Since our current account deficit must equal our capital account surplus, it makes no difference what China and Brazil do.
Your claim is non sequitur. Non sequitur means the conclusion is uncoordinated with or independent of the premises.
And it makes no difference what China does with its dollars-
The point is that the transaction doesn't include the dollar when previously it did.
that is buy oil, commodities with them.
Let's say China buys oil from Brazil but doesn't use the dollar as an intermediary. Instead, it does a direct exchange. It pays in reals. Then there's less demand ceteris paribus for the dollar than there would have been.
Eventually these dollars must come back the US and get invested somewhere.
Again, non sequitur. The point is that the circulating mechanism is dealing with less volume.
And this investment helps make up for our huge budget deficits which detract from national savings and investment.
Petitio principii. Assumes a conclusion follows from a false or non sequitur assumption. In any event it is merely your demand management indoctrination that leads you to believe that government spending subtracts (not "detracts") from investment.
Why not apply the mechanism you incorrectly asserted above which does apply here? Government spending is spent in the US and so is a form of investment. Nothing is lost. Why isn't government spending a good idea? Because over time it returns less than private spending at the same level. And, eventually, government spending returns are negative where that's never true in the private sector.
Less chinese investment in US recently is because the trade deficit has decreased from 60bill a month to 20bill a month. Not sure about Chinese share.
Not relevant to the discussion.
But our saving rate has gone up I read to 5% which makes up for the reduction in the imported capital account surplus.
Comparing oranges with apples. How is US savings related to "imported capital"? US savings comes from action of US citizens. It is categorically distinct from any foreign pecuniary quantity since all of that arises in foreign lands.
For that matter, what is "imported capital"? Only goods can be imported, never abstractions. When you hear people talking about importing abstractions like importing inflation, capital, labor, you know the person doesn't understand economics but is merely spouting bilge gotten from university hacks.
For example, when the US sells Tpaper to foreign entities it isn't importing capital. The reason why is that the capital doesn't come to the US. To come to the US it must circulate in the US. When China buys Tpaper it doesn't circulate, but it does change the state of markets, that is, of expectations. These states are ephemeral and don't have the same quality as tangibles in circulation, if only because that which circulates can't circulate out of the US, but the Tpaper can exit. It's a liability or returnable so at best only creates the illusion that it circulates and is underneath worth and value. What happens if China withdraws its "import"? The expectations that were built on the use of that "import" are reduced and less action can be derived than could have been had it not been withdrawn.
The chinese/brazil deal has no effect on us and is small potatoes compared to our imports of almost 2.8 trill dollars in goods a year and our exports of over 2 trill.
The "deal" if it proceeds, reduces the quantity of Tpaper China would buy. As I explained above when China does a transaction with a foreign nation it must clear through the world's reserve currency. This causes the instantaneous demand for the dollar to rise. Later, when the opposing party finishes the exchange, the instantaneous supply of dollars rises. The result yields no change in dollar rate vis-a-vis foreign currency, but it does change the expectation of the quantity of Tpaper that can be created without increasing its yield. The free float of transaction capital in dollars rises and falls with the level of conversion trade. When the dollar free float drops Tpaper issuance must decline or rise in yield at a previous volume of issuance. |
