Matt Yglesias

The World Can’t Get Enough American Debt

Between the TARP and the stimulus, we’ve added an enormous amount to the national debt recently. So it’s no surprise that I’ve heard from a lot of people who are worried about the situation. How are we going to finance all this debt? Aren’t we risking a dollar crisis? A huge run-up in interest rates?

These are all reasonable questions, but as Peter Goodman writes in The New York Times, the answer is no and the world can’t get enough of our Treasury bonds. Instead, the debt crisis is hitting elsewhere, especially Eastern Europe: “as Americans eschew foreign deals and keep their dollars at home, and as foreign central banks — especially China — buy Treasury bills, the United States is absorbing money that used to be scattered around the globe. And that is making money tighter elsewhere in the world.”

In a sense, we seem to have cycles from a dot-com bubble to a U.S. real estate bubble to a brief commodities bubble and now to a U.S. Treasuries bubble. Which all seems a little perverse. But it also bolsters the case for additional stimulus or a massively expensive bank nationalization scheme. We’re well-below full employment, and under the circumstances the way you know you’re doing too much stimulating is that the borrowing is pushing interest rates up. At the moment, that’s not happening.