this is the part that I don’t understand.
Where will the buyers of US debt come from if no one is generating surplus US dollars. Rather, big current account surplus countries like Russia and China are spending down their current accounts on domestic problems.
Is the US just financing the new trillion dollar debt with fiat money?
(Is it presumed that the US can draw on fiat dollars because the economy is deflating. While US banks are lending less the chinese banks are lending more.)
The US current account deficit has been cut in half during the last four months. If the the US current account deficit turns into a current account surplus then the whole business will make sense.
I think.
I would be interested in hearing from those who thought that current account deficits were not important last year when the US was running monthly deficits of 60-70 billion. Now the current account monthly deficit is down to 30 billion.
That is, if the current account deficit became a surplus, then the US dollar won’t be pressured down.
Now, like Maddof, this Ponzi Scheme is in danger of unraveling. Not only are the Surpluses dwindling but those who could be expected to recycle these Surpluses in normal times have their own needs for them to shore up their own economies. In fact, it is quite possible that holders of our debt might even become net sellers with the obvious effect of increasing rates on these securities.
The Oil Producers, China and Japan are seeing severe reductions in their own trade balances and the are initiating their own Stimulus Plans. They simply do not have the appetite for our Debt that they historically have had and this at a time when we are issuing monumental amounts into the Markets.
That's where the Fed comes in. They sop up the surplus, putting it on their balance sheet by, in effect, expanding the Money Supply. However,this can only go so far so I expect that, after a slight dip in interest rates, the rates will start to rise - This despite the seeming reduction in commodity inflation.