The Most Ridiculous Claim I Heard Last Night

Paul Ryan’s speech has the fact-checkers in a tizzy, but the craziest claim I heard made last night came from Senator Rob Portman, who has a reputation for policy savvy:

Take trade with China. China manipulates its currency giving it an unfair trade advantage. So why doesn’t the president do something about it? I’ll tell you one reason – President Obama could not run up his record trillion dollar deficits if the Chinese did not buy our bonds to finance them. We are as beholden to China for bonds as we are to the Middle East for oil.

The density of nonsense here almost defies explication. Taking the end first, he has the direction of the flow backwards. The Middle East exports oil to (among other places) the United States. The United States exports bonds to (among other places) China. We’re the Saudi Arabia of fixed-income instruments.

But the really important issue here is that Chinese “currency manipulation” consists of official Chinese purchases of American debt.

Let’s take it slowly. You’re the People’s Bank of China. You want to “manipulate” your currency so as to push the price of dollars up and the price of made-in-China goods down. So what do you do? You need to buy a bunch of dollar-denominated financial assets. A lot of them. And you want to buy safe ones that are available in vast quantities and trade in a liquid market. Your best bet is federal government debt. So the PBOC has, over the years, bought a lot of American debt. Not as a way of coercing us into complying with their “currency manipulation” but as a way of altering the exchange rate.