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Home Publications Blogs Beat the Press Getting China and Japan to Hold Fewer Dollar Reserves Is an Official Policy Goal

Getting China and Japan to Hold Fewer Dollar Reserves Is an Official Policy Goal

Thursday, 17 October 2013 05:07

The NYT should have pointed out this fact in its discussion of the implications of the standoff on the debt. The piece noted the uncertainty created by the standoff and then told readers:

"Any long-term turn away from Treasury bonds would most likely be driven in large part by foreign investors, like the Chinese and Japanese governments, which are some of the biggest holders of Treasury debt. The willingness of these governments to buy bonds has long held down the cost of credit in the United States and helped keep the dollar as the world’s reserve currency."

It would have been appropriate to point out that the move by the Chinese and Japanese governments away from holding Treasury debt is a longstanding official policy goal of both the Bush and Obama administrations. Both have complained about currency "manipulation" by these governments. The way these governments manipulate their currencies is by buying up U.S. government bonds. This keeps down the value of their currency against the dollar, making their goods relatively more competitive in international markets.

If China and Japan bought fewer U.S. government bonds their currencies would rise against the dollar, making U.S. goods more competitive and increasing net exports. This could lead to millions of jobs in the United States. The NYT should have pointed out this potential positive benefit from the uncertainty created by the debt standoff.

Comments (3)Add Comment
Cost of credit?
written by Herringbone, October 17, 2013 8:53
Just out of curiosity, what about "the cost of credit," the other problematic result that the Times mentions? If China and Japan bought fewer bonds, would interest rates increase (which I assume is what we're talking about here)?
Cost of Credit
written by TonyInLaurel, October 17, 2013 11:00
Treasury interest rates would increase. But as long as the $ continues to be a major reserve currency, not substantially (as soon as rates click up, other investors will begin to purchase, causing rate stability). The increase in rates would prevent bubbles, increase foreign investment into US and cause the $ to decrease in value. Biggest advantage: The decrease in the $ will have a substantial positive affect on US exports, more jobs causing more federal revenue, causing...
Tic Dta
written by Jim, October 17, 2013 12:19
they should also probably point out that the last 3 months we have on record China added 54.8 bln of lt US securities; Japan sold 527 million. This is in comparison to 1.728 trillion for China and 1.707 trillion of long term US securities for Japan.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.