Quote Originally Posted by NorseThing View Post
You are correct that changing from the gold standard which was unsustainable to a dollar standard for most international trade is a key to the current issues. A countries develop, much of the deficit on visable trade is balanced by cash infusions toward the developing country businesses capital. This was true for the USA and the UK prior to about WWI. It then shifted as the USA was able to self invest on businesses and did not need the capital infusions. The problem with China is pretty much the same but much larger since China (plus the rest of the developing world) is much larger than a new USA in the 19th century. But then, why are all of the other developed countries fighting the trend and trying to maintain a visible trade surplus? That is the part that is breaking the system and needs attention. This is why Trump complains about NATO countries not putting in a full measure of support for NATO. What he is really saying is why does Germany not behave as a developed country and balance both trade and investment in overseas activities as a combined balance of trade? Perhaps China is also getting close to the magic point where the country will no longer be a net importer of capital. Certainly their rules on investing imply such.
You're right that Germany / EU and to a big extent Japan is actually a major problem in all this that's not really getting mentioned (also why you see curious warming of relationship between Japan and Germany to each other and China right now.)

China's capital is a very interesting one that one can view in many ways, its restriction has been a major source of it's ridiculous property bubble and offers wrong incentives, but its own concern that if they remove restriction there's going to be massive capital flight from corrupt official / business that trigger panic is also quite valid. it seems the only thing they could realistically do is what they're doing now, cracking down very hard on the corruption and gradually loosening little by little. However, China as a net capital importer's days seems to be ending anyway as mosto f the world's new increase in investment overseas, especially in developing / under developed country is now from China anyway. (with mixed results but generally a positive direction, especially since it scares Japan and India and others to join in.)

But I do think one point that needs to be made on why even countries like Japan / Germany behave in the same way as China is back to what I said , in the US dollar based system basically means the only country that can run perpetual trade deficit accounts with no real fear of danger is the USA. becaue it's the source of capital itself. If Germany and Japan blows out their own foreign reserves and given their own local debt constraints it's quite possible they also enter into crisis mode and the IMF have to come in.

The IMF part of course hasn't been talked much about, the thing that people don't seem to realize is that if there's an IMF bailout the country is effectively losing a lot of it's financial soverignty or even straight up soverignty as often the IMF can dictate your policy going forward. It is clearly in the interest of any country to avoid that, especially more powerful once like Japan / Germany where entrench interest and policy is more complicated . This is why even the developed countries largely try to make sure they also run trade surplus, unless they are financial hubs. (but it's hard for larger countries to rely purely on finance unlike Singapore.)


For those interested, this talk is a very good glimps into a lot of the issue especially with a focus more on China / Japan / Germany.