The U.S. government is having yet another multibillion-dollar bake sale this week, auctioning off $112 billion of Treasury notes to defray the costs of ongoing expenses. (Wars, stimulus, tax cuts, unemployment benefits, etc.) That's a lot of cookies, and sooner or later you'd have to figure the Treasury will reach a point where the world's appetite for U.S. debt will be satiated.
But judging by a Bloomberg News report published Monday, that moment is not yet now. Indeed, foreign appetite for U.S. debt is stronger this year than it was in 2008.
Investors outside the U.S. bought 43.1 percent of the $1.41 trillion of notes and bonds sold by the Treasury Department this year, compared with 27.1 percent of the $527 billion issued at this point in 2008, government figures show.
What this means, fundamentally, is that foreign investors are betting that U.S. government deficit spending will not result in significant inflation in the near-term future. "Fund managers say their money is safe in the U.S. with expectations for inflation as measured by indexed bonds below the five-year average," reports Bloomberg.
This is the exact opposite of what conservative economists and politicians have been predicting all year. But it is as close as we can get to a dispassionate, nonpartisan judgment by the market as to the likely consequences of current U.S. fiscal policy. I intend to keep watching. As long as the U.S. Treasury continues to auction off $100 billion worth of Treasuries every week or so, the degree of demand for that debt demonstrated by bond buyers will determine the future course of U.S. government economic policy.