Foreign holdings of US debt is over 50% now . There seems to be a general feeling that this is bad, but there hasn't been much comment on why.

From the article;

Over half of all U.S. Treasury debt is now held by overseas owners. If that makes you uncomfortable, you are not alone.

For most of recent history, foreigners holding US debt has been 20% or less. The shift began under Bill Clinton, starting around 1993, and accelerated into '94-95. When Clinton finished his 2nd term, foreign ownership of US Treasuries was about 35%.

That ownership has continued to rise under President Bush, and now stands at 52%.

Uncomfortable seems to be the general consensus, but no concrete reasons why other than autonomy of the nation-state's economy and their political ability to manage it. Back in September 2003 I wrote about Japan, China and South Korea owning one third of US securities ;

Japan owns a portfolio of US Treasury bonds of $440 billion, China has $122 billion, and collectively Hong Kong, South Korea, Taiwan, Singapore and Thailand own more than $166 billion. The primary buyers of these bonds are the central banks. Of US Treasury Securities, $1,347 trillion ( > a third ) is in foreign hands.

This is consistent with the "Development-State" many of the Asian economies practice. They end up with large trade surpluses with the nations they primarily export to. To ensure that those nations will continue to buy from their export driven economies they plough their surpluses back into bonds which keep interest rates down and allow domestic consumers to buy more exports on credit.

The Development State is nothing new either. It is the Asian style of capitalism which Chalmer's Johnson has written about, that myself and sien have also covered in the past.

The Asian style of capitalism creates an inter-dependency with the consumer driven economies of nations like America and Australia. The US is in a doubly difficult position, as it tries to protect its global military reach. Japan is brutal in gaining economic exceptions through this.

The US military presence on Okinawa is largely paid for by Japan. When the US State department leans on Japan to float their currency, or open their markets, or whatever; Japan quietly mentions that they will stop paying for Okinawa. The Pentagon flips out. They then go and put pressure on the State Department to leave Japan alone.

Occasionally the Pentagon looks to other allied nations to house their overseas military. Darwin in Australia became a candidate to house the US Marine Divisions that were on Okinawa, but Australia was not going to pay for it. So the Marines remained in Okinawa with Japanese dollars.

China is the new player in this economic menage-en-trois. It is the classic development-state. Authoritarian government, state led export development, and massive funding of the consumer economies so money remains cheap and consumers overseas can buy cheap trinkets and shiny baubles from Walmart until they are bankrupt.

However, China does not fund American global projection, if anything they are a self-professed wannabe hyper-power rival on the world stage. The US military remains in greater danger of running out of missiles if it comes to conflict with China. The Chinese military remained modernistically juvenile next to the American techno-military juggernaut.

Globalism has weakened the bonds of the nation-state. Capital now flies around the world, largely uninhibited by artificial legislative borders. Labor is beginning to do the same, as countries discover their diaspora's increasing in number and turgidity.

The monstrous, technically perfect and capital intensive military remains the domain of the nation-state. Whatever your feeling on the US second amendment, it was intended to stop the government being the sole source of military, or militia power. It works. The imperial might of the US military is being blunted, out-foxed and out-innovated by a civil insurgency in Iraq .

The US having so much debt held by foreigners might be bad for the nation-state, and American autonomy, restricting the US's economic and political movement. However, I have not heard any arguments for squeamishness beyond this.

Foreign investors obviously think that investing in the US is a good bet, and that they will get their principal back with interest. Or does it point to the exhaustion of the Development-state model, where it precipitates global economic collapse because of the Development-state's inability to support a domestic consumer driven import/export economy?

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