Why Foreign Countries Buy U.S. Treasury Bonds

                 

When the U.S. has a trade deficit, that is, it buys more from overseas than it sells, it has to settle accounts. Foreigners don’t eat our dollars, but they can buy U.S. Treasury bonds with them. Fortunately, they have taken them though the bonds are not necessarily an investment bargain.

                       

Foreign central banks now own over one-third of Treasury bonds. Only about one-quarter is held by individuals and investing institutions. Much will be employed in the future as margin backing for trading derivatives and regulatory law.

                       

Unfortunately, those bonds pay very little and keep losing purchasing power. Our problem is, there may be a time with U.S. budget deficits  when foreigners no longer will accept what is referred to as dollar convertibility, or world recognition as our standard of value. (See the Earl J. Weinreb Ne