Krugman: The idea that we are at the mercy of the Chinese...is very influential. Yet it’s just wrong
The idea that we are at the mercy of the Chinese — that terrible things would happen if they stopped buying our bonds — is very influential. Yet it’s just wrong.
Think of it this way: the argument that interest rates would soar if the Chinese bought fewer bonds is the same as the argument that interest rates would soar when the U.S. government sold more bonds — which, as you may recall, was the subject of fierce debate more than three years ago — and you know how that turned out.
What China does by buying bonds is add to the excess savings — which makes our situation worse. (This is just another way of saying that the artificial trade surplus hurts our economy — just another way of stating the same thing). And we want them to do less of it; far from fearing that they will stop, we should welcome the prospect.
Yet this point isn’t even controversial — by and large, commentators aren’t even aware that fear-of-China syndrome might be in error.
http://krugman.blogs.nytimes.com/2012/09/05/wicksell-goes-to-china/
Thank you again, Mr. Krugman.
