Foreign Ownership of US Treasury Securities Harvard Case Solution & Analysis

Foreign Ownership of US Treasury Securities Case Study Help 


"Handling the federal government's finances" is the major responsibility of the Treasury Department. The President and Congress are responsible for deciding taxes and expenditures, as well as the total amount of money that will need to be borrowed; nevertheless, it is the responsibility of the Treasury to decide how the money will be borrowed. The meeting that took place in October 2005 between the Treasury Secretary and the TBAC is at the center of this legal proceeding (Treasury Borrowing Advisory Committee)(Li, 2005).

  • The distribution that the Treasury anticipates for future inflation, interest rates, and the federal deficit; whether or not the Treasury is focused on the relevant parts; and associated indications that the Treasury needs to evaluate.
  • Predictions made by the Treasury Department on future inflation, interest rates, and the size of the federal budget deficit; and
  • A rise in the amount of Treasury securities owned by investors residing outside of the United States

Problem Statement

This case provides an account of a meeting that took place between the Treasury Borrowing Advisory Committee and the Assistant Secretary of the United States Department of the Treasury. This conference was held to analyze the degree to which the United States is dependent on loans from other countries, as well as to discuss the management of debt and the state of the American economy as a direct result of the growing ownership of government assets by foreign entities.

There is no doubt in my mind that the fundamental goal of the Treasury is to get the lowest feasible interest rate for the government's borrowing requirements at all times. This is my view, and there is no room for debate on the matter. This purpose is accomplished by the "regular and predictable" issuing of a wide variety of securities by the Department of the Treasury. The Treasury Department believes that if they follow this course of action, it will boost investor confidence and, as a result, save them money in the long run. Treasury intends to stick as closely as possible to the issuance timeframe that was previously indicated. This gives investors the peace of mind that they will have the time to make any necessary modifications in the future. On the other hand, this cannot be accomplished in the real world for the following reasons:

  • There is a wide range of government expenses
  • Variations in cash flow due to the seasons
  • Reforms to the fundamental architecture of the current tax system
  • Constant shifts in the level of economic activity in the United States
  • Reforms to the fundamental architecture of the current tax system

Case Analysis

It is referred to as "foreign ownership" when investors who are not citizens of a particular nation possess the majority of shares in a resource or company that is run by a foreign corporation and have complete control over those assets. This can occur when the investors purchase the shares through a foreign corporation. This in-depth research began by analyzing the influence that greater demand from international investors would have on interest rates in the United States. After then, a wide variety of market players were able to evaluate the positive and bad aspects of the expansion of foreign ownership. The findings of the investigation may now be made public.

According to the data shown in Exhibit 2, at the same time as foreign ownership of United States Treasury securities increased from 20 percent in 1993 to 50 percent in 2004, the public debt also increased from 20 percent to 50 percent. No, the year is 2005, not 2014. (The time and place of the next meeting) The fact that Alexander Hamilton, who served as the first Secretary of the Treasury, is mentioned in the case means that it may also be used as a historical reference. Hamilton insisted that the United States pay back all of the obligations that had been accrued as a result of the American Revolutionary War, including the debts that had been accumulated by Congress and by individual states. According to Alexander Hamilton, one of the most important political principles was that "Congress should pay in full for all obligations, regardless of how they were incurred or who owed them." The national debt was around 36 percent of GDP when Alexander Hamilton was president; by 2005, it had climbed to 64 percent of GDP. This growth occurred throughout Hamilton's term.

A handful of the people in the audience had the belief that low-interest rates were maintained by borrowing money from other countries because it was cheaper to do so. Those who advocate for globalization assert that it has been beneficial for the economies of the wealthiest nations. Investors from other countries put their money into US government debt because it offers the consistency and steadiness that they look for in an investment. It was often held that an increase in the proportion of US debt that was held by foreign investors signified an increase in investor confidence in the US economy. Some people believe that if a country has a high level of external debt, then that country is "subject to the priorities of its foreign creditors." It was often thought that other nations bought assets in the United States to support their own country's foreign exchange policy, and it was speculated that any shift in this approach may have a devastating effect on the Treasury market in the United States. My philosophical school acted as the foundation for my argument, which means that it provided support for this thesis. Even if such a move were to take place, proponents believe that it would only have a temporary impact on the stock market in the United States. The vast majority of members supported the idea that foreign investors should be allowed to own U.S. debt; however, they advocate for greater transparency in the rules for reporting that must be met....

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