Paul Krugman: The Chinese Connection

By PAUL KRUGMAN

Stories about the new Treasury report condemning China's currency policy probably had most readers going, "Huh?" Frankly, this is an issue that confuses professional economists, too. But let me try to explain what's going on.

Over the last few years China, for its own reasons, has acted as an enabler both of U.S. fiscal irresponsibility and of a return to Nasdaq-style speculative mania, this time in the housing market. Now the U.S. government is finally admitting that there's a problem - but it's asserting that the problem is China's, not ours.

And there's no sign that anyone in the administration has faced up to an unpleasant reality: the U.S. economy has become dependent on low-interest loans from China and other foreign governments, and it's likely to have major problems when those loans are no longer forthcoming.