Originally Posted by seattlelou
No, that world doesn't work as you have imagined it. In your example the Pakastani's don't have to balance the trade accounts with the US. They can use the money they get from us and buy oil from Saudi Arabia, or coffee from Brazil, or invest it domestically. You have created a false choice based upon a fundamental misunderstanding of international trade.
I left out those choices for the sake of simplicity. Even if the chinese buy oil from the Saudis, then the Saudis are left with the delema of what to do with the american dollars. The same goes for investing it domestically. Eventually that money has to come back to the United States to buy the following from the US:
1. Agricultural Goods
2. Manufacture Goods
Now it can also be used to buy land and businesses but there is only so much of that forsale that I excluded it(again for simplicity of the argument).
Now suppose those dollar bills never come back to the US. Well that means we just traded some scrapes of paper for a chop saw. Not as good as beads for Manhatten, but still a damn good trade by any stretch of the imagination.