I have rightly been taken to task off-list for over-simplifying to the point of unintelligibility.  Since the responder didn't send comment to the list I'll respect anonymity, but the points deserve to be summarised.

1) If foreigners stop buying US treasuries then interest rates will have to rise (this was a foolish omission from my post - and me, a banker!), which will reduce investment and increase the cost of consumer borrowing.

2) My discussion of piles of money moving around was a silly over-simplification.  The point is rather about relative exchange rates. If the Chinese sell lots of goods to the US then the dollar should depreciate relative to the Renmimbi. China wants to avoid this to maintain competitiveness of exports, so buys US treasuries. This in effect subsidises US consumption by keeping imports cheap.

I'll think more before I post next time!

--James

James Greenstein