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>If my grandmother buys a vase off of Ali Express, after that happens, nobody has any new obligations on any books anywhere. It is just a trade. They get the USD, grandma gets her porcelain vase.

This is the source of your misunderstanding. If you grandmother buys that vase, the seller *does not* receive dollars. They receive the local currency. You grandma and the seller are both satisfied, however, there are extra dollars sitting in the seller's country's banking system. The U.S. effectively owes that country the value of the dollars. What they do with those dollars effects exchange rates and interest rates.

Mike Dilger ☑️ 10mo ago

That is correct, and I used a simplification.

But if another customer of that bank buys oil from Saudi Arabia in dollars, those dollars are not used by China to get something from the US, they are used by China to get something from Saudi Arabia. And if the Saudis buy weapons from the US, those dollars come back into the US. And then they can go around and around again. And my point was simply that the trade defecit is not an obligation, but a summation. The dollars are an obligation. But the trade defecit can count the same dollars many times and so it can get out of whack with reality when you look at a single country like US trade defecit with China. But if you look at US trade defecit with everybody, that is useful.

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