We've had a current account deficit with Japan for thirty years. Yes I understand the relationships and the money flow. No I don't think this is dangerous, and yes, those debts are repaid from personal earnings.
You buy a Japanese built Lexus for 50,000. Let's say the wholesale price of the car is 40,000. Toyota gets it's 40k (current account deficit goes up 40k), pays its suppliers and workers (we'll assume the entire supply chain is Japanese), and nets say $5k. So $40k is sloshing around Japan. It could now go any number of places from plant and equipment, investments there or abroad, or up in smoke in some cross-holding share scheme. The money could be used to purchase Pebble Beach (not included in current accounts) or Japanese or Maui real estate or US Treasuries which are being paid down through government surpluses, or any number of financial instruments around the world. In any event the Japanese get something for their money.
To pay for the car you either pay cash, finance it with Toyota Motor Credit (a direct loan from Japan), or finance it through some (likely) American intermediary where the debt remains in the US, and the wholesale proceeds from the sale goes to Japan. The car is paid off over a few years from personal income (most likely wages) and there is no more debt left.
I think your point is that the dollar must eventually take a hit because those 40k are exchanged for yen, unless they are loaned back to the US. That is an entirely different set of dynamics which involve the complex interaction of all global currencies, not just the Yen and the Dollar, and have all sorts of moving parts like fiscal policy and productivity. The likely event is that interest rates here stay a bit higher here to attract the money back into our system, which has been exactly the case for a very long time. |
