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I think this model is useful on a theoretical level, but I think the fundamental relationship being made is backwards. Domestic savings being weak is an outcome

I think this model is useful on a theoretical level, but I think the fundamental relationship being made is backwards. Domestic savings being weak is an outcome, not an input. Trading partners want to sell us goods for no more than our money. If we have nothing they want to buy, then the result will be a surplus of US currency out there. Parking it in US assets drives the cost of debt way down for the US, and the low rates disincentivize domestic savings.

JackYoustra 1y ago
You put forth a bit of a broken model, if there's a surplus of currency abroad we should see our currency depreciate, but instead it's quite strong and has been for a very long time, even as we run persistent, large deficits.
- legitster 1y ago
  That's exactly true if it was really a surplus. But as it seems foreigner markets are pretty happy with the quantity of dollars out there