> It's mostly in forms of treasuries purchased in USD that pay in USD - this means the indebtedness creates a huge amount of dollars abroad that foreigners have to then spend on US services, driving demand.

Strangely enough, this is exactly the opposite of how it works. The dollars abroad tend to stay abroad, as either a more stable alternative to local currencies, or a reserve currency. Likewise, treasuries held abroad tend to stay there as reserves. This is how the US is able to run both a huge debt, and a huge trade deficit. If the dollars were being repatriated, the trade deficit would close, and the influx of money would cause hotter inflation. Same with treasuries, yields would spike as demand fell.

There are lots of second order effects there, good and bad, but, basically, those dollars not coming home has funded America for quite some time.

I, a foreign entity, have sold something to an american and now have 10 dollars and zero treasuries.

I purchase a treasury. I have zero product, zero dollars and one treasury.

At some point in future i have zero product, maybe 12 dollars and zero treasuries. Presumably i now either repeat the cycle or use my winnings to spend on us output.

GP’s version checks out, your assertion about dollars staying abroad doesnt track? What am i misunderstanding - How did these dollars get abroad, how did they repatriate to buy treasuries, how did a treasury become a reserve, how did the dollars still exist abroad after being exchanged for treasuries?

If dollars were being repatriated, but as investment into financial instruments and real estate instead of purchases of goods and services, then that would not affect the trade deficit, right?