I take it that you have never read Wealth of Nations? In the simplest terms you are depleting your natural resources in exchange for another country’s fiat currency. In the long run, how does that strategy create wealth?
You linked to an EPI transcript from 2002. The theory that globalization pushed manufacturing jobs overseas has long ago been dispelled. It is well understood that automation replaced workers, not globalization.
Any nation providing the global reserve currency must run a trade deficit to assure availability and avoid massive trade imbalances. Only 180 countries have their own currency. Of the 180 countries, very few have exchange value. In other words, how would you import products if you didn’t have tradable capital reserves? In the simplest terms, the US buys foreign goods to provide an export of capital. The US’ biggest export is its capital.
The exported capital becomes a developing country’s excess savings. Absent the excess savings in US dollars, the developing country would have to accumulate commodities to trade (Mercantilism). In the US, absent the export of our capital, we would have to fund our monetary base internally, transforming from a consumer nation to a saving nation to resolve the imbalance that we have created. How does saving fiat money create wealth?
As long as the benefits of exporting our capital exceeds the cost of increasing deficits, we will gladly continue down this path. BTW, when we reach the point of rejecting a rising deficit, we will institute capital flow barriers to prevent foreign nations from dumping their dollar denominated excess reserves in the US. Remember, in order to have a trade surplus, domestic savings must exceed domestic investment, which means financial dislocations will persist; whereby, domestic demand cannot absorb domestic output.
.
