Economist: It could be a Good Thing if China Stopped buying U.S. Bonds

April 17th, 2011
in econ_news

us treasury bonds Econintersect:  There are many scenarios, and some of them are likely, that would cause China to stop buying U.S. Treasury debt.  Some have offered grim forecasts of exploding ineterest rates and economic disaster for the U.S. if that should happen.  Internationally respected economist Michael Pettis says that there are many situations that would be good for the U.S. (as well as China and the rest of the world) if China did indeed stop buying Treasuries and even if they started to sell some of them.

Follow up:

Yes, under some scenarios U.S. interest rates could rise, but an explosion is unlikely, according to the Pettis analysis.  He describes some situations in which interest rates in the U.S. could even fall, although it is hard to rationalize that they could go any lower than they are right now.

Pettis describes the situations where the need for the U.S. to finance an increasing debt would diminish.  It all turns on the balance of trade.  If China stops running a huge trade surplus and the the U.S. stops running a large trade deficit (the two are paired), the U.S. fiscal deficit shrink and the need for China to find a way to return dollars to the U.S. will go away - China won't be collecting a surplus of greenbacks anymore.  Read the complete Pettis analysis (with some assists from Martin Feldstein) at the GEI Analysis Blog

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved