. . . the modern mercantilist can easily conclude that a supposed trade deficit is a real advantage for the United States, because it is made up of fiat money. In fact, "losing" fiat dollars to "foreigners" makes for a good excuse to create more of them. Provided that the national worthies, and members of the public, are not riled by the sight of "foreigners" buying up "our assets," a continual trade deficit position looks like a rather sweet deal for a fiat-currency economy.Ryan further reminds us that inflation not only grows the empire, it is what brought us here. The two world wars put us on top of the heap militarily, both heavily financed through monetary expansion.
It’s made even sweeter by foreigners investing in U.S. government obligations, which is where the bulk of the capital inflows go. How can a nation foreclose on the government with the most powerful military in the world, one with the power (also) to cut off the world’s most reliable consumers from a "rogue trading partner?"
As the old book Business And The Banking Cycle relates, on pp. 14–15, World War 1 was 75% financed by borrowing and currency expansion. Only 25% of the financing for it was done through taxes. Since the Federal Reserve System inflates through the credit market, and was already up and active as of 1917, there is no way to precisely gauge the amount of war financing done by inflation. The active support of the Fed in dishing out reserves to aid banks in financing loans for War Bond purchases, though, implies that the bulk of the borrowing was disguised currency expansion.