Holdings of U.S. Government Debt Instruments Provides Clues

Reports of an apparently massive buildup of net long positions in the U.S. government debt instruments can reflect a number of different views of American economy. But don’t let that bother you.

Here is a piece of evidence with a clear-cut meaning: Over the four quarters through April, the U.S. economy has grown at an average annual rate of 2.9 percent. That is more than an entire percentage point above its estimated growth potential – a pace of economic activity consistent with a non-inflationary rate of utilization of labor and capital resources.

That growth rate has made it possible to create jobs for nearly 3 million people, and to reduce the unemployment rate from 6.7 percent to 5.3 percent since the first quarter of last year.