Interest Rate Question

G

Guildenstern

Let's say China and many of the other countries that are buying US treasuries go into a recession in the next two years. Let's say they have less money to buy US treasuries because their balance of payment surplus is eliminated. Bond prices drop and rates rise.

plausible?
 
Recession means more people will be buying bonds. There is no place for it in the stock market and commodities when there is no growth. So, dont worry! History tells u interest rates will go down if we have a recession.
 
Interest Rates rose throughout the 70's and early 80's which was a time of stagflation. The basic idea is that when foreign countries stop buying treasuries then rates would rise. Is China purchasing most US treasuries with a balance of payment surplus? Would it still be buying if that surplus was eliminated?
 
There was an article in the most recent edition of The Economist that I skimmed over. The article states that interest rates are historically low due to China saving lots of loot, a balance of payment surplus and buying lots of treasuries. It didn't say anything about recession or the like. It also said that the situation is beyond the realm of traditional Keynesian monetary policy and said that an Austrian approach might be better.
 
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