[largbae]

I think you're on a reasonable track, but this isn't the whole picture. Most international treasury demand is the direct result of trade deficits in dollars.

If you are a bank (or in aggregate a country full of banks) that takes in a bunch of $USD from your business customers selling products internationally in that currency, then you will receive a bunch of dollar deposits. These deposits can't be magically converted into the local currency, they have to be used as dollars somewhere else or traded with someone else who has a currency or commodity that you want for them. Long-term if there is a net surplus(from the other country point of view) of exports to imports, there will be a net surplus of USD as well.

So what to do with those USD? Make some more! Whatever the going rate for T-bills is is likely better than nothing. Treasury bonds are considered a "risk free rate" in the sense that they are approximately as safe as cash under the mattress.

Inflation is a more accurate measure than treasury sales of the reducing trust in our fiscal future. And that signal is lit.

[jfengel]

Inflation is about 3%. That's higher than optimal but hardly a crisis. It does not suggest a broad negative judgement.

Those dollars instead seem to be going into the stock market. Too many, I would say, and I think the Fed is making a mistake in trying to lower interest rates. But it does suggest that investors do not anticipate a sudden crisis of the government.