In today’s Washington Post, columnist Robert Samuelson makes a small but telling error when discussing the trade deficit. He writes that
The willingness of foreigners — including central banks in China and
elsewhere — to invest their surplus dollars in American stocks and
bonds raises U.S. share prices and reduces U.S. interest rates.
Why "surplus"? If foreigners have a demand to invest in dollar-denominated assets, then the dollars that they do not spend on U.S. exports aren’t in any way "surplus." Put differently, these dollars are no more "surplus" than are dollars that I choose not to spend on goods and services and instead spend on investments.
Labeling dollars that foreigners do not spend on U.S. exports as "surplus" creates the mistaken impression that
(1) there’s something more natural or right about foreigners spending their dollars on current U.S. output (exports) rather than investing these dollars in dollar-denominated assets;
(2) these dollars are ready to be dumped, and thus on the verge of causing a sudden decline in the dollar’s value;
(3) there’s something less natural or right about foreigners saving to invest in the U.S. economy than there is about Americans saving to invest in the U.S. economy.