Japan, China, Ireland biggest foreign holders of US government bonds
In the latest published data from the US Treasury Department and Federal Reserve Board in respect of November 2016, the value of Treasury Securities held by foreigners was $5.9tn with Japan’s holdings at $1.1tn and China at $1.0tn, followed by Ireland at $275bn.
However, some further data show that the Irish holding maybe as solid as a leprechaun’s pot of gold at the end of the rainbow (Paul Krugman, New York Times columnist, in 2016 famously called Irish economic growth of 26% in 2015 “Leprechaun Economics” in a tweet. In 2013 we wrote that the distortions to the national accounts caused by massive tax avoidance “from an Irish viewpoint it is wealth that is as durable as a leprechaun’s gold.” See here for more on leprechauns).
Ireland is followed on the Treasury/Federal Reserve list of main foreign holders of US public debt, by the Cayman Islands with a fourth ranking at $260bn and Luxembourg is in seventh place at $221bn.
These foreign holdings mainly reflect the tax avoidance schemes of large American firms.
It’s a fiction or fake news that US companies have trillions of dollars in cash parked overseas as they await an amnesty tax rate to encourage them to bring it “home” — there was an amnesty tax rate of 5.25% in 2004 for repatriation of profits compared with the headline US corporate rate of 35% and during the 2016 campaign Trump suggested a 10% rate to cover a new amnesty.
Foreign profits that typically are artificially boosted are not subject to US corporate tax until they are repatriated — if ever — but the related troves of cash or near-cash investments are mostly in the United States.
Yet last November, Moody’s Investors Services, a ratings agency announced that “US non-financial companies rated by Moody’s will increase their cash holdings to $1.77tn by the end of the year, from $1.68tn at the end of 2015.”
Moody’s went on to promote a lie that is commonly believed, including likely by a man with reputation for lies, President Trump.
The ratings agency said:
Most of the cash that companies have is generated and being held overseas. Moody’s estimates that the amount of overseas cash will reach about $1.3tn, or 74% of total cash, in 2016. That’s up from an estimated $1.2tn, or 72% of total cash a year earlier.
“Without tax reform that reduces the negative financial consequences of repatriating money to the US, we expect offshore cash levels to continue increasing,” said Richard Lane, a senior vice president at Moody’s.
Moody’s was in effect lobbying for an amnesty for its clients by promoting the fake news that cash related to overseas profits is parked overseas rather than in the US.
Total corporate cash holdings have more than doubled in the last ten years and tech firms hold almost half of all cash that is held by US non-financial companies.
Last month Apple reported that in December it held $246bn in cash or equivalents and analysts believe that almost 90% is categorised as being offshore.
In accounting terms $216bn is belong to an Irish shell company and Apple Inc. has the funds in the US.
A 1962 provision in the tax code enables companies to repatriate cash without paying any taxes as long as it is used to purchase Treasuries or other US securities such as stocks and corporate bonds.
According to Bloomberg News Apple’s principal Irish shell company Apple Operations International has received almost $600m in interest payments from the US Treasury in the past 5 years. The investments are held in custody by New York-based bank.
The Treasury has paid about $1.4bn in interest payments to just 5 US companies since 2012 while the company chiefs complain that the money is overseas and could be put to work in the US.
Data for Ireland may also include US companies that have become Irish for tax purposes — so-called tax inversions.
It’s a bizarre situation that companies can artificially boost foreign profits and then earn interest for investing in US public debt.
Ten multinationals, which account for 20% of all the cash held abroad by American corporations, have boosted their investments in government bonds to $113bn from $67bn over 5 years, data compiled by Bloomberg show.
The 2004 tax amnesty for big companies didn’t work and Pfizer, the biggest beneficiary, within 2 years announced big US jobs cuts. In more recent times the pharma giant has reported fake annual American losses!
In summary, Ireland’s holdings of US Treasuries are also mainly fake!