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By Michael Mackenzie in New York

Published: February 2 2011 00:01 | Last updated: February 2 2011 00:01

The Federal Reserve has surpassed China as the leading holder of US Treasury securities even though it has yet to reach the halfway mark in its latest round of quantitative easing, according to official figures.

Based on weekly data released on Thursday, the New York Fed’s holdings of Treasuries in its System Open Market Account, known as Soma, total $1,108bn, made up of bills, notes, bonds and Treasury Inflation Protected Securities, or Tips.

According to the most recent US Treasury data on foreign holders of US government paper, China holds $896bn and Japan owns $877bn.

“By June [the Fed] will have accumulated some $1,600bn of Treasury securities, likely to be in the vicinity of China and Japan’s combined holdings,” said Richard Gilhooly, a strategist at TD Securities. “The New York Fed surpassed China in the past month as the largest holder of US Treasury securities,” he noted.

The Fed is buying Treasury debt under two programmes. The largest is QE2, which began in November and is scheduled to involve $600bn of purchases by June.

It is also buying $30bn of Treasuries a month as it reinvests principal payments from its large holdings of mortgage debt and debt issued by government housing agencies – a programme dubbed QE lite.

By the end of June, the Fed plans to buy $800bn in Treasury debt under both programmes. Since November, the Fed has purchased $284bn of Treasuries.

The Fed has devoted 67 per cent of its QE2 purchases to Treasuries with a maturity of four-and-a-half to 10 years. That has helped pull back yields in that part of the yield curve from their highs of December.

By contrast, just 5 per cent of the Fed’s buying has been for Treasury debt longer than 17 years. Last Friday, the yield on 30-year bonds briefly rose to its highest level since last April.

“The end of QE2 will be a big test as rates are likely to rise once the Fed stops buying large amounts of Treasuries,” said David Ader, a strategist at CRT Capital. “We don’t know if that means a rise of 20, 30 or even 50 basis points for key yields.”

In total, foreign central banks hold $2,604bn of Treasuries, according to the Fed. After rising from $2,250bn at the end of last June, foreign central banks have stayed at about $2,600bn since mid-November, when the Fed began QE2. This indicates the Fed has stepped up as other central banks have scaled back their Treasuries purchases.

Before the financial crisis, the Fed held $775bn of Treasuries in Soma. That was reduced by $300bn during the first half of 2008, when the Fed sold Treasuries and focused on supporting the financial system. The first QE program, which began in 2009, saw the Fed buy $300bn of Treasuries.

http://www.ft.com/cms/s/0/120372fc-2e48-11e0-8733-00144feabdc0.html#axzz1Coj95hn7
 

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dollar is going to sink, Fed is printing bills like crazy. They don't have money to buy debt (other than printing).
 

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Watch what happens if the ME falls apart and we don't have the energy resources to cover our demands under the current climate...

What do you suppose all those Harvard elites will have to say about that?
 

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It's what they have been pushing for, for 30+ years. I would expect them to cheer the suffering of the middle class & poor.
Yeah, right before the middle class and poor march into their offices and lecture halls, cut thier heads off, and parade around with them on the end of sticks.
 

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High inflation has begun. We're finally going to have to pay for the spending party. :thud:Any economic recovery will surge inflation even more.
 

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I really don't understand international finance. What will happen when somebody wants real money (the kind you can't just print) for their debts. Right now I work and get a paycheck. The credit union takes it and gives be another form of script. That would be dollars. I take these dollars to the grocery store and the will give me a steak for a bunch of them.

The do this because it allows them to give their employees some script that is accepted at their bank. The owners get a bunch of this script. They accept my script because their bank (backed by the FDIC) will accept it. With foreign powers holding a whole bunch of our debt what will happen if someone wants Gold, silver, diamonds, or oil instead of this green script. I think the whole system would fall apart.

I've got a bunch of gold and silver so when this currency fails, I'll still be able to get my steak or hot dog. What is our protection from this happening?

We have the biggest bombs so just screw them. Don't pay and the debt is now reduced. What would they do?? We are broke but apparently we still have good credit. I wonder what the Treasury departments credit score is? Jeesh.....this is all to complicated. Let's go back to a hunter/gatherer society.
 

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Even if every Chinese person had a knife and every american an M16, the USA would still be over run by sheer number.

War is not the solution but may end up being reality.

That money belongs to someone, you spent money that ain't yours. Don't expect to walk away without any issues.

Think about it, what would you do if someone who owes a lot doesn't pay up ...
 
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