Finally, Someone States the Obvious

The media and many politicians have an inventive system that drives them to take the most pessimistic possible interpretation of every economic event (the media to sell papers, politicians to panic us into giving them more control of the economy).   Chinese ownership of US debt securities is one such issue that everyone seems to be in a tizzy about.  Thanks to Don Boudreaux for finally stating the obvious:

In fact,
foreign-government
holdings of U.S. debt arguably make these governments "hostage to the
economic decisions being made in Washington."  The Fed, after all,
could monetize this debt, inflating away its value.  Or Uncle Sam could
repudiate this debt, or unilaterally change its terms in ways
unfavorable to holders.  Or you and your colleagues could implement
economically disastrous policies that drive up long-term interest rates
and, hence, drive down the value of outstanding treasuries.

Finally!  All you have to do to understand this is reverse the situation.  If the US government owned a hundred billion dollars of Venezuelan government bonds, would this really give us power over Hugo Chavez?  Or would it, more likely, given him more power over us, at least in terms of circumscribing our actions?

  • Jonathan

    Yes. The fact that Chinese prefer to invest in low-yield US govt securities rather than high-growth opportunities in China is a vote of confidence in us and of no-confidence in the Chinese regime.

  • Anonymous

    I am reminded of the old saw concerning debt: if you owe the bank $10K, it's YOUR problem. If you owe the bank a million, it's also THEIR problem.

  • Azer

    There is a saying " If you owe the bank $1 Million then you're in trouble, but if you owe the bank $100 Million then the bank is in trouble"