The Slate commentator Matthew Yglesias recently noted an uptick in warnings from Very Serious People that China might lose confidence in America and start dumping our bonds. In an article published earlier this month, he focuses on China's motives, which is useful.
But the crucial point, which Mr. Yglesias touches on only briefly at the end, is that whatever China's motives, the Chinese wouldn't hurt us if they dumped our bonds - in fact, it would probably be good for the United States.
But, you say, wouldn't that send interest rates up and depress the American economy? I've been writing about this issue a lot in various guises, and have yet to see any coherent explanation of how it's supposed to work. Think about it: China's selling American bonds wouldn't drive up short-term interest rates, which are set by the Federal Reserve.
It's not clear why it would drive up long-term rates, either, since these mainly reflect expected short-term rates. And even if Chinese sales somehow put a squeeze on longer maturities, the Fed could just engage in more quantitative easing and buy up those bonds. It's true that such actions could possibly depress the value of the dollar. But that would be good for America!
Think about Abenomics in Japan: Its biggest success so far has been to drive down the value of the yen, which has helped Japanese exporters.
But Greece, you say. Well, Greece doesn't have its own currency or monetary policy; capital flight there led to a decline in the money supply, which wouldn't happen in the United States.
The persistence of scaremongering about Chinese confidence is a remarkable thing: It continues to be what Very Serious People say, even though it literally makes no sense at all. As the economist Dean Baker once put it, China has an empty water pistol pointed at our head.
Lies, Damned Lies
The other day, the Fox News commentator Sean Hannity featured on his show some Real Americans telling tales of how they have been hurt by the Affordable Care Act. So Eric Stern, who used to work for Montana Governor Brian Schweitzer, had a bright idea: He actually called Mr. Hannity's guests, to get the details. Sure enough, according to an article that Mr. Stern wrote for Salon, the businessman who claimed that Obamacare was driving up his costs, forcing him to lay off workers, only has four employees - meaning that Obamacare has no effect whatsoever on his business.
The two families complaining about soaring premiums haven't actually checked out what's on offer, and Mr. Stern estimates that they would in fact see major savings. You have to wonder about the mindset of people who go on national television to complain about how they're suffering, based on nothing but what they think they've heard somewhere. You might also wonder what kind of alleged news show features such people without checking on their bona fides. But then again, consider the network.