For every buyer there is a seller.  For every debit, there is a credit.

People often accept naive views of how the market works, perhaps considering how their own life seems to work, and not considering  the other side of the trade.  As an example, aside from laziness, why do market observers report a day where the market goes down on no significant news as “profit taking,” or grab at some lame smaller story which couldn’t explain the decline?  For every seller, there is a buyer.  No money went into or out of the market unless there was a new IPO, rights offering, company sale for cash, buyback, cash dividend, etc.  People don’t run away from or run to the market; only the terms of the tradew change at the margin.

The same applies to current account deficits.  They have to get funded from somewhere, and on unfavorable terms to the lender if the borrower happens to be the world’s reserve currency.

Thus, when I consider arguments over whether America is to blame for its profligate ways, or whether those that funded the deficits are to blame, I simply say that the books have to balance.  Neither is to blame; both are to blame.

It is not as if China has free capital markets.  Given their neomercantilism (uneconomic export promotion), they had to find places where their exports would be accepted.  The answer was the US.  After that, what do their banks do with excess dollars?  They buy fixed income dollar assets, which they foolishly think will preserve value until they need to liquidate the assets for goods or services of some sort.

That recycling of the current account deficit forced rates lower in the US while the Fed was tightening.  For the Fed to have fought that influence, they should have tightened more rapidly, compared to the plodding 1/4% each FOMC meeting.  How often have mortgage interest rates fallen while the Fed is tightening?  Not often, which is why the Fed was impotent during the last tightening cycle.  It is also why the blows hitting the global economy have fallen more lightly on the US.  To the extent that foreigners buy our bonds denominated in dollars, that transfers a part of the pain to them.  Thanks, but you could have avoided our pain had you opened your markets to our goods and services.

There are many efforts in play to try to replace the dollar.  Most if not all will fail.  At present, the US is politically secure in ways the other large currencies are not, and many invest in the US not to preserve full value, but to preserve most of the value, whatever that may be.

As with many things in life — it takes two to tango.  Blame is infrequently singular.  Both the US and China should own up to their shares of the current problems.  Then, maybe, solutions could be found.