The NYT just published this most interesting article, which details a recent shift in the Chinese government's monetary strategy. With the current economic crisis and the $600 billion stimulus package that they recently announced, it seems China is now intent on spending its enormous cash reserves internally as opposed to buying U.S. Treasury bonds. This could be a serious problem for the U.S. economy-and consequentially for the EU's own economy-since it means borrowing money will become much more expensive for the U.S. government and everybody else, all the more problematically at a time when credit is particularly scarce.
This is definitely another good reason why I think Barack Obama's $800bn 'stimulus' package is really crackpot economics and may very well lead to a catastrophic run from the U.S. debt market in the coming year, especially if people suddenly stop believing in the U.S. Treasury's ability to repay its debt. Indeed, a glut of bonds for sale at unattractive yields and a sliding dollar will only encourage foreign investors to rethink their positions in dollar-denominated bonds generally and U.S. Treasuries in particular. And driving the U.S. national debt ratio closer to 100% of GDP certainly will not help. Mr Obama may claim that not pumping the $800bn into the economy immediately would have dire consequences and keep the recession going for years but it seems to me that adding an extra $800bn to the U.S. national debt may very well do worse-it would literally turn the U.S. debt market into something of a Ponzi scheme, with the U.S. Treasury at the top of the pyramid. Its collapse would be extremely painful and it would be felt far beyond the U.S. of A.
No comments:
Post a Comment