Deficit unrelated to Social Security, or to China's trade surplus

[eridani]

http://www.truth-out.org/sleazy-xenophobia-pursuit-social-security-cuts63826

It is very difficult to see how reducing the budget deficit affects these motives for holding dollars. In more normal times, a lower budget deficit could lead to lower interest rates, which would make dollar assets somewhat less attractive to foreigners. Although even here the story would be mixed since low interest rates could boost stock prices making investing in the US stock market more attractive to foreigners. However, in the current environment of near zero short-term rates and extraordinarily low long-term rates, it is not plausible that deficit reduction would lead to substantial further declines in interest rates.

A lower budget deficit presumably would not jeopardize the dollar's status as a safe haven. So, it would not reduce foreign investors' desire to hold dollars for this reason.

And there is no reason to believe that lower budget deficits would cause China and other countries to end their export-driven growth strategies. They would likely buy up just as many dollar assets if the budget was balanced as they are today.

[eridani]

1. Kick for Tuesday n/t

[old mark]

2. Rec'd.