In the years leading up to the 2008 crisis, one phrase recurred again and again as a source of concern: global imbalances. It was shorthand for the way the U.S. was borrowing huge sums of money, particularly from Japan and China, which needed somewhere to stash the cash they had made from highly successful exports. One of the most popular explanations for the global crisis at the time was that a “savings glut” had kept U.S. interest rates unnecessarily low and allowed credit to balloon.
Such worries appear to have come to an end. The U.S. problem is no longer an unhealthy addiction to credit from the central banks of Asia; rather, post-Covid, its problem is now an addiction to credit from its own central bank. As shown by this chart from Bloomberg Opinion colleague Jim Bianco, the Fed’s holdings of Treasury bonds now exceed those of foreign official accounts (central banks and governments) combined: