Comment by CraigJPerry
4 hours ago
I, a foreign entity, have sold something to an american and now have 10 dollars and zero treasuries.
I purchase a treasury. I have zero product, zero dollars and one treasury.
At some point in future i have zero product, maybe 12 dollars and zero treasuries. Presumably i now either repeat the cycle or use my winnings to spend on us output.
GP’s version checks out, your assertion about dollars staying abroad doesnt track? What am i misunderstanding - How did these dollars get abroad, how did they repatriate to buy treasuries, how did a treasury become a reserve, how did the dollars still exist abroad after being exchanged for treasuries?
> I, a foreign entity, have sold something to an american and now have 10 dollars and zero treasuries.
Or you sold something to a non-American entity in a dollar-based market, eg. oil. The dollars do come from America to begin with, but once they get "out there" they work as a medium of exchange for whoever wants to use them for that purpose.
> Presumably i now either repeat the cycle
Most of the time this is exactly (foreign or not) institutions do.
Think about it, if the 10-dollar treasury is due and you got your money back, the US debt will go down by 10 dollars. However, in our reality, the total amount of US debt almost never goes down.
Of course some interest will be used in other ways, like spending on the US goods or staying as cash to provide liquidity. But at the end of the day, the most popular way to spend the money got from due treasuries is... to buy more treasuries.
Because the world trades using US dollars. Country A needs to buy something from Country B. Country A needs to buy/get dollars to buy stuff from Country B. Country B will not accept anything but dollars or gold for its products because it also needs to buy other stuff like oil in dollars from other countries.