The Debt’s Not So Bad

The US is still the world’s eco­nomic hege­mon:

“The US cur­rent account deficit is falling as res­i­dents’ sav­ings increase, so its trade turnover is falling, which means the US is sup­ply­ing fewer dol­lars to the rest of the world,” [Zhu Min, deputy gov­er­nor of the People’s Bank of China] added. “The world does not have so much money to buy more US Treasuries.”

Chi­nese bankers want our debt; they need our dol­lars. The banker’s remarks are a real vote of con­fi­dence in the sta­bil­ity and value of those assets. Why shouldn’t they be? The Chi­nese cen­tral bank holds tril­lions of dol­lars in reserves whose value depends on exactly those bonds and the dol­lars they rep­re­sent — and on top of that, a strong dol­lar helps their annual GDP by encour­ag­ing exports. They are as invested in the dol­lar as we are.

That’s not to say that global/​Chinese reliance on dol­lars is a good thing, because the pur­chas­ing power of the dol­lar has the poten­tial to be dis­tantly removed from its actual deserved fun­da­men­tal val­u­a­tion. How­ever, so far as the United States is con­cerned, we’re on fairly solid ground.

20 December 2009 – 2:58 am | By Benjamin Daniels | Posted in Economics | Tagged , , , , | Comments (172)