Comments on: Should the US worry about the drop in foreign demand for US long-term assets? http://blogs.cfr.org/setser/2009/01/21/should-the-us-worry-about-the-drop-in-foreign-demand-for-us-long-term-assets/ Sat, 21 Nov 2009 16:40:10 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: David http://blogs.cfr.org/setser/2009/01/21/should-the-us-worry-about-the-drop-in-foreign-demand-for-us-long-term-assets/#comment-123852 David Fri, 30 Jan 2009 05:12:31 +0000 http://blogs.cfr.org/setser/?p=4514#comment-123852 I was a reporter covering the credit market as the bubble inflated, and saw first hand the impact of massive foreign inflows into both corporate bonds and various kinds of mortgage debt. This article has some unique insights on what happened: http://djr-musings.blogspot.com/2009/01/trade-and-mortgage-stupidity-index.html I was a reporter covering the credit market as the bubble inflated, and saw first hand the impact of massive foreign inflows into both corporate bonds and various kinds of mortgage debt. This article has some unique insights on what happened:
http://djr-musings.blogspot.com/2009/01/trade-and-mortgage-stupidity-index.html

]]> By: Why Mish is wrong about China » Doctor Recommended http://blogs.cfr.org/setser/2009/01/21/should-the-us-worry-about-the-drop-in-foreign-demand-for-us-long-term-assets/#comment-123369 Why Mish is wrong about China » Doctor Recommended Mon, 26 Jan 2009 16:03:07 +0000 http://blogs.cfr.org/setser/?p=4514#comment-123369 [...] and a huge pile of debt (I posted some stats in the footnotes of the piece) — and contra Brad Setser, with a shrinking tax base the US will have to rely heavily on international investors to purchase [...] [...] and a huge pile of debt (I posted some stats in the footnotes of the piece) — and contra Brad Setser, with a shrinking tax base the US will have to rely heavily on international investors to purchase [...]

]]> By: Should the US worry about the drop in foreign demand for US long-term assets? http://blogs.cfr.org/setser/2009/01/21/should-the-us-worry-about-the-drop-in-foreign-demand-for-us-long-term-assets/#comment-122964 Should the US worry about the drop in foreign demand for US long-term assets? Fri, 23 Jan 2009 06:43:30 +0000 http://blogs.cfr.org/setser/?p=4514#comment-122964 [...] Interesting analysis from Brad Setser: Follow the Money. [...] [...] Interesting analysis from Brad Setser: Follow the Money. [...]

]]> By: Cenbanks Suck It Up: Big Treasury Debt Buy as Geithner Attacks a Big Buyer | Housing Doom http://blogs.cfr.org/setser/2009/01/21/should-the-us-worry-about-the-drop-in-foreign-demand-for-us-long-term-assets/#comment-122950 Cenbanks Suck It Up: Big Treasury Debt Buy as Geithner Attacks a Big Buyer | Housing Doom Fri, 23 Jan 2009 03:21:07 +0000 http://blogs.cfr.org/setser/?p=4514#comment-122950 [...] at the Council on Foreign Relations, Brad Setser is looking at some ominous trends in foreign demand for long-term US assets.[3] If the holdings are short-term, it means the level of holdings can potentially turn around [...] [...] at the Council on Foreign Relations, Brad Setser is looking at some ominous trends in foreign demand for long-term US assets.[3] If the holdings are short-term, it means the level of holdings can potentially turn around [...]

]]> By: Neues von der Dollar-Front « Verlorene Generation http://blogs.cfr.org/setser/2009/01/21/should-the-us-worry-about-the-drop-in-foreign-demand-for-us-long-term-assets/#comment-122932 Neues von der Dollar-Front « Verlorene Generation Fri, 23 Jan 2009 00:36:13 +0000 http://blogs.cfr.org/setser/?p=4514#comment-122932 [...] Setser zeigt in seinem Blog eine Grafik mit den Käufen von US-Staatsanleihen aus dem Ausland: Langfristiger Geldzufluss in die [...] [...] Setser zeigt in seinem Blog eine Grafik mit den Käufen von US-Staatsanleihen aus dem Ausland: Langfristiger Geldzufluss in die [...]

]]> By: self-evident » All the T-bills in China http://blogs.cfr.org/setser/2009/01/21/should-the-us-worry-about-the-drop-in-foreign-demand-for-us-long-term-assets/#comment-122888 self-evident » All the T-bills in China Thu, 22 Jan 2009 16:01:23 +0000 http://blogs.cfr.org/setser/?p=4514#comment-122888 [...] Should the US worry about the drop in foreign demand for US long-term assets? (Setser again) But a second factor is now also at play. Central bank demand for long-term bonds is falling. Right now that is largely because central banks are shifting (rather dramatically) into short-term bills. [...] [...] Should the US worry about the drop in foreign demand for US long-term assets? (Setser again) But a second factor is now also at play. Central bank demand for long-term bonds is falling. Right now that is largely because central banks are shifting (rather dramatically) into short-term bills. [...]

