Ad Hoc Commentary – Uncle Sam, the new tax haven

“The U.S. government has been issuing more debt, but it’s not getting more foreign buyers in the door. As a result, U.S. investors have so far financed all of this year’s increase in the federal government’s borrowing.”


It is no secret that tax havens like Ireland, London, Switzerland, Luxembourg, Cayman Islands, Hong Kong and Singapore are out-sized holders of US Treasuries after China and Japan. Regardless what the Russians say, many corporate treasurers and hnwi are more willing to park their hard-earned money in US Treasuries than in any other bond offerings out there. Therefore, tax havens tend to hold a lot of US Treasuries as a place for the elites to park wealth.


Since the watering down of banking secrecy across the OECD, there are many who claim that Uncle Sam is becoming the new tax haven. It is claimed that Uncle Sam insists on knowing what Americans are doing overseas, but is slow to reciprocate. To put it another way, Uncle Sam downloads more information from partners, but is slow to upload reciprocal information. This information asymmetry is increasingly making Uncle Sam the ‘unofficial’ new tax haven of the world.


This is perhaps why American institutional and individual investors managed to finance all of this year’s increase in Treasuries. In all likelihood, the ‘U.S. investors’ that bought all the U.S. Treasuries is not your average Joe. But more likely, these are tax haven investors that are making the United States their new home.


Good luck in the markets.