a sort of parasitical system where Asian countries essentially dump money into the US so that americans can continue to buy Asian commodoties.

While you pay oil with dollar, there is no possibility of tanking.

The moment that Russia, Iran and venezuela do not accept dollars there is a chance of a deep fall  (to avoid a complete disaster...Saudi Arabia will always be there to the rescue).

People need dollars to pay oil, this is why huge black money in South America-Asia is in dollars. Oil, plus black market makes it impossbile to tank, no matter the deficit.

The deficit can make the dollar fall down, an even an important fall (50% more anybody?).

So China can indeed make the dollar fall , but not tank... not as long as oil is payed in dollars.

Great diary by the way.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

where Asians are suddenly going to be able to afford a lot of nice things

Now I don't want to imply that all of these growing economies are perfect, because they are not.  But if you have visited them over the last few decades, you'll see that they are improving year by year in their standards of living--or just look at their national economic numbers.

But US living standards, didn't fall.  They rose.  Americans, and the world more generally, has benefited from this productivity--just look at these wonderful Japanese cars as an example.

History doesn't repeat itself perfectly, but this same pattern will continue.  The Asians are going to do better and better--their productivity is tremendous, and there are still many areas where workers are vastly underutitilized.  It doesn't require an American collapse.

Then does a parasite produce all of these wonderful new technologies that we are all benefitting from--like the computer you're entering this data on.  Like the Internet that allows this wonderful around the world dialogue we have on this website.  The vast majority of IT innovation is being driven out of America--I don't think those techies are spending a lot of time on their lazyboy's eating the food from all those Asians.  And then how about all of the healthcare innovations.  Americans are producing far more than their pro-rata share of these innovations--far, far, far more.  And you may not know this, but when a non-American gets an innovative idea, it's pretty common for him to bring it to the US, where the infrastructure in industry exists to develop that idea into a prototype product, run the gamut of clinical trials to prove that it works.  the place where all the people skills to make all of this happen exist.

I don't have the numbers in front of me, but isn't American GDP growth chugging along at 3.5% or so--very high for such a developed economy.  How do parasites do that?  Productivity improvement is very high.

Then when these asian countries look for the money to build their infrastructures, where do they ususally come to get it--right,, the US.

America is not perfect either, but parasites--I think not.

And you don't think all of these non-Americans, you mention Asians, are pumping money over to America because they're dumb, do you?  Of course not.  They see a growing economy in America; they see a dollar that is weak by historical standards--so they're hoping that their investments in America will do well, and then if the dollar strengthens, when they bring the money back in their own currencies--they're hoping to make big money.  I'm not sure I would bet against them.

The sky is not falling in America.  In fact the stock markets are warming up over hear.  Might be a good time to put some of the bucks in the savings account, into the stock market--you may be able to squeeze a few more years out of your rock star life style in Holland.

By the way, the blog is interesting if you want to follow the topic of economic global imbalance, and probably known to the economist crowd here. As the author says himself, he is quite pessimistic about the dollar since some time now, but at the moment facts are proving him wrong, what does puzzle him.

What I have not seen in this blog and never had the courage to ask in its comments , being my english and economist skills too poor, is how sure are we that the deficit of the US with china is a real threat considering the following.
At least 60% of the volume of export resort to multinational or american companies. The chinese goods cost 1 to produce, and are sold for 10 in the west -ask any industrial manager, but I shouldn't lay too far. Where are the nine other dollars landing? If we say 2 to 5 end in the pocket of the retailer, where do we find the remaining at least 5 bucks in the trade statistics?
Between Shangai and Albuquerque, over the Cayman Islands or London, someone has to decide, and I don't believe that "someone" like paying taxes. But at the end, I don't know of any American successful businessman who wish to buy the Mansion with pool in China for his retirement, so maybe you can count that the money will still flow from "abroad" into the US, at the end of the day.
I don't know if someone can quantify that factor, but I would love to know.

La répartie est dans l'escalier. Elle revient de suite.

If the oil market, tomorrow, switched to the Euro we would see a fall in the PPP of the dollar, a rise in the relative PPP of the Euro, further fall in the dollar as all of the dollar denominated finanical instruments are now worth less and owners start bailing out, a rise in the relative Euro/dollar valuation as the scarity of the Euro relative to the dollar comes into play, a sudden influx of dollars entering the American economy as some players trade financial instruments for hard asset instruments or even hard assets themselves, a dramatic spike of inflation in the US as these bucks flow in, a dramatic spike of valuation of the Euro versus every other currency, the US, and the world's, financial industry would come under intense pressure as their balance sheets go south, a switch in relative valuation of industrial production in China back to the US, a drop in the valuation of industrial production in the Euro Zone, and a fall of oil prices due to increased supply stemming from the lessened ability of the US consumer to buy gas for transportation.  

And that's just off the top of my head.  

How bad things would get would be dependent on the relative size of the moves of the differing inputs versus each other leading to movement of the totality of the system into a new equilibrium.    

Example, a currency is fungible when a buyer and a seller agree on a price.  If nobody is accepting dollars then, at that moment, the buck isn't worth anything in the other currency.  This is what happened to Indonesia a couple of years ago.  Nobody wanted the rupiah and so were not willing to exchange their local currency for the rupiah to purchase goods priced in rupiah and so it collapsed.  Once it was seen to collapse buyers waited to be able to glean large arbitrage profits from relative movements of two, or more, currencies.  The collapse started to end when trans-national corporations started snarfling up assets - such as factories - on the cheap among others factors which finally initiated a positive feedback cycle.  And a new equilibrium.

But an "new equilibrium" does not necessarily mean 'better.'  It could be 'worse.'  Given the centrality, currently, of the US in the world's economy a collapse of the buck would mean, my feeling is, 'worse' is much more likely.  

As things now stand.  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

But the analogy is, frankly, shallow and demonstrates a lack of understanding with regard to trade, in my opinion.  Trade is not about what you can export; it's about what you can import -- knowledge and technology, most importantly.  The situation of the Asians and the American on the island is not one involving trade.  (What are the Asians getting in exchange?)  So, no, economists would not say, "This is great.  Otherwise the Asians would have nothing to do!"  They would say, "Jesus Christ, these Asians are dumber than a box of rocks.  They're just giving stuff to the American!"

The analogy completely ignores the concept of incentives and is, therefore, useless in any discussion of economics.  If this is what "modern economists" would say, then the field of economics is doomed, as are the (apparently retarded) Asians.

Be nice to America. Or we'll bring democracy to your country.