70% The US Debt Is Held By &Nbsp In The US, And The US Debt Default Is Self Mutilation.

At present, the US Congress's negotiations on raising the debt limit are still at a stalemate. Will the US default on debt affect the global market nerves? First, what is the composition of US debt holders? The market has been questioning why the two parties are entangled in this issue, and the impact of US debt default on the world economy and China is the focus of the market.

Since 1960, the US Congress has raised its debt limit for 78 times, averaging once every eight months, 49 of which are in the Republican presidential term and 29 in the Democratic presidential term. Raising the debt limit seems to be a normal thing, but why can't we talk about it this time? If the US debt default, who will be the most influential? What actions will the rating agencies take? Step by step, even if they are cut down, what will happen?

1, the composition of the main holders of US Treasury bonds.

In the total amount of US $14 trillion and 340 billion in total federal debt, US domestic and foreign investors hold about 9 trillion and 740 billion US short and medium term treasury bonds, which are called "public held debt". The remaining 4 trillion and 600 billion US dollars are held by the social security and trust funds managed by the US government and are known as "government internal holding debts".

In the $9 trillion and 740 billion public debt, about 4 trillion and 450 billion US dollars are held by foreign investors, of which China is the largest single debt holder in the United States, accounting for about 12% of the public debt in the United States. Federal Reserve It is the second largest US Treasury holder after China, holding about 10% of the public debt of the United States.

It can be seen that in the US Treasury bonds, nearly 4 trillion and 450 billion of all foreign investors held 69% dollars are held by the US government or domestic investors. If the default is made, the impact of us local investors will be greater than that of foreign investors. Therefore, in terms of domestic pressure, the US government is afraid to default because the consequences of default are hard to estimate.

2, why do the two parties in the US Congress fail to agree?

There is no difference between Democrats and Republicans in reducing debt and avoiding debt default in the United States. The differences between the two parties lie mainly in whether the plan covers the election year and who will pay for debt reduction.

The Democratic Party hopes to raise the debt ceiling program until November next year after the US general election, so that there will be no need to haggle over the deficit reduction before the election. The Republicans only agree to a six month short term debt raising program that will enable them to use debt again to fight the Democratic Party's election before next year's election.

On the issue of deficit reduction, because the Democratic Party regards the middle and low income class as its traditional ticket warehouse, it refuses to reduce the medical and social security expenditure to protect the middle and low income groups, and advocates tax increases for the rich. But Republicans are more inclined to represent the middle and upper income class and the interests of industry and commerce. Therefore, they are firmly opposed to tax increases, and advocate relying only on reducing the "throttle" of government spending instead of raising taxes in an "open source" way to reduce the deficit.

3, has the us ever recorded any breach of contract?

Obama repeatedly stressed that if the two parties failed to reach an agreement before the deadline, it would be the first time in the history of the United States that there was a debt default. However, strictly speaking, since the establishment of the national debt ceiling system in 1917, the United States has had two "suspected" defaults.

Once in the 1933 presidency of Roosevelt. But this breach has its particularity, when American bonds were still linked to gold, and because of the economic crisis, the government could not afford to continue to fight gold for the first time. bond Therefore, Congress was compelled to make laws to pay debts in paper currency, which was opposed by creditors. Another time in 1979, due to negligence in government work, resulted in a small part of the bond interest payments delayed, resulting in a short-term "technical" breach.

In the history of the United States, there have been many government shutdown events. The last time it was the end of 1995, because the United States did not reach agreement on the budget issue, the United States government was forced to shut down for two times for 26 days. But there is a big difference between government closure and debt default due to budget differences. The closure of government means only that the non core government departments will stop running, and the core government departments such as safety and social security are still operating, and the Ministry of finance will also pay interest on debt as scheduled. There is no risk of default.

4, is the possibility of debt default in the United States large?

At present, market analysts and economists generally believe that the possibility of debt default is unlikely. The yield of treasury bonds is often regarded as a weathervane for the risk of default. For example, after the debt crisis erupted in Greece, the yield of treasury bonds soared. However, the yield of us 10 - year treasury bonds closed at 2.96% on the 27 day, still far below the average level of 4% in the ten years, and has even declined recently.

But on the 28 day, the US 1 year credit default swap (CDS) rose 1 basis points in the day to 81 basis points; the 5 year CDS rose 1 basis points to 63 basis points, indicating that the market began to anticipate the possibility of short-term default of US debt.

5, the consequences of debt default and its impact on China.

Once the US default, the yield on US Treasuries will soar. Since Treasury yields are seen as a benchmark for risk-free borrowing costs in the market, this will mean a rise in borrowing costs across the market. For the US government, enterprises and individual consumers, the financial burden will be greatly increased, and the economic recovery will inevitably be interrupted, or even fall into recession again.

At the same time, if there is a default on US Treasury bonds, it will trigger global financial turmoil, and there will be huge fluctuations in the global bond market and stock market. In addition, the US dollar exchange rate will fall sharply, which may cause the price of oil and other commodities priced in US dollars to skyrocket, which will cause huge import inflationary pressure.

China holds at least US $1 trillion and 160 billion in US debt. US debt The largest number of countries. If there is a debt default in the United States, China will suffer serious losses. Unfortunately, the US debt is still the most stable and least risky bond in the world, and only the US debt market can absorb China's rapidly increasing foreign exchange reserves.

However, if the United States has a debt default, the biggest impact on China is not the loss of foreign exchange reserves, but the two recession of the US economy and the global economy.

6, US debt AAA rating is not guaranteed.

The three major international rating agencies, S & P, Moodie and Fitch, have said that even if the congress raised the debt ceiling before the deadline, it would probably cut the sovereign debt rating of the United States for nearly a century. Most market participants expect that at least one of the top three rating agencies will lower the US rating. At present, a new consensus is emerging: the US will avoid default, but is likely to lose its 3A rating.

The downgrade will lead to higher cost of financing in the US. JP Morgan expects the downgrade may lead to an increase of US Treasury bond yields by up to 70 basis points, and the US government needs to pay more than $100 billion a year in interest payments. And once the US rating is downgraded, many government related agencies such as Fannie Mae and Freddie Mac will also be downgraded.

In addition to the rising cost of financing from government and related agencies, interest rates on mortgage loans, student loans and auto loans will also rise, and thus affect consumer confidence, which is not conducive to the recovery of the US economy.

But even if the US rating goes down, most long-term bondholders will not sell US Treasury bonds, which may have limited impact. After all, even if the US rating is downgraded to level a a, it is still higher than Japan's AA, better than the euro zone countries currently in debt crisis, so there is no better substitute for US Treasuries.

Of course, if the US rating. Down regulation It will certainly affect the confidence of bondholders, which may force China and other countries to reduce their purchases of US Treasury bonds in the future.