I realize it's a minor point, as your circle is correct, but your starting point is wrong.
The US buys goods from China is actually the starting point. The excess dollars created by the US buying their products causes them to buy us land, equities, energy, us goods, and of course treasuries.
China doesn't just have a bunch of dollars randomly to buy treasuries they can't create them out of thin air like the fed does.
yes you're right. but their decision to do so is what keeps the circle going.
I need to correct myself:
The US floods the globe with dollars. Some to China, some to others. Everyone trades with each other and ends up with dollars. China and others buy treasuries
Who's decision? Congress?
China's decision to buy treasuries
They don't have a choice, really. They aren't going to hold billion and billions in US dollars that depreciates. They want to invest.
on some sense, you're right. but it could be investing in other things (that aren't restricted). They can also buy commodities priced in dollars. or just convert it back. even if they want to keep their own currency low and avoid the conversion, they can buy gold or literally anything
True. And they have been. Over the past decade, they have been met sellers rather than net buyers.
But currently that relatively 'safw' 4% on billions is a great return. And leverage.
