An alternative to popular faith
5/17/2001: WASHINGTON (AFP) – China boosted its massive US Treasury bond holdings in March for the first time in six months as foreign buying of long-term US assets set a new record high, official data showed Monday.
So, as always, the debt hawks have been proven wrong. Here we are, running huge deficits probably for many years into the future, and despite debt hawk predictions, other nations continue to buy our bonds.
Why? Are they being charitable? Just nice guys? No.
The interest rate is good, considering the U.S. never will default, and we will fight inflation. In short, our bonds are a good investment (although as a monetarily sovereign nation, China does not need to profit from investment), which is the sole reason countries ever buy them.
Of course, none of this really matters, since the U.S. does not need to create and sell T-securities, nor should we. The U.S. can create dollars at will, without bonds. Creating and selling bonds does not help the economy, nor does it affect inflation or any other economic problem.
The notion that we need to borrow the money that we exclusively can create, is obsolete — as dead as the gold standard.
But, for a while, at least, we won’t have to listen to uninformed pundits worrying that nobody will buy our bonds.
Rodger Malcolm Mitchell
No nation can tax itself into prosperity