PeakTrader.com

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PeakTrader said...

The trade balance

1. China needs $100 of oil.
2. So, it sells $100 of manufactured goods to the U.S..
3. China buys $100 of oil from the Saudis.
4. The Saudis buy $100 of U.S. bonds at 2% interest.
5. The U.S. uses the $100, part of it to make a higher return than 2%.
6. Eventually, the Saudis will move to the U.S. and spend their dollars.
7. Or, they'll exchange their dollars, which are eroded at a compound rate (from low interest rates and inflation) and depreciated (from exchange rates and at an accelerated rate when exchanged), for their currency.

Of course, the problem is the U.S. government spends and squanders every dollar and more.

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Rufus II said...

PT, you left out a step.

Uncle Sam takes the proceeds from the $100.00 Bond Sale, and gives it out in unemployment benefits to the workers whose jobs have moved to China, and other "exporting" nations.

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PeakTrader said...

Rufus, those $100 of manufactured goods China sells to the U.S. are heavy or low profitable goods (e.g. oil intensive goods) with declining prices that were offshored by U.S. multinationals and imported to the U.S. at lower prices and at higher profits.

The U.S. shifts the freed-up limited resources, from offshoring, to produce more higher-quality goods, including with market power, to create more higher-paying jobs, either in "core" goods of older industries or in emerging industries.