Belgium is a major creditor of the USA, but only on paper

  • Belgians hold a not insignificant part of the US debt.
  • But the figures are misleading, due to Euroclear.

 

While budgetary negotiations in the United States continue to test the patience of all concerned, the question of who actually holds the American debt has risen to prominence. According to the US Treasury, one third of the US public debt ($5,590 billion out of a total of $16,700 billion) is held by foreigners, $167.7 billion of which is apparently in the hands of Belgian residents. These figures would put Belgium in the top ten of US creditors, which would be impressive, but incorrect.

 

“The figures from the American Treasury overestimate the amount of US Treasury securities held by Belgians,” the Banque National (BNB) told Le Soir. “The problem comes from the fact that we only know the custodian of the securities and not the ultimate holder. To that extent, Belgium’s figures are inflated by the presence of Euroclear on Belgian soil [Editor’s note: Euroclear is a financial services company specializing in the safekeeping of $23,000 billion securities of all different types, including a good $100 billion in US public debt securities, on behalf of Belgian and foreign banks]. But the majority of securities stored by the institution belong to non-residents,” explains the BNB, which points out that “according to its sources, the US Treasury securities held by Belgian residents only amount to a little over $5 billion.” This begs the question, if Belgium isn’t a major creditor, who is?

 

Danger of drop in dollar

The two biggest (by some margin) are no surprise: China and Japan, which have both accumulated enormous monetary reserves over the past few decades. Next, after a large gap, come the major offshore finance centers in or on the Caribbean Sea (Bahamas, Bermuda, Netherlands Antilles, Panama, Cayman Islands and British Virgin Islands), and then the oil-exporting countries (Gabon, Ecuador, Venezuela, Oman, Indonesia, Bahrain, Iran, Iraq, Kuwait, Qatar, Saudi Arabia, Algeria, Libya and Nigeria).

 

The jousting in which Democrats and Republicans are currently indulging is naturally causing concern among investors. If no agreement is reached by 17 October, there is a risk that the United States will default on its debt: they have €30-odd billion in their coffers, but from November onward, they will not be able to pay back certain debts nor pay for certain social benefits.

 

However, the hypothesis of a default from the world’s largest economy is only causing mild worry. “The USA’s situation is not comparable to Greece,” stresses Philippe Ledent, an economist with ING. “Here, it’s simply a case of liquidity management.” There appears to be little doubt that the holders of American securities will be reimbursed eventually. Standard and Poor’s, the world’s foremost source of independent credit ratings, has remained calm, despite having downgraded the USA’s rating for the first time ever (from AAA to AA) during the summer of 2011 following a previous budgetary skirmish. But what is happening at the moment is, according to the financial agency, nothing more than short-term twists and turns, adding that the impact would change should the situation become more drawn-out.

 

While a Greek-style default is unlikely, the problem could, however, lie elsewhere. If the political duel were to transform into a true financial crisis, it could have a serious impact on the American currency. “If some foreign investors sold their dollars, the movement could bring about a significant drop in the currency and force the Fed to raise interest rates to avoid capital flight,” explains Ledent, who remarks that some Chinese officials are calling for a “de-dollarization” of the world economy. Moreover, American debt is not as highly prized as it used to be. At one time foreigners held nearly half, but now only possess a third.

 

PIERRE-HENRI THOMAS

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