I don’t worry about foreigners holding lots of dollars and dollar-denominated assets. I explain why here. And below is a clip:
Might Beijing’s motive for acquiring large holdings of dollar assets be the sinister one of eventually dumping these assets simply to disrupt American economic growth? It’s possible. But if so, the American economy enjoyed huge benefits to offset any problems springing from the later disruption.
During the time that the government in Beijing was accumulating dollar assets — accumulating these assets by paying for them prices higher than they are really worth – Beijing transferred wealth to Americans.
To see why, suppose that an evil businessman seeks to disrupt the economic future of innocent Ms. Jones. This businessman reasons that if Ms. Jones unexpectedly is fired from her job, she will suffer. And she will suffer even more grievously if any new job that she finds pays her less than the job she lost. So Evil Businessman hires Ms. Jones at a salary well above her true market value. For several years Evil Businessman keeps paying Ms. Jones a salary much higher than she would command on a market not poisoned by the uneconomic motive of Evil Businessman.
And then one day, suddenly and unexpectedly, bam! Evil Businessman fires Ms. Jones, who then discovers that the best new job that she can get pays her an annual salary that is $100,000 less than she “earned” while employed by Evil Businessman.
Without doubting the disappointment and inconvenience Ms. Jones suffers when she is suddenly fired, we can nevertheless doubt that Evil Businessman really hurt Ms. Jones on net. During all the time that he employed her she earned more than she would otherwise have earned. And during this same time, Evil Businessman was paying the price for the later privilege of disrupting Ms. Jones’ economic life by firing her.
Rather than “Evil Businessman,” he really should be called “Stupid Businessman” — and the U.S., like Ms. Jones, should count its blessings if it’s really true that Beijing or any other wealthy entity consistently overpaid for American assets.