Asian countries own 40 percent of US foreign-held debt

Just over 40 percent of foreign-held U.S. debt is now owned by Asian countries, the Treasury Department announced Monday.

China owns the largest portion, $1.16 trillion, ahead of Japan’s $1.13 trillion of U.S. Treasury securities. Total debt held by foreign countries reached the record high of $5.48 trillion.

Foreign countries continuing to buy U.S. treasury debt is a perceived sign of confidence in the securities market, despite the sputtering negotiations for the end of the year budget and fiscal compromise known as the fiscal cliff. U.S. treasury securities are considered to be among the safest places for investors to put money in the world.

Liberal economist Paul Krugman has suggested that so long as foreign nations have confidence in and continue to buy U.S. debt, considered to be the safest asset one can buy, the U.S. can and should engage in deficit spending to stimulate the weak economy.

How long foreign investors continue to buy U.S. debt with such confidence, however, remains uncertain. Should it start to appear less likely that investments will be repaid, interest rates for the U.S. will soar.

The current debt ceiling of $16.39 trillion is expected to be reached sometime early next year.

Should the debt ceiling not be raised in early 2013, the Congress will potentially face the first-ever debt default.

Standard & Poor’s downgraded the government’s credit rating from the highest level of AAA to AA+ following the previous debt standoff in 2011.

“Last month, Fitch Ratings said Obama will need to quickly reach a budget agreement with Congress over the ‘fiscal cliff’ or risk losing Fitch’s AAA rating on U.S. debt,” The Associated Press reported.

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