Asymmetrical Information

all they have to do is stop selling us stuff..

Interesting graph the Economist offers, showing foreign holdings of US Treasury debt is over 50%, up from 20% in the 1990-95 time frame.

The article focuses on foreign central banks buying Treasuries to keep their currencies from appreciating against the dollar (which would make our exports more competitive and theirs less so). But is that the whole story? The foreign ownership percentage seemed stuck in the mid-30s from 1998 till 2001, but has since climbed steadily to the current 52% or so. You have to wonder how much of an effect 9/11 had on encouraging foreigners to send their capital to the US.

I found this table on the Treasury site. According to it, foreign holdings of long-term Federal securities rose from $1.57 trillion in January 2004 to 1.96 trillion in January 2005. Perhaps that's enough of a rise to be worrisome, but it's mostly (almost 36%) held by Japan. China is number two, but holds only 10%, with holdings rising from $156 billion to $195. The UK's holdings have jumped from $92 billion to 163. And India is way back at $13.9 billion in holdings, down from $15.7 a year ago.

I think, on the whole, that this article doesn't give a complete picture.

      I read this and I yawn.  The countries piling up U.S. treasury debt can't cash it in and spend it, because they want to avoid imports.

      Neither can they stop accumulating it, because they want an export surplus.

      Maybe the foreigners can use it as wall paper?

      The U.S. has been running balance of payments deficits since the late '50s.  If they're so bad, why haven't the terrible effects shown up yet?

THE SAUDS MUST BE DESTROYED!

An additional factoid to include in the mix is that the People's Bank of China is strictly an instrumentality of the central government of China. There hasn't been a central bank in the United States in that sense for more than a hundred years. The current Federal Reserve Bank is an odd hybrid.

The PBC doesn't just implement economic policy it implements social and political policy as well and frequently social and political concerns trump economic concerns.

Does this really mean that Americans spend too much, or just that foreigners prefer investing in American securities to investing in their own countries? It seems to me that if the foreigners didn't keep investing, the $ would go down in foreign markets and we wouldn't be able to import so much.

Foreign concentration of US Debt is the greatest strategic threat the US has faced since Stalin. Right now, Japan and China (others too, but not so significantly so) need to keep their currencies advantaged relative to ours. For Japan, this will likely remain so until they reform their banking for real. For China, though, which is growing trade through ASEAN as well as growing internal consumption at home, there will reach a point where they no longer need the crutch of US consumption. When that happens, then the US will find a nation with Great Power aspirations holding an economic gun to its head, and there will be nothing we can do about it. The only way we can fix the situation is through painful reform now, or else we can suffer collapse at the hands of tyrants later.

“The only way we can fix the situation is through painful reform now, or else we can suffer collapse at the hands of tyrants later.”

Baloney. The United States must simply outperform the Old Europeans and other loser economies. We have little to worry about as long as these countries embrace socialist doctrines. Who in hell is going to invest in France or Germany over the United States? On top of that, we have the more stable political order. Our strong military ensures our freedom for many years into the distant future. President Bush’s successes in Iraq and Afghanistan have also earned us a grudging respect from the so-called world community.

hey James you said ?holding an economic gun to its head,"

what will china do with its excess dollars...buy US goods or Arizona??

what will china do with its excess dollars...buy US goods or Arizona??

China will simply purchase more American goods. This is just basic Economics 101. As matter of fact, we have a lot of stuff the Chinese want to buy.

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