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This was my first thought, but I'm not sure this is true. Buying debt from the US government increases the numbers of dollars in circulation (since bonds are re
by astazangasta 7y ago
This was my first thought, but I'm not sure this is true. Buying debt from the US government increases the numbers of dollars in circulation (since bonds are redeemed in dollars) and shores up its price. Selling this debt to someone else (i.e., not back to the US government) doesn't destroy those dollars, it just changes its owner. It's not clear this would result in devaluation.
- w23j 7y ago> increases the numbers of dollars in circulation (since bonds are redeemed in dollars) But following supply and demand principles, increasing the number of dollars in circulation should lead to inflation/devaluing of the dollar, right?
- astazangasta 7y agoYou are right, my initial assumptions are wrong - China isn't buying bonds from the US Treasury (as I would), they are buying them from a forex bond market, where we might consider the supply of dollars to be like any other commodity. This means when they buy up bonds they are decreasing supply, therefore driving up the price, and when they sell off bonds, they are increasing the supply of dollars, causing the price to fall.