25 Oct 2013

Murphy vs. Yglesias On Chinese Bond Purchases

Debt, Matt Yglesias, Money, Trade 12 Comments

In this Daily Caller article I dispute Matt Yglesias’ recent argument that the Chinese government exercises no leverage over the American government because it buys so much of its debt. An excerpt:

The only way to completely offset both [rising U.S. Treasury yields] and [rising U.S. consumer prices], is if foreign investors are willing to step into the breach and smoothly offset the Chinese unloading of Treasuries, without asking for a higher yield on the assets to induce them to expand their holdings. Only in this case would Americans be relatively unaffected; the immense holdings of Treasuries would simply have switched from China to, say, Japan.

12 Responses to “Murphy vs. Yglesias On Chinese Bond Purchases”

  1. Bogart says:

    The Fed will buy the Chinese bonds. There ain’t nothing to worry about. Inflation, Insmation. Just sign up for your new healthcare plan, buy your electric vehicle, turn in your gold, silver, guns and bitcoins, as the US Government is in control.

  2. Major_Freedom says:

    Yglesias is going full MMT retard.

    • Ken B says:

      “Retard.” Just another Rothbardian “echoing” is the phrase I believe.

      • Major_Freedom says:

        Yeah, I’m not a Rothbardian, because I hold praxeology to be grounded a priori, not a posteriori.

  3. Tel says:


    Neither China nor Japan are significantly changing their holdings, they have both hovered a bit over one trillion for a few years now. If you look at the “Grand Total” it only changed by a few percent YoY.

    It is possible that stuff is happening by the back door and not showing up on the official charts, but China announced an official “sit and wait” strategy, and at least from outward appearance that’s what they are doing. Actually, that’s what the world is doing.

  4. DesolationJones says:

    “My first retort is that Yglesias didn’t qualify his argument by reference to the current slump; he gave a general case that is either true or false regardless of the unemployment rate”

    There’s a reason why Yglesias didn’t touch the word “recession” or even “interest rate.” He was attacking a single specific argument, and nothing else. That argument being something like “We have to worry about our debt levels and our debt ceiling problems because otherwise the Chinese will lose confidence on our bonds and will stop buying them.” The point of Yglesias was not that China’s confidence on our bonds is irrelevant to the the US and would have no impact whatsoever. The point was the the China’s confidence in our bonds is irrelevant to the China. They’re not buying bonds to make a profit. They’re buying bonds specifically for industrial policy reasons. They want to subsidize their exporters.

    Regarding the actual outcome on the US if they stopped buying, he only mentioned it passing, but it’s not relevant to his main point. I’m sure would mention the typical Krugman reasons if it was his main point.

    “Contrary to Yglesias’ claim, the Chinese government’s enormous stockpile of Treasuries does indeed give it leverage over the U.S. government.”

    What leverage does China have when we know China is buying it buying them for their own selfish interest? (At least the government think they’re being selfish) We have to ask ourselves, “Why and when will the China stop buying our bonds.” One position is that China will stop buying bonds when our debt debt gets out of control and they lose confidence. That only makes sense if they were buying bonds for investment reasons. Yglesias says that’s ridiculous because they’ll stop buying for “domestic Chinese political reasons.” That is, they’ll stop when China’s government decides it’s time to get away from a cheap export economy. When that decision is made, their confidence in our bonds will have no bearing.

    • Major_Freedom says:

      “The point of Yglesias was not that China’s confidence on our bonds is irrelevant to the the US and would have no impact whatsoever. The point was the the China’s confidence in our bonds is irrelevant to the China.”

      Are you for real?

      Yglesias opened his post with:

      “No subject attracts as much wrong commentary from people in positions of authority and influence as China’s purchases of American government debt. Recent antics around the debt ceiling managed to bring about a new surge in wrongness on this subject, so let me set you straight about it once and for all.”

      The he ended the post with:

      “It doesn’t give China any leverage over the American government, and congress being ridiculous about the debt ceiling shouldn’t have any impact on Chinese thinking about it.”

      The “point” is whether or not China has any leverage over the US government, due to it being a large bondholder. This is a post about the effects of this bond on the US.

      I mean look at the title:

      “Stop Being Wrong About China Buying Our Bonds”

      He’s talking to Americans about being wrong about the effect of China’s debt holdings on the US.

      It is the case that he is only mentioning China’s interests in passing.

  5. Ken B says:

    Elegant shot about the space weapon and aliens Bob.

  6. Ken B says:

    A serious question though. Yglesias claims that the Chinese have no leverage. But all he has actually argued is that they are not exercising any. It’s all driven by a domestic agenda. Maybe so, for now. But as Bob notes, a “fleet in being” still matters. You agree Bob?

    • Matt G says:

      Yglesias did argue that they don’t actually have leverage as well, but it was a particularly weak argument. He may be correct about the motivation for their (mostly in the past) bond purchases, but as Bob points out, there are more effects than just the purported intent of keeping their currency weak.

      I doubt China views its bond holdings as a strategic asset that they can use as leverage. It makes me laugh just to type that. They’d be shooting themselves in the foot to take any action that threatens the value of their holdings.

      Like Keynes said: “If you owe your bank a hundred pounds, you have a problem. But if you owe a million, it has.”

  7. Jim PM says:

    So this is the brilliant ‘Yglesias’ my liberal friends are always raving about?


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