In a post titled “China Cuts US Treasury Holdings By Record Amount,” Mike Norman makes the excellent observation that while China is moving its money out of Treasuries, interest rates are hitting record lows. In other words, the sky still isn’t falling. So, Mike wonders, “Where is the Debt/Doomsday crowd?” He rightly concludes that “They’re nowhere to be found because they can’t explain this. This is a ‘gut punch’ to them. Their whole theory is out the window. They just don’t understand or don’t want to understand, that interest rates are set by the Fed…PERIOD!!!”
Also of note: Nikkei QUICK News reports that the #309 10-year bond, the current benchmark, has traded to a yield of 0.920% Tuesday morning, down 2.5 basis points from yesterday’s close. This is the lowest yield since August 13, 2003. U.S. Treasuries traded higher overnight and press articles suggest that China is finding the safety of JGBs attractive.
This, from a country with a debt-to-GDP ratio of 210%!
I know what the deficit hawks are now saying — it is only a matter of time! Yes, and doom-merchants have been predicting the end of the world forever and the Y2K bugs were predicting it then and the gold bugs were predicting Weimar-style hyperinflation by the end of 2009 and… We can just let the “it is only a matter of time” brigade worry themselves sick and leave us in peace.
Marshall Auerback is a Senior Fellow at the Roosevelt Institute, and a market analyst and commentator.