Safety

One principle of economy that Tim Harford spends some time to elaborate is that a country must be exporting something while importing from other places - otherwise the value of the currency of that country would fall and cannot be used to buy anything.

Honestly I have the same puzzle for some time - for America.

It is not news. For many years America had persistent deficits in its trade with other countries, notably Japan and China. It doesn't mean that the States is not having any industry and export, but the amount was much less compared to what it bought overseas. (At the same time, the Federal Government's expenditure has almost always been greater than its income - the so called financial deficits.) How could that happen ?

"That's easy," a financial analyst educated me, "The US government issues lots of bonds."
"But who would like to buy those bonds ?"
"Stupid ! Of course they are the Japanese, Chinese ... Arabians, and many others."

Quite true. But why do these countries buy the bonds from a country with huge spending but little income ? Any banker with a sound mind would not issue a credit card to a shopping maniac - not to say an unemployed one.

No, the States was exporting something. Our subconscious mind knows that very well - it is the sense of security. If I were a merchant, or even a government, who has just sold some goods to the New World, I would prefer to pocket my money in Treasury Bonds rather than changing it back to Yen or RMB - it just feels safer in an insecure world with so many things unpredictable.

And it is for the same reason the States is losing its edge and its dollar is declining like hell. The European Union is breaking the monopoly of that very product. One of the greatest worry on insecurity - Soviet Union - has vanished. More so, America may now be the place least safe in the world !