In the early 2000s, China and other emerging market sovereigns bought all the Treasurys that even the gaping budget deficits of the first Bush administration could provide. Macroeconomists worried about the current account imbalance that resulted and the possibility of a catastrophic sudden stop unwinding. What they did not pay attention to, because they did not dirty their hands with technicalities like MBS, was the effect the influx of emerging market funds might have in financial markets. Emerging market investors bought first Treasurys and then GSE-issued agency debt. This left other
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