]]> By: The Dollar « 86th and Lexington http://blogs.cfr.org/setser/2009/01/21/should-the-us-worry-about-the-drop-in-foreign-demand-for-us-long-term-assets/#comment-122883 The Dollar « 86th and Lexington Thu, 22 Jan 2009 15:03:00 +0000 http://blogs.cfr.org/setser/?p=4514#comment-122883 [...] Yesterday Brian Setser wrote, Should the US worry about the drop in foreign demand for US long-term assets?.  He pulls a graph from the Treasury that tracks long-term capital inflows to the [...] [...] Yesterday Brian Setser wrote, Should the US worry about the drop in foreign demand for US long-term assets?.  He pulls a graph from the Treasury that tracks long-term capital inflows to the [...]

]]> By: Twofish http://blogs.cfr.org/setser/2009/01/21/should-the-us-worry-about-the-drop-in-foreign-demand-for-us-long-term-assets/#comment-122881 Twofish Thu, 22 Jan 2009 13:31:21 +0000 http://blogs.cfr.org/setser/?p=4514#comment-122881 The problem with lots of purchases of short term assets is that if you use short term assets to fund long term spending, then if those short term assets disappear, you have a big, big problem. The problem with lots of purchases of short term assets is that if you use short term assets to fund long term spending, then if those short term assets disappear, you have a big, big problem.

]]> By: Twofish http://blogs.cfr.org/setser/2009/01/21/should-the-us-worry-about-the-drop-in-foreign-demand-for-us-long-term-assets/#comment-122880 Twofish Thu, 22 Jan 2009 13:25:26 +0000 http://blogs.cfr.org/setser/?p=4514#comment-122880 Ying: -Sweeping review income distribution system. “Market” tends to polarize income and creates burden for economy. Cap income gap and set maximum wage. The problem is that if you cap income and maximum wage, then people find ways of getting benefits without explicitly increasing income. This is a bad thing. Also, there are situations in which you *want* people to have large amounts of money. You can fix this with progressive taxation. Make as much money as you want. Just give lots of it to people that don't have it. -Improve efficiency of the economy ( for example, promoting public transit instead of cars) - Provide one-tier health care system to improve efficiency and reduce cost - Extend unemployment coverage and duration All these require large amounts of money. Also, things that seem to promote efficiency can be taking overboard. Once you start spending large amounts of money on public transit, then you will have a public transit lobby that will try to get the government to keep spending money on public transit, whether it has any public benefit or not. Ying: -Sweeping review income distribution system. “Market” tends to polarize income and creates burden for economy. Cap income gap and set maximum wage.

The problem is that if you cap income and maximum wage, then people find ways of getting benefits without explicitly increasing income. This is a bad thing. Also, there are situations in which you *want* people to have large amounts of money.

You can fix this with progressive taxation. Make as much money as you want. Just give lots of it to people that don’t have it.

-Improve efficiency of the economy ( for example, promoting public transit instead of cars)
- Provide one-tier health care system to improve efficiency and reduce cost
- Extend unemployment coverage and duration

All these require large amounts of money. Also, things that seem to promote efficiency can be taking overboard. Once you start spending large amounts of money on public transit, then you will have a public transit lobby that will try to get the government to keep spending money on public transit, whether it has any public benefit or not.

]]> By: Twofish http://blogs.cfr.org/setser/2009/01/21/should-the-us-worry-about-the-drop-in-foreign-demand-for-us-long-term-assets/#comment-122879 Twofish Thu, 22 Jan 2009 13:20:45 +0000 http://blogs.cfr.org/setser/?p=4514#comment-122879 bsetser: yes, imported manufactured goods were cheap, but commodities weren’t (not during the boom) and that was due to the impact in part of non-US demand. High commodity prices were very, very good for most Chinese. Most Chinese were farmers and last year was very good for farmers because high commodity prices means high food prices and the state subsidized prices of inputs like oil and fertilizer. Late-2007/early-2008 was one of the best years for rural China in a long time. bsetser: The data hardly supports strong median real wage growth during this period. The commodity boom didn't last long enough to make too much of a statistical difference. Also there was very strong median real wage growth for Chinese workers from 2001-2008. The wage/GDP ratio went down, but personally I think wage/GDP is a pretty bogus statistic to measure worker well being. The other thing is that in 1998, most Chinese companies and banks were on the verge of bankruptcy so the fact that China was able to recapitalize the banks and the industrial sector was a good thing, since having high but unsustainable wages may not be that great a deal. If the export boom didn't help people that much, then why is everyone going crazy now that it may be over? bsetser: yes, imported manufactured goods were cheap, but commodities weren’t (not during the boom) and that was due to the impact in part of non-US demand.

High commodity prices were very, very good for most Chinese. Most Chinese were farmers and last year was very good for farmers because high commodity prices means high food prices and the state subsidized prices of inputs like oil and fertilizer. Late-2007/early-2008 was one of the best years for rural China in a long time.

bsetser: The data hardly supports strong median real wage growth during this period.

The commodity boom didn’t last long enough to make too much of a statistical difference. Also there was very strong median real wage growth for Chinese workers from 2001-2008. The wage/GDP ratio went down, but personally I think wage/GDP is a pretty bogus statistic to measure worker well being. The other thing is that in 1998, most Chinese companies and banks were on the verge of bankruptcy so the fact that China was able to recapitalize the banks and the industrial sector was a good thing, since having high but unsustainable wages may not be that great a deal.

If the export boom didn’t help people that much, then why is everyone going crazy now that it may be over?

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