>Could someone explain to me, the non-economist, this relationship
>between Treasury Bills and the Central Banks. What is a balance of
>payment deficit in this case? Why would the surplus dollars be put
>into Treasury Bonds? Dollar surplus abroad was created by what? US
>Loans? To what the Central Banks? HELP!
For decades, the U.S. has bought more abroad than it imports. (That includes military spending overseas.) That means dollars build up abroad. Locals exchange the dollars for their own currencies, which means that dollar balances ultimately build up at central banks. Central banks have to do something with this money, and about the only thing they can do with it is buy U.S. Treasury paper. (Short-term bills preferred to long-term bonds, since there's no risk of capital losses should interest rates rise <http:/www.leftbusinessobserver.com/Bond_supplement.html>.) I don't get where Hudson sees coercion here - there aren't any other government bond markets big enough to absorb the huge quantities involved. Some countries used to keep some of their reserves in D-marks and pounds, and now in euros, but until there's a unifed euro-denominated government bond market, the U.S. Treasury market's the best place to park money. Besides, much world trade is quoted in dollars, so if you keep your reserves in dollars, there's no risk that exchange values might go against you.
Doug