partypup, you are a lawyer, so although you are not an economist, you do know how to take apart transactions.
The basic transaction in international trade that we are discussing here (I think) is the purchase by US consumers of goods made by people in other countries. In return, those people currently accept dollars. Yes, I know they may decide they want more dollars, but they still accept the dollars.
Since these people in other countries don’t consume as much as us, they don’t need to spend all the dollars at once. So they send the dollars back to the US, and buy promises from us to give them more dollars in the future (e.g. through US Treasury bonds).
With China and OPEC and Russia etc holding a few trillion of our US Treasury bonds, and bonds from GSEs like FNMA, they have NO CHOICE about accepting future dollars. They have already made the deal to accept future dollars. All the bonds issued by the US govt and the GSEs are denominated in dollars, so China etc have no options – they must accept dollar interest and principal repayments on the bonds they’ve already purchased from us. That covers everything that’s happened in the past.
Turning to the future, will these foreign exporters continue to accept promises from us of future dollars in return for sending us real goods? If they veer away from that, it will show up first as higher yields on US bonds (but Mr Bernanke will put a stop to that) or a lower foreign exchange value for the US dollar. That will continue for a while (a few years at least.) Only in extremis will it proceed to the next step, where these exporters feel the future value of the dollar is so unreliable that they will not accept ANY AMOUNT of future dollars in exchange for a real good today. Then we will have to issue Yuan-denominated US govt bonds. But that’s years away, if ever.
