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

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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.