{"id":35102,"date":"2017-01-02T13:56:12","date_gmt":"2017-01-02T03:56:12","guid":{"rendered":"https:\/\/billmitchell.org\/blog\/?p=35102"},"modified":"2017-01-02T13:56:12","modified_gmt":"2017-01-02T03:56:12","slug":"foreign-sales-of-us-government-debt-are-largely-irrelevant","status":"publish","type":"post","link":"https:\/\/billmitchell.org\/blog\/?p=35102","title":{"rendered":"Foreign sales of US government debt are largely irrelevant"},"content":{"rendered":"

\t\t\t\tHappy New Year to all readers. I will not write much today (to reflect to on-going holiday spirit!). But, there was an article in Bloomberg media (December 30, 2016) – Beware the Foreign Exodus From Treasuries<\/a> – stirring up fear about the recent sales of foreign-held US government debt. I guess it was a slow news day or something because there is very little in the story that is relevant to assessing whether the US government can run an appropriate fiscal policy stance. The fact is that the foreign sales of US government debt are largely irrelevant for the US government’s capacity to maintain its net spending program. The sales are in US dollars and only the US government itself issues those dollars. To think that a foreign purchaser of a US Treasury debt liability are ‘providing dollars’ to the US government is to completely misunderstand the nature of the transaction. This blog considers the current data and explains how to think correctly about these matters. The question that financial commentators really should be asking is why should the US government extend that corporate welfare (risk-free bonds with income flow) to domestic bond-buyers and foreign governments\/private investors. There is no financial reason (in terms of facilitating fiscal policy) for the bond issuance. It is just a form of welfare spending which helps the top-end-of-town.
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The gist of the Bloomberg article is as follows:<\/p>\n

1. “The biggest foreign buyers of U.S. government bonds are quickly retreating after years of absorbing record amounts of the securities”.<\/p>\n

2. “This is an important dynamic to understand when looking at the potential fate of the $13.6 trillion Treasury market in 2017.”<\/p>\n

3. “It’s hard to see how these bonds can significantly rally, even in the face of bad news, given the exodus of foreign central banks from the U.S. government-debt market”.<\/p>\n

4. “it’s not just the big governments that are selling. Private foreign investors have been net sellers recently, too”.<\/p>\n

5. “This foreign withdrawal will most likely continue for the foreseeable future”.<\/p>\n

6. “there’s a solid argument to be made that the latest selloff has gone too far and will correct soon enough”.<\/p>\n

7. “But this backdrop of foreign selling is important. Yields on 10-year Treasuries may not quickly shoot up, but they most likely won’t plunge back to the lows of 1.36 percent seen in July.”<\/p>\n

The point to understand is that while the trends described in the article are actually happening the importance of those trends is close to zero when assessing the capacity of the US government to run its fiscal policy program, which, might include a large increase in public infrastructure spending under the new administration.<\/p>\n

As we see below, the foreign purchases of US government cannot be construed as funding the US government. If that government chooses it can keep spending with zero foreign government debt purchases.<\/p>\n

The story came out a few days after the US Department of the Treasury released its latest – Treasury Bulletin<\/a> (December 2016). You can always get the most recent issue of the Bulletin HERE<\/a>.<\/p>\n

Here is an update on some research I did in this regard a few years ago which appeared in these blogs:<\/p>\n

1. The nearly infinite capacity of the US government to spend<\/a>.<\/p>\n

2. When the government owes itself $US1.6 trillion<\/a>.<\/p>\n

3. The US government can buy as much of its own debt as it chooses<\/a>.<\/p>\n

4. Helicopter money is a fiscal operation and is not inherently inflationary<\/a>.<\/p>\n

There are a few data sets that you can pull together to break the total US public debt outstanding down into various categories:<\/p>\n