incentive to undervalue the output when sold to foreign markets. Yes, this means that the Chinese citizens are not consuming all they produce and are poorer than they should be. Do you think the Chinese government cares if their citizens are poor? No, they care that they can control the country, preferably through economic means, but they will use military means if that fails. Since there is a finite amount of employment (supply) needed to meet existing demand, excess employment in a US dollar pegged nation must result in excess unemployment someplace else in the US dollar universe. If and when we decide not to sell more bonds to the Chinese, because we need the demand, the result will most likely be asset inflation or commodity price inflation rather than economic growth. yes, buying a foreign car does not add to US domestic demand, jobs, or output. that's a good thing. we get a car without having to work to produce it. and that means for a given amount of govt. spending we can have taxes that much lower so we can buy both all we can produce domestically at full employment plus whatever the rest of the world wants to sell us. That implies that "at full employment" everyone is producing something that some other person wants to buy. I know cars are a bad example, but useful. There is a finite demand for cars at a certain price. If the demand is filled by China, then all those