Wednesday, February 29, 2012

China sold Treasuries in 2011 and guess what? Interest rates fell to record lows!

Here's another thing that the clueless Debt Doomsday crowd has been warning us about. I can hear them right now screaming hysterically about how one day China is going to start dumping its Treasuries.

Well guess what? They did. They sold a bunch last year and on balance, were net liquidating.

So what happened? Did rates spike like the misguided Doomsday guys forecast?


Actually, the opposite happened: rates collasped to new lows. The only ones who got this right were the MMT guys, like us, right here!


Anonymous said...

When the FED is buying 90% of all long term paper, rates can certainly go down. What happens when they must stop buying? Oh ya, you don't believe they will ever have to stop, as we are the first Empire in history where it doesn't matter. Oh the folly of man.

mike norman said...

Precisely. That is how the Fed sets rates. It's not about the Chinese or the Japanese or OPEC or the tooth fairy. It's not about "who's going to buy?" The Chinese don't have to buy. It means nothing if they don't buy...absolutely nothing. The proof is right here: they're selling and they're selling a lot and rates are going down. That's how it works, because it's the Fed sets rates, not the Chinese. Get over it. When will the Fed stop buying? When they want to raise rates. Then they will sell. And where does the public get the money to buy Treasuries anyway? Where does it get those dollars from? As far as I know, it can only come from one place--the government. The government has to spend those dollars into existence for anyone to have them to be able to buy Treasuries. So the more deficit spending the government does, the more dollars people will have and the more Treasuries they will buy and there will be pressure on rates to come down.

Anonymous said...

The generally only sets rates for the short term stuff, and we both know this. Buying 90% of your own long term paper is an excuse for not enough demand, and both of us also know this. Spin this like Faux News, your old boss, if you like, but we both know it's an example of desperation. You want to play this up, show me where we get demand for our long term paper outside of us buying it from ourselves.