by Buggy » Wed 19 Aug 2009, 21:58:18
I finally won something! Like I have said before, I hope(wish?) you are right.
$this->bbcode_second_pass_quote('OilFinder2', '')$this->bbcode_second_pass_quote('OilFinder2', 'S')orry, don't mean to be like the politicians averting questions. The answer you are looking for is the dollar eventually ends up feeding back into the American Economic Engine.
Very good Buggy, you have won the prize.

Now I believe it's time to reflect upon this little "follow the $10.1 billion" exercise. Recall that this $10.1 billion USD began as $10 billion in that oh-so-dreaded US government "debt." Bad, bad debt. Nasty, horrendous debt we will never be able to pay back. Oh the burden! But once you play the "follow the $10 billion" thought experiment to its ultimate end game, you discover that this nasty, nasty debt will actually end up making the USofA even richer in the long term.
Amazing, ain't it. Pretty devious too (in a totally unintentional way), I might add. But as long as others are willing to play the game, I sure ain't complaining.
As we speak, the Chinese are sitting on about $2.3 trillion in foreign exchange reserves. About 70% of that is in US dollars. That's $1.61 trillion US dollars which - someday - will eventually have to come back home to America. It's not legal tender anywhere else (aside from a couple small nations), so all the Chinese can do with that massive pile of money is spend it on imports. After they spend it on imports, the USD they used to pay for those imports will someday come back home. And the only way it can come back home is if China, or Australia, or Africa, or South America buys some physical good from the US (services will do fine, too). Let's say the Chinese bought all of Australia's minerals, gas and oil for $10.1 billion. Now the Australians have $10.1 billion USD sitting in their forex reserves. The only way to "once and for all" get rid of that $10.1 USD would be for the Australians to buy, say, $10.1 billion USD in Boeing airplanes, or Chevy Corvettes, or something else "Made in the USA." Even buying Treasuries will only get them more USD after the Treasuries mature - plus interest. Back to square one.
In other words, at some point in the future the US will have to run large trade surpluses, or at least small surpluses over a long period of time. The alternative is for nations like China and Australia to continue to pile on foreign reserves indefinitely. There's not much point to that. It would be like stuffing $20 trillion under a mattress with no intention of ever doing anything with it.