@Brian:
“Aren’t those foreign held dollars claims on future U.S. production?”
Yes, indirectly, although they are claims of variable value, i.e. there is no guarantee of anything tangible. For example, if you were to make a car, sell it for dollars, hold the dollars for a while, and then try to use those dollars (plus interest) to buy a car, there is no guarantee that you would be able to get in exchange a car that was as good as the one you originally sold.
“Eventually they will be used to take real goods and services away, no?”
1) Not necessarily. The absolute number of dollars held by foreigners may continue to increase indefinitely. In fact, this is my expectation;
2) As referred to above, the real goods and services commanded by those dollars may be significantly less valuable than what was exchanged for those dollars in the first place (especially when taking into account any productive uses to which those original goods and services were put). Japan has been net shipping millions of high quality cars to the US annually for over 30 years and yet what do they have to show for it? And those cars have made Americans much more productive;
3) Further to point (2), it is always possible after the fact to put in place export controls or tariffs if foreign export demand is putting a strain on the domestic economy;
4) Perhaps most importantly, when foreigners do want to spend their dollars finally, people here will consider it a good thing because we’ll all be working hard and making lots of money. We’ll have full employment, rising wages, and politicians will be crowing about how competitive the US is. We’ll be too busy to notice that we’re getting a raw deal, just like the Japanese and Chinese today.
