Kevin Drum points to Romney's unplugged take on monetary policy. Here's Mitt talking to his peers:
"Yeah, it's interesting… the former head of Goldman Sachs, John Whitehead, was also the former head of the New York Federal Reserve. And I met with him, and he said as soon as the Fed stops buying all the debt that we're issuing—which they've been doing, the Fed's buying like three-quarters of the debt that America issues. He said, once that's over, he said we're going to have a failed Treasury auction, interest rates are going to have to go up. We're living in this borrowed fantasy world, where the government keeps on borrowing money. You know, we borrow this extra trillion a year, we wonder who's loaning us the trillion? The Chinese aren't loaning us anymore. The Russians aren't loaning it to us anymore. So who's giving us the trillion? And the answer is we're just making it up. The Federal Reserve is just taking it and saying, "Here, we're giving it.' It's just made up money, and this does not augur well for our economic future."
Romney is, once again, plucking a scary number he seems to have heard from a tea party symposium somewhere and mindlessly regurgitating it to a receptive audience. But he's wrong. There was a period of about six months during 2011 when the Fed really was hoovering up a big share of all treasury debt. But that was a one-time deal more than a year ago, and since then the big buyers of treasury bonds have mostly been the usual suspects: foreigners and U.S. households.
Yglesias is mystified:
I'm not sure I understand what the problem is….
The dollar is the cornerstone of the global economy. That means foreigners need to hold safe liquid dollar-denominated financial assets to conduct their transactions. Treasury debt is convenient, but mortgage backed securities and other instruments have also been known to serve. This is a lucky thing for the United States since it allows us to run a trade deficit—we consumer more stuff than we produce—though at a time of depressed aggregate demand it can be a source of trouble on the employment front. But this is the very same thing Romney is complaining about when he complains about Chinese "currency manipulation."