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Foreign Central Banks Keep Buying U.S. Treasury Debt

Written by Gary North on April 16, 2013

Latest report: foreign holdings of U.S. government debt are up by 10%, year over year. China has been buying. It now holds $1.2 trillion.

The total comes to $5.66 trillion. Of this, 72% is held by foreign governments and central banks.

This policy of inflating the domestic currency and buying U.S. Treasury debt with the new money holds down U.S. interest rates. It helps keep recession away. It also holds down the dollar value of foreign currencies. This is great for American consumers.

Foreign governments and their central banks buy our government’s debt. Foreign manufacturers then send us goods, which we can buy cheaper because foreign currencies have been kept lower. American consumers are getting subsidies from foreign governments. This is mercantilism in action. American consumers are the great beneficiaries of this policy of foreign government intervention.

The longer it continues, the richer Americans get. When it ends, as it must, Americans will find that imported goods cost more. But until then, the subsidies will continue. This is reverse foreign aid. It is far larger than domestic foreign aid programs created by Congress. It is the poor (Chinese citizens) subsidizing the rich: you and me.

Is government stupid? Yes.

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3 thoughts on “Foreign Central Banks Keep Buying U.S. Treasury Debt

  1. Actually no, "the borrower is slave to the lender". Those 'purchasing debt' are the lender – we are their slaves. We will only appear to get rich in the moment, but the day will come when we will have a Chinese boot on our necks.

  2. The problem with your analysis PND, is your assumption that somehow China can reclaim its US treasury holdings in the future. They really cannot. If repaying US government debt becomes too burdensome, Americans are going to vote for politicians who will default on those loans. Doing so means the US govt will no longer be able to borrow money at will, and be very painful, so it won't happen until the pain of not defaulting is greater.

    When default happens, China will not have any enforceable options, war and occupation is logistically impossible.

  3. Yes, but where else would China invest and get 4% yeilds? Agree with David, if a default occurs, China and other will be left holding the bag.