Thank you for shedding the light on the most misunderstood thing in all of economics.

You succinctly stipulated the ramification of QE3 in the long run while most pundits fail to elaborate. I especially savor your perspective on how the acceleration of the current account deficit in the early 2000s played a part to the financial crisis of 2008.

While you pointed out Chinese and other central banks exercise discretions to purchase a wide range of the dollar-denominated assets, not solely U.S. Treasuries, you didn’t address how the interdependence of dollar can actually help to fuel U.S. economic growth and may inadvertently lead asset bubbles as it did in the 2000s.

There is no other currency like the dollar as euro has proven itself an inferior alternative. Dollar is the reserve currency and still the most commonly used currency to settle trades. Its inherited status has positioned the U.S. not only as one of the top destinations for capital inflows but also the only country in the world can afford to exercise monetary easing without facing the ultimatum from the international investors. In 2000, Paul Krugman predicted a fire sale of U.S. Treasuries in imminent future. It didn’t occur. The least thing Chinese and other central banks want to do is to take a hair-cut on their dollar-denominated assets, be it equities, bonds or mortgages.

I absolutely agree with your takeaways. Volatility is the new normal. But I am more sanguine on the U.S. economic outlook, at least in the near term.