Foreigners buy dollar assets

Dan Ikenson Busting Some Myths About the ‘Trade Deficit’

The trade deficit is more balanced than folks claim because Americans buy consume goods and foreigners buy dollar assets.  This is a statement of economics, applies everywhere.

We get into problems when we combine trade deficits with sudden bailouts of the Swamp via bond purchases by the Fed.  We bailout the Swamp because taxpayers refuse to pay the interest charges on government debt.  This is where the problem lies.  If taxpayers refuse to pay 3% on bond yields, then the free traders expect government to respond to the challenge by more efficiency, this is the inherent claim of free traders, global competition improves global governance.

Ultimately, if government does not improve efficiency in the face of foreign competition, then we default, which we do on a generation basis.  So the current account can be balanced only if foreign investors can adequately judge the probability of devaluation, which is high at the moment.