Reply To: Inflation/dollar collapse

#18328
jmherbener
Participant

When the Chinese buy and hold U.S. Treasuries, they are not holding dollars. They sell yuan to acquire dollars and then spend the dollars to buy the securities. The dollars, then, go back to the U.S. Treasury. The same thing happens, when the Chinese buy real assets in America, like golf courses. The Chinese buy and hold securities to earn the rate of interest. They buy and hold American golf courses to earn the rate of return on their investment.

What affects the purchasing power of the dollar is the total stock of dollars and the total demand to hold dollars themselves. Since the early 1990s, the majority of dollars, the actual, physical currency, has been held overseas. Today more than 60 percent of all dollar currency is held overseas. It is this demand to hold dollars that affects the purchasing power of the dollar. Imagine what would happen to its purchasing power, if foreigners suddenly decided they no longer wanted to hold any dollars and they were all repatriated to the U.S..