Quote of the day: Careful What You Ask For

Those of you who know me know that I am a passionate advocate for free trade. I often stress herein the importance of global capital flow.

While I understand that the diffuse benefits of trading goods, labor and currency the world over (more choices, cheaper prices and, thus, more discretionary income to spend at local venues [hugely benefiting our local economies] for the citizen at large) are more difficult to pinpoint than the concentrated near-term costs (folks lose their jobs as a facility is moved offshore, a domestic producer loses in competition with a foreign producer’s less expensive product) — when we allow our government to compensate (through tariffs and other forms of protectionism) for the latter, we not only give up the freedoms and enrichment outlined in the former, we suffer the consequences through our financial markets as well.

Here, from Bloomberg, are the highlights from this week’s Treasury International Capital Report for September:

Foreigners were big sellers of U.S. Treasuries in September, pulling down net long-term securities cross-border flow to a steeply negative $26.2 billion. Foreign accounts, led by official accounts but including very heavy selling by private accounts, sold a net $76.6 billion of Treasuries with Chinese holdings down $28.1 billion, Belgium holdings down $14.3 billion and Russian holdings down $11.0 billion.

The heavy selling of Treasuries is dramatic and comes well before this month which has already seen heavy Treasury selling in general.

Imagine the government restricting (well, even more) yours and my ability to spend our dollars anywhere in the world we choose.  Now imagine far fewer dollars circulating throughout the world (the foreigners referenced above collected the dollars with which they buy our bonds via trade) and what that would do to a most critical source of the funding (treasury debt) of our government’s ambitions.

Now imagine a grand new U.S. infrastructure spending plan. Now imagine what’ll happen to the cost of (the interest rate on) the debt that’ll fund that plan, and, thus, the cost of  U.S. mortgages, auto loans, etc., in a world of less demand for said debt. Yep, it goes up!

I.e., be very careful what you ask for!

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