It is not immediately obvious who buys all the additional Treasuries if Fed is engaged in quantitative tightening
America’s Achilles heel is often seen as its unsustainable fiscal path. At some point in the coming decade, according to the Congressional Budget Office, interest payments on the federal debt are likely to exceed defense spending.
Meanwhile, it is not immediately obvious who buys all the additional Treasuries issued each year if the Federal Reserve is engaged in quantitative tightening.
Might this give China an opportunity to exert financial pressure on the US? In July, it held $970 billion worth of Treasuries, making it the second-largest foreign holder of US debt.
As has often been pointed out, if China chose to dump its Treasuries, it would drive up US bond yields and bring down the dollar, though not without causing considerable pain to itself.
In October, President Joe Biden’s administration belatedly published its National Security Strategy. Such documents are always the work of a committee, but internal dissonance shouldn’t be this obvious.
Niall Ferguson Bloomberg 1 januari 2023
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