Sorry for the late reply as I just had occasion to revisit and saw your post. You have a very lengthy comment, so I will not touch on everything. However, you presume that the US Public has the exact same appetite for US Treasury securities that a foreign central bank, like the Bank of China, has. Without doing research to verify, there is a very, very strong likelihood that the Bank of China has a MUCH greater affinity for government bonds than does the average person in the US. So, as the Current Account Deficit ramped up in the 1996-2006 time frame, the aggregate demand for US Treasuries increased, all else equal. This does in fact explain why foreigners bid up Treasuries and reduced interest rates. I know it is common among academics to discard Current Account Balances for the reasons you cited, but such disregard is only true in a static world. However, in a world where the Current Account balance is changing rapidly (relative to GDP), as highlighted in my article, the impact is pronounced. The question I have for you is: Why would you expect two vastly different groups of people (Bank of China, and the American Public) to have identical preferences (and utility) for allocation of capital? Regarding your comment on pent-up demand for American goods and services, the answer is it all comes at a price. The United States has roughly 150 years of history while under some form of the gold standard in place where the Current Account was roughly in balance. Are you suggesting that there was no variance in the global demand for US goods during this stretch? The complexity of this subject is too large to tackle here, but suffice it to say that Current Accounts remain in balance when there is some form of a gold standard and do not when it is absent. It has nothing to do with "demand for American Goods" as the standard keeps the whole international monetary system in balance from income, to goods, to services to transfer payments. One needs to look through the myriad ways free market based supply and demand are distorted by government policies. With all due respect, loosen up on your text books and follow the bouncing ball.