bolstered by the fact that, by-and-large, economists are beginning to worry that the country could face the rather harrowing prospect of both soaring interest rates and a weakening dollar, as foreigners slowly start to dump their US holdings.

Take a look at the accompanying infographic to learn just who owns what in terms of America's mammoth debt.

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