Follow The Money, page-795

Millibuster,

Unless the FED intervines by means of asset sales, the US dollar, except in the form of banknotes and coins, never leaves the American banking system. It only changes hands. Thus, if at the end of the year China has surplus dollars it either invests them in the US or exchanges them against another currency in the forex markets, potentially pushing the value of the dollar down.

When an American importer gets goods imported from China he pays for them by channeling his dollars through the international banking system to the Chinese exporter who becomes the owner of those same dollars . The Chinese exporter then either sells those dollars to a Chinese importer of American goods, invests them in the US or sells them for euros, pounds, or any other currency. But the dollars never leave the American banking system. Dollars only leave the system when the FED decides to intervene and sell bonds or any other of its asset. Only in this latter case the dollars would be taken out of circulation.

The basic reason for the absence of inflation is has been the fact of money and bonds having become interchangeable because money is being used as a store of value rather than as a means of exchange.

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