If all he is saying is that China’s ownership of US Treasuries gives it no control over the US, Mosler is of course right, but, as is often the case with MMT, his argument is incomplete, especially if he is also arguing that the accumulation of US Treasuries by a foreign...
...government (not just China) whose economy is running large trade surpluses with the US doesn’t matter. One obvious reason is that the process of reserve accumulation has effectively converted US demand into savings. This is good for the US if it is a developing country...
...whose investment needs are constrained by weak savings, but bad for the US if investment is constrained by weak demand (which is clearly the case in all advanced economies).
A second obvious reason is his failure to note that there are 4, not 3, things China can do with...
A second obvious reason is his failure to note that there are 4, not 3, things China can do with...
...its dollars: it can also trade them in the future for US goods, most probably at a time when its economy is booming and there is no domestic slack.
If it does so at a time when the US economy is seriously depressed and there is a great deal of slack (which is unlikely but...
If it does so at a time when the US economy is seriously depressed and there is a great deal of slack (which is unlikely but...
...possible), that would actually help the US economy. But if it does so at a time when the US economy is also doing well and has little to no slack (which is much more likely), Chinese conversions of its accumulated Treasuries into American goods is likely to be...
...inflationary, in which case the US government will indeed have to raise taxes to “repay” China (i.e. to weaken demand so as not to set off inflation).
