While important, those are driven by capital flows (into the US), not the other way around. Because the US has open capital markets and a floating exchange rate

While important, those are driven by capital flows (into the US), not the other way around. Because the US has open capital markets and a floating exchange rate, exogenous flows really dictate everything. If the exogenous capital flow is held constant, then the budget deficit reflects the allocation of debt (driven by capital flows) to the government sector. But you could have a perfectly balanced budget, and the debt burden would fall somewhere else -- likely the household sector, via constant consumption but increased unemployment. (This is because government spending is consumption, and therefore stimulative; government cutbacks to enforce a balanced budget, or tax increases, would result in job losses elsewhere in the economy.) I think it's easy to get lost in the weeds of how the capital flows are apportioned within the economy. What's appealing about Pettis's analysis is it's rooted in balance sheet arguments, which have really beautiful identities. The exact balancing mechanisms are complex and dynamic, but the overall balance is true by definition. It's a powerful framework to look at international economics.