at the macroeconomic level it’s better to buy what’s ‘less expensive’ unless there are strategic/national security issues.

fiscal policy can put whatever funds in whatever pockets it wants in any case

I guess I am curious as to what they imagine them doing. Do you imagine the rest of the world banding together and showing up on our shores with a flotilla and demanding our stuff in exchange for the dollars they hold? In point of fact, that particular method of wealth acquisition has been around much longer than the dollar, and anyone wishing to pursue it needs no pretext to do so, they only need the means. Do you get what I am saying? Foreign powers do not need massive US$ reserves that they cannot force us to “redeem”… as justification to make war against us. They have many other reasons for doing so, and indeed need no reason at all. So, to assume that net foreign reserves of US$ is somehow inevitably going to result in the rest of the world showing up to seize all our assets is just not very logical; it’s not a reasoned argument. As a matter of fact, it doesn’t even make sense – if they wanted to do that they don’t need to accumulate a bunch of dollars they can’t spend first.

Perhaps I am woefully uneducated, here, but it seems pretty straight-forward to me. There is a simple transaction taking place: we buy goods and services from these nations. They sell us goods and services in exchange for payment denominated in dollars, pure and simple. If they don’t want to sell to us, and thus acquire dollar reserves in exchange for their goods, they don’t have to. If they don’t want to buy treasuries, they don’t have to. Nobody is forcing foreign entities to either sell goods to the US nor to acquire US treasuries. And by the way, what denomination do you think a treasury return is in? The “responsibility” of the US government is ONLY to pay the yield IN DOLLARS, and there is no functional limitation in our ability to do that. What do you imagine transpiring that could prevent the United States from honoring the need to dollars?

Someone once said that the practice of philosophy is akin to re-building a ship piece by piece while trying to keep it afloat. This simile is at least as relevant to economics. The question I always return to is whether or not it’s worthwhile trying to keep the ship afloat.

This system is dependent on “frivolous consumption;” that is what keeps it afloat. That is what keeps the strong strong and the weak weak (at least in financial terms). The impulsive idealist in me would scuttle the ship: let the shelves go bare, let people live without cheap luxuries, let them starve without cheap pre-packaged food-substitutes. Many poor would die; many rich would be rich no longer. As a matter of philosophy it’s an easy exercise; as a practical matter, however, it would be a riotous mess.

No matter what your philosophical position, it should be more productive to keep the ship afloat. The best option for dissenters, I think, is to jump ship and find a nice island somewhere; either make an example of some natives, and rule with an iron fist, or build a nice hut, raise some goats and chickens, and take up gardening. I’m already practicing my gardening.

and if there is an aspect of it that is deemed a national security issue i’d require the military and maybe other govt depts to buy that stuff only domestically with no imported content allowed. that will keep suffient quantities of that stuff for our national security and let the rest of us enjoy the cheap imported stuff for our frivolous consumption.

But like I said, maybe this is all irrelevant. Maybe robots will do all the work in the future and all 6 billion humans on this planet can have a life of infinite plenty and infinite leisure. There will be no scarcity, and hence no wars. Everyone will realize with amazement that the United States was right to run trade deficits, deindustrialize and otherwise live for the present with no concern for the future.

3 generations who have lived and died sending us stuff, and never spending any of their pile, just growing it. no reason for the US NOT to milk this cow as long as possible, not work to kill it.

7. seems obvious japan simply has it backwards and runs a trade surplus because they think it’s a good thing to accumulate $. and we send trade negotiators to try to stop it so we must agree.

8. for a while at least we did ‘employ them somewhere else’
as unemployment fell to 4.5%. it’s more recently that we have let domestic demand fall sufficiently to do some real damage as unemployment moves up through 6.5%.

time for a payroll tax holiday!

10/11 so if china ‘cuts us off’ and doesn’t export to us what happens in real terms? walmart shelves go bare, prices of that stuff rise as some do without and it gets allocated by price to the point where we build it ourselves. ironically our politicians think this is a good thing, which is why paulson went there and got them to stop buying dollars- our exports went up and he and bernanke bragged about it. of course our real terms of trade and our standard of living fell as we got priced out our ability to consume in real terms. and our leaders considered this success.

it also caused a drop in demand overseas where they don’t fathom how to sustain domestic demand and don’t want to anyway, as they think it’s somehow inferior to exports. anyway this meant their economies contracted which further hurt our financial sector which finally was allowed to spill over to our domestic demand by our backwards leaders.

and here we are, experiencing a drastic slowdown because no one in public policy understands how a spread sheet (our monetary system) works.

a drop in demand is the easiest possible problem to address.

when it’s finally understood years from now they will look back at what happened to human kind during this era of no understanding of the monetary system with total amazement.

And how are you going to explain the sudden drop in standard of living?

Instead of that, why not just spend more money here and rebuild our industrial base ourselves, while also enjoying the imports from the rest of the world. Like JCM says, have our cake and eat it too. If your worried about government waste, just use Warren’s idea of an employed labor pool. Eventually enough money will enter the system that those employed by the government will be hired away to work in the private sector, on whatever it is that consumers want.

We could, of course, let the rest of the world subsidize us while we rebuild our industrial base. But that gets us into the nasty issues of government planning (and government corruption and waste). A simpler approach, in my opinion, is to simply call an end to mercantilism. No more trade deficits. Moreever, we expect those existing dollar piles to be spent. That will cause a free market rebuilding of our industrial base, as the dollar sinks and the prices of imports soars. So what if the consumer suffers a little? The consumer also suffered mightily in World War II. There are bigger issues at play here.