Brad Setser

Brad Setser: Follow the Money

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The Washington Post is also sounding the alarm …

by Brad Setser
October 20, 2004

A friend brought this Washington Post article to my attention, as it takes on the topic of my last post. Like the FT article it draws on the the new Treasury data on foreign purchases of US securities to highlight the United States’ dependence on foreigners, and specifically, foreign central banks, to fund our budget deficit.

One point is worth reinforcing. The debate about whether Asian central banks will dump their existing holdings of Treasuries misses much of the point. Asian central banks don’t have to sell their existing Treasuries for the dollar to come under pressure; all they have to do is to stop buying new Treasuries. In order for the dollar to stay at its current levels, Asian and other central banks have to increase their holdings of dollar-denominated assets by at least $200 billion a year, probably more. If they don’t add to their holdings of Treasuries, the dollar will fall.

3 Comments

  • Posted by DF

    That’s why it might be best if Bush is elected. He’ll face the consequences of his mismanagement.

  • Posted by brad

    DF — everytime that thought creeps into my head, i think of the consequences of letting bush mismanage the problems that will arise (eventually) from his earlier mismanagement (mismanagement = deferring costs into the future rather than confronting them squarely, whether on the fiscal front, or his unwillingness to mobilize the forces needed to maintain the presence required to implement his stated foreign policy). but it is true that a Kerry term 1 will be a lot of damage control.

  • Posted by RICK

    It makes no difference who is elected. The voters demand and the politicians are the whores who deliver.

    This is not a BUSH/KERRY issue but an issue of national values and philosophy. WE have become a third world nation and now behave like one. Neither BUSH or KERRY can tell the American people to work harder, stop buying junk, save money and stop asking the “govment” for stuff.