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Subsidies from Abroad: Foreign Central Banks Hold 52% of Treasury Debt

Written by Gary North on May 2, 2013

Latest reports indicate that foreigners hold 52% of marketable U.S. Treasury debt. Most of this is held by foreign central banks.

Treasuries pay almost no interest. But foreign central banks have plenty of money. They create it out of nothing. Then they buy U.S. Treasury debt.

Because of this, the U.S. dollar is the world’s reserve currency. This means that interest rates are kept low because foreign central banks subsidize the U.S. Treasury.

Why do they do this? Because their governments want to hold down the value of their domestic currencies, thereby hurting their own voters. Why do they do this? To subsidize exports to the USA. The inflated money at home buys fewer goods, because these goods are exported to the USA — you and me.

The central banks subsidize Congress, which can run massive deficits. They also subsidize you and me. It’s great for you and me.

U.S. politicians decry foreign central banks for manipulating their currencies. It’s called managed trade. Meanwhile, U.S. government officials fly to foreign capitals to beg the foreign governments not to abandon the dollar as their main reserve currency. They beg the governments to keep buying U.S. Treasury debt.  But the policy of buying U.S. government IOUs is entirely motivated abroad by the goal of subsidizing exports, i.e., manage trade. In short, U.S. policy on currency manipulation is schizophrenic.

The main beneficiaries are U.S. consumers. If the subsidies ever end, the government will have to find replacement buyers — buyers who do not have the power to counterfeit money. Or it can go to the $1 counterfeiter in the world, the Federal Reserve System. “You will have to pick up the slack. A trillion dollars a year in purchases of IOUs just won’t cut it any more.”

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One thought on “Subsidies from Abroad: Foreign Central Banks Hold 52% of Treasury Debt

  1. Blair Franconia, NH says: