Debt is an investment that pays interest. Government bonds are a category of debt. The U.S. finances its deficit with government bonds that individuals, investment companies, or national banks can purchase.
Japan and China buy U.S. bonds because (on the surface, anyway) they consider them a decent investment. Japan's interest rates are so low that, presumably, U.S. debt is a better investment. Also, given that the U.S. is in a huge trade deficit with China, all the goods that the U.S. buys from China are paid for in U.S. dollars which China (or Chinese vendors) now holds.
The U.S. dollar declined quite a bit over the last couple of years, which means the value of the U.S. dollars Japan and China hold has declined. Not a good thing for them. However, Japan and China are both big oil importers, and oil is traded in U.S. dollars for the moment. So they need the US bucks to buy their oil.
(One big reason the U.S. is pursuing a policy of confrontation with Iran is that Iran is considering selling oil in Euros. If enough oil-producing countries start selling oil in Euros, oil-purchasing countries won't need U.S. dollars anymore and the value of the U.S. dollar will drop like a brick. That's another discussion, though).
Japan and China do have a pretty big club to wave at the U.S.A. - if they suddenly decide to sell all their U.S. dollar investments, the value of the dollar would drop dramatically. Moreover, if they stop buying U.S. dollars, the U.S. wouldn't be able to finance its deficit. Either option is very bad for the USA.
Pretty much. I visit relatives in the USA yearly. 5 years ago, one USDollar was equal to about 1.5 Canadian dollars. Everything in the USA looked pretty pricey to me. Now, the U.S. dollar is equal to about 1.1 Canadian dollars, and everything in the states looks dirt cheap. It's all relative.
No argument here.
