I'm going to spin this thought out before I forget it, so no supporting research for backup. I'll do back-up later if challenged.
1. The US economy is the largest in the world.
2. Not sure but I think that the US is the biggest importer in the world.
3. The US has never been very dependent on exports, and is even less dependent than it used to be.
4. Many economies are highly reliant, if not dependent, on exporting to the US.
5. The strong US dollar enables more imports/foreign exports to the US, and fewer exports from the US, but the US economy won't really notice it all that much because - see # 3.
6. The US is trading dollars for goods - and the dollars are stacking up outside the US.
7. Some foreign dollar holders have invested in the US - in US equities, bonds, treasuries, and direct investment in productive industries situated within US borders.
8. If the dollar slips, everything bought with dollars will be more "expensive."
9. People holding dollars in the US won't notice it much except when they buy foreign goods - and will buy fewer.
10. People holding dollars outside the US will find it harder to get rid of dollars/trade dollars for goods.
11. People manufacturing goods outside the US will lose a large part of their market, and may slip further into recession.
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You have hypothesized about "dollars flying out," I guess you mean a reverse "flight to quality," but you don't really mean "dollars flying out," you mean, people outside the US selling their US interests and exchanging US dollars for their own currencies. People in the US will trade dollars for Euros, Yen, and so forth.
What about all the people holding dollars outside the US because they sold their goods to US companies and consumers in dollar-denominated contracts? What can they do with their dollars? |
