I think its very helpful cheers, although there may be one or 2 bits that add to the confusion.
I know enough to sometimes feel in my head that I roughly understand things, but not enough to try to explain it to others. I might have a vague stab now though, or at least add to what you've said.
Balance of trade has always been important. We want countries like China & Saudia Arabia to use the wealth they have gained, in ways that help us. We got more stuff from them than they got from us, so an inbalance exists. They have got paid a lot of $ for stuff. We want them to lend that money back to us, or invest it in other ways in our countries, or we can try to restore the trade imbalance by selling them expensive military equipment etc.
They would like to get a good rate of return on their wealth, for it to grow rather than shrink, and they want it to be reasonably safe, and for a lot of it to serve their other national interests. Government bonds are considered pretty safe, as there is the power of the state to back them up. The state is in charge of upholding law, and ensuring the security of physical assets, ultimately by use of force if necessary.
When the dollar devalues as it has in recent years, the effects are a bit complicated. Oil is priced on dollars for a start, and Chinas currency is tied in value to the US dollar, although they have relaxed that a bit more in the last year or so.
Also if you are a country with lots of wealth saved in dollars, you do not want to blink. They have to be careful with how quickly they get rid of $'s and $ denominated bonds. Because if they try to sell too much too fast, the value of the dollar declines even further, which they dont want to do when so much of their wealth is in dollars.
The US $ has a very special place in the global economy which has enabled it to do things which would have totally destroyed other currencies. It was placed at the heart of the global economy after world war 2, effectively being the worlds reserve currency, and was backed by gold This came apart by the 70's, but the dollar still maintained its place. In the last decade the Euro has made this situation much more interesting, it is a threat to the dollar in some regards, although I do not pretend to understand all this properly.
This wikipedia entry about Reserve currency might shed some light on the matter:
http://en.wikipedia.org/wiki/Reserve_currency
Also I have to say that although the instances where the USA has refused to allow certain assets to be bought by foreigners makes all the news, there are still quite a lot of opportunities for China and the Middle East to invest, we want their money, just not in certain sectors. Some of the recent bank bailouts have been by sovereign wealth funds of China and others.
I also find it can be extremely helpful to completely remove money & markets from thinking about the world, and see what picture you get then. If we look at wealth in terms of resources, an interesting perspective can be gained, and then fed back into understanding of the picture that includes money, markets etc. For example look at what the UK has in terms of assets, everything from natural resources, infrastructure, industry, to the jobs & skills people have, and what we actually manufacture ourselves. Compare that to other countries. If there is an anomaly between what we actually have and produce, and what the rest of the world is providing, then these imbalances can be explained somewhere in the murk of the economic system.
In present times everything is especially murky, a simpler picture will emerge if reality bites, but I doubt it will be a pretty one.
