[jbooth]

A favor? There's no such thing as a favor.

The US offers bonds in $ at a certain very low interest rate and China buys them in order to maintain their low yuan valuation. As stated in the article, this is to manipulate currency prices for domestic reasons to keep their exported goods "cheap" in terms of the global reserve currency, dollars.

Your cons are all messed up. They're making the dollar stronger and the yuan weaker, deliberately, and that makes our firms over-priced when exporting. We've had 1% inflation for like 5 years now.

If they didn't have that industrial policy, we'd probably have to be selling our 30-year tbonds at 3-4% instead of sub-1% as they are now. They do have the policy, so we should frankly be selling more bonds and spending the money on infrastructure, but hey, that's a hard story to sell for some reason.

[mseebach]

It's not a favour, but then again, most favours aren't. "I owe you one" implies an expected mutually beneficial exchange.

It's a reliance on a (single) counter-party continuing to find the deal attractive. If, for whatever reason, they stop, the cost of debt will explode and bad things will happen. As you mention, it's a policy. Policies are subject to change. The Chinese economy is maturing into consuming more of its own output, and Chinese people are growing wealthier and more interested in buying foreign goods - both are long term trends that makes that policy less attractive.

The reason it's hard to sell that the existence of cheap debt as a signal to borrow and spend, is that the US isn't paying down its loans, it's rolling them over into new debt and assuming that the new debt is not significantly more expensive than the current.

That assumption need to hold several decades in the future. If it fails, things get real ugly.

EDIT: By "bad things" and "real ugly" I mean significant, sudden inflation which voters are unlikely to reward.

[jbooth]

That's fair, and the commenters below pointed out that I was sort of conflating the short and long term yields on bonds, which dampens the enthusiasm for borrowing.

The thing is, right now, all of our borrowing is for things that don't pay much of an economic dividend, and meanwhile our infrastructure is going to absolute hell. If there was ever a time to borrow and spend some money on infrastructure, this is it. We can believe that while also believing the systemic budget problems need to be fixed.

[joshuahedlund]

> They do have the policy, so we should frankly be selling more bonds and spending the money on infrastructure, but hey, that's a hard story to sell for some reason.

Doesn't that put us at increased risk of the policy changing and then having that much more in bonds to roll over when the rates go back up? (Or are we are highly confident that the investment will pay off before the policy changes?)

[mkr-hn]

I might be misunderstanding the nature of the bond market, but the treasury's website says 30 years are at > 3%.

http://www.treasury.gov/resource-center/data-chart-center/in...

[thejteam]

That chart is for yields, which is distinct from rates. Although the rates for 30 year bonds are also greater than 3 percent (3.625 in the latest auction). However, if you are looking at inflation protected securities (TIPS) a 30 year TIPS bond has an interest rate of 0.625.

http://www.treasurydirect.gov/RI/OFNtebnd