The name for the variable that offsets the trade deficit is called "investment", but that doesn't mean it's really an investment. Some people say that they're

The name for the variable that offsets the trade deficit is called "investment", but that doesn't mean it's really an investment. Some people say that they're taking on debt to invest in an education. My brother-in-law also once said he was "investing" in a new 60 inch TV, paid for on a credit card. The U.S. is using debt to pay for current expenses. This is enabled by this foreign investment. Roughly, China's offer over the past twenty years has been the following: "You guys are pretty good at making things, but we're young and hungry for the job. You go home and relax while we do your job, and we'll just loan you the money you would have earned. Good deal, huh?" The only problem is that eventually they will start seeing us as a bad credit risk, stop loaning the money, and we're left with a pile of debt, some broken appliances, and no recent skills. They wind up with some bonds that they may have to write off, and a highly skilled workforce and a huge industrial base.