In December 2019, the U.S. national debt was $23 trillion. Of this, 29% was held by...

In December 2019, the U.S. national debt was $23 trillion. Of this, 29% was held by foreign investors and governments.

Which 2 foreign countries are the largest holders of U.S. Treasuries? What would happen if their demand for Treasuries declined? What would happen if they engaged in a mass sell-off? Consider the impact on interest rates and on the value of outstanding Treasuries as well as the economies of both the foreign countries and the U.S.

Does Puerto Rico hold U.S. Treasuries and, if so, how much?

Expert Solution

Japan and Mainland China are two largest holder of United States treasury.

If the demand for the United States treasury bill declined by the Japan and China, it will mean that there would be a lower Bond rating of United States treasuries because the main holders of treasuries are offloading their debt and it would also mean that there would be a concern regarding payment of debt of United States treasuries in the longer run.

If they are engaged in a mass sale off, it would mean that the treasury bonds will be downgraded by the credit agencies and there would be a risk related to overall payment of other United States treasury bonds and other holders will also be involving in mass sell off.

Interest rate will be having an inverse relation with the price of the bond and when the interest rates in the economy will go up, it will reduce the price of the treasury Bond and when the interest rates in economy will go down, it will increase the price of the treasury bonds .

when the interest rates in the economy will be going up it will mean that it will have up impact on the the demand for these outstanding treasuries it will be increasing the the strength of American Dollars against other foreign currencies, and it will also mean that foreign currencies will be depreciating so there would be a decrease in the buying capability of foreign countries and when there will be a depreciation in American Dollar it will mean that there would be an increased demand for United States treasuries because the foreign currencies will be gaining strength.

Yes,Puerto Rico holds United States treasuries to the extent of $ 74 billions

jeff jeffy answered 2 years ago

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