| Let's see if I can expand and work through what you wrote. Someone else may need to correct parts. So the Fed/Treasury passes over the void, and in this vacuum forms a dollar and a T-bill, a particle/antiparticle pair. In this transaction, the Treasury sells a debt obligation (the T-bill), which someone buys with dollars. Then again, and again: We now have a few T-bills and dollars. There are a few purchasers involved -- a few places to which T-bills flow, and from which dollars flow. One: A T-bill flows to China. A dollar flows in the opposite direction (they used it to purchase the T-bill). Another: The Federal Reserve buys a T-bill. This is "quantitative easing", or colloquially "money printing" (as it can be done within the current system). The Federal Reserve gets the T-bill, and the Treasury gets dollars, which then fund US government spending. The T-bill/dollar current to China is superposed with an opposite current: Simultaneously, a different stream of dollars impinges on China, prompting another current of cargo ships in the opposite direction. These carry iPhones, and flip-flops, and everything else sold at big-box stores. Enter countries in the US / IMF / World Bank sphere. These have dollar denominated debts (they used the loans to build (hopefully useful) infrastructure). Now they do something to acquire dollars, like accept a stream of tourists, or export coltan or palm oil. In the case of the raw materials, some go to the US (palm oil to food processors), and others to China (coltan to whoever makes tantalum capacitors, which eventually end up in iPhones). In a net sense, then, dollars flow into the "developing" world, and resources flow out to the West, with those needing industrial steps of the "value chain" traveling via China. And each of those dollars has a corresponding T-bill "antiparticle", held either in China (or another country), or at the Fed. This prompts another flow of dollars to the holders of all those T-bills, which we call interest. Those dollars now, can come from the sale of yet more T-bills. Now here I realize that my metaphor is wrong. T-bills and dollars only exist in "pairs" when they are created by a QE transaction. Other T-bills attract dollars from outside (e.g. those sold to China). Finally, I have left out the commercial banks. I'll need to work fractional reserve banking into this somehow. This is all becoming pretty complicated. But it still feels like a simplified stock-and-flow model is within reach... |