Down With Economic Nationalism
1 December 2006
Editor, USA Today
Dear Editor:
Worried about the growth in foreign ownership of Uncle Sam's debt, you write that "It makes the U.S. economy hostage to the whims of foreign investors, including governments. Eventually, they could decide they have better places to invest than in U.S. debt securities. This might be a gradual decision. Or it might not be. If the latter, it would cause a surge in interest rates (because the Treasury would have to offer more enticing terms to attract buyers) and trigger a recession" ("Our view on national fiscal security: look who owns U.S. debt now," December 1).
The problem is the government-debt's size, not its holders' nationalities. To see why, suppose that all of Uncle Sam's debt were owned by Americans. You could then write: "It makes the U.S. economy hostage to the whims of domestic investors. Eventually, they could decide they have better places to invest than in U.S. debt securities. This might be a gradual decision. Or it might not be. If the latter, it would cause a surge in interest rates (because the Treasury would have to offer more enticing terms to attract buyers) and trigger a recession."
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Editor, USA Today
Dear Editor:
Worried about the growth in foreign ownership of Uncle Sam's debt, you write that "It makes the U.S. economy hostage to the whims of foreign investors, including governments. Eventually, they could decide they have better places to invest than in U.S. debt securities. This might be a gradual decision. Or it might not be. If the latter, it would cause a surge in interest rates (because the Treasury would have to offer more enticing terms to attract buyers) and trigger a recession" ("Our view on national fiscal security: look who owns U.S. debt now," December 1).
The problem is the government-debt's size, not its holders' nationalities. To see why, suppose that all of Uncle Sam's debt were owned by Americans. You could then write: "It makes the U.S. economy hostage to the whims of domestic investors. Eventually, they could decide they have better places to invest than in U.S. debt securities. This might be a gradual decision. Or it might not be. If the latter, it would cause a surge in interest rates (because the Treasury would have to offer more enticing terms to attract buyers) and trigger a recession."
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Posted by Don Boudreaux on
Tuesday August 14, 2007 at 3:39pm