Submitted by abr, Jan 18, 2007 11:20

In fact, US dollars are exceptionally good at buying goods, services or investing in companies in any country, not just the US. Why automatically assume that those earning trade profits here are going to re-invest back into the US economy? Why wouldn't they invest into the world economies that are growing the fastest? Like their own?

Of course, were those trade profits to be made by American entities, the same would be true. And is true to some extent... increased profitability generated from US tax cuts is not necessarily invested back into this economy. Americans are free to invest those profits in any way they see fit in any country.

The carry trade of the past several years, in which investors would borrow money at low interest rates from Japan and lend to Iceland at high interest rates seems to me to be a classic example of this misconception... The Japanese thought that the only use of yen was to invest in the Japanese economy. Not so... If somebody could explain to me how the Japanese central bank lending money to Iceland while enriching American bankers along the way helped the Japanese economy, I'd love to hear it.

Note: Comments are screened, and in some cases edited, before posting. We reserve the right to reject anything we find objectionable.