Joe Biden is tanking the US Treasury – The Post

the Biden administration has decided to ignore all sound practice when it comes to fiscal policy. Keynesian economists, who recognise that Government borrowing can sometimes be good for the economy, advocate that monetary policy and fiscal policy should work together. That is, the Government should borrow and spend when the central bank is lowering interest rates, and it should rein in borrowing and raise taxes when interest rates are rising.

The Biden administration has decided to break all the rules in this regard. The Federal Reserve is trying to slow the American economy by raising interest rates, and the White House is trying to speed it up by injecting enormous amounts of fiscal expenditure through its Inflation Reduction Act (IRA). In normal times, this would be considered chaotic policy, but since the 2016 election, economists have become unwilling to criticise Democratic ministries, lest it result in another Trump presidency. 

While Joe Biden s runaway spending is leading to clear problems in the market for Treasuries, it is arguably not the worst problem. If the situation got out of control and interest rates started to spiral, the Federal Reserve could, against its better judgement, reverse its QT programme and start buying up Government debt again. This would end any pretence of central bank independence, but it would also end a debt crisis in a pinch.

Not so when it comes to foreign buyers of Treasuries heading for the exit. It is well-known that the United States runs a large trade deficit, and so needs to borrow money from abroad in very large quantities. Much of this is undertaken by issuing Treasury debt to foreign borrowers, but now they are stepping back. This begs the question: why?

via unherd.com