Paul Krugman: The China-Debt Syndrome: Noted
Paul Krugman: The China-Debt Syndrome:
Matthew Yglesias notes an uptick in Very Serious People warning that China might lose confidence in America and start dumping our bonds…. The crucial point… is… the Chinese wouldn’t hurt us if they dumped our bonds…. China selling our bonds wouldn’t drive up short-term interest rates, which are set by the Fed. It’s not clear why it would drive up long-term rates, either, since these mainly reflect expected short-term rates. And even if Chinese sales somehow put a squeeze on longer maturities, the Fed could just engage in more quantitative easing and buy those bonds up…. China could, possibly, depress the value of the dollar. But that would be good for America!…
But, you say, Greece. Well, Greece doesn’t have its own currency or monetary policy; capital flight there led to a fall in the money supply, which wouldn’t happen here. The persistence of scaremongering about Chinese confidence is a remarkable thing: it continues to be what Very Serious People say, even though it literally makes no sense at all. As Dean Baker once put it, China has an empty water pistol pointed at our head.
