China led all foreign official investors in September by posting a net increase in U.S. Treasuries for the sixth month in the past seven, bringing its total ownership close to $600 billion. Japan was a net seller of Treasuries for the fourth month in the past six.
Some people amazingly see this as a positive development.
“The details of the report paint a much more positive picture of cross-border investments than expected,” said Michael Woolfolk, a senior currency strategist at Bank of New York Mellon Corp. “China, along with others, is showing more demand than anticipated for U.S. assets.”
This guy is a senior currency strategist. What explains his statement? Is he long on US dollars? The Chinese buying of US Treasuries boosts the value of US dollar versus the Chinese currency and therefore makes Chinese goods cheaper in the US and US goods more expensive in China. This increases the flow of goods from China to the US and decreases the flow in the opposite direction.
I tend to think of investments as purchasing of productive assets. By that measure the Chinese government is not investing in the United States.
If China's government did not buy US Treasuries then the interest rate in the US would rise. The higher interest rate would serve as an incentive for more private savings by US citizens. It would also serve as a signal to the US Congress and President that they are spending and borrowing too much. The East Asian purchases of US debt effectively encourages the American people and their leaders to live beyond their means.
|Share |||By Randall Parker at 2008 November 18 10:41 PM Economics Trade|