Yeah, I should be talking about Alito, but everyone's talking about Alito. The squirrels outside the window are talking about Alito. Therefore, we'll talk about the economy.
Catch today's Washington Post? Here's a teaser for you:
In short: Our economy has been as good as it has been because China's been willing to finance our debt. China is no longer willing to finance our debt. Any questions?
As China's manufacturing industries flood the world with cheap goods, the Chinese central bank has invested roughly three-fourths of its growing foreign currency reserves in U.S. Treasury bills and other dollar-denominated assets. The new policy reflects China's fears that too much of its savings is tied up in the dollar, a currency widely expected to drop in value as the U.S. trade and fiscal deficits climb.
China now boasts the world's second-largest cache of foreign exchange -- behind only Japan -- and is on pace to see its reserves climb past $1 trillion later this year. Even a slight diminishing of the dollar as a percentage of those holdings could exert significant pressure on the U.S. currency, many economists assert.
In recent years, the value of the dollar has been buoyed by major purchases of U.S. Treasury bills by Japan, China and oil-exporting countries -- a flow of capital that has kept interests rates relatively low in the United States and allowed Americans to keep spending even as debts mount. Some economists have long warned that if foreigners lose their appetite for American debt, the dollar would fall, interest rates would rise and the housing boom could burst, sending real estate prices lower.
Stephen Roach of Morgan Stanley talks about the jobless, wageless recovery. Bonddad over at daily Kos explains it, using small words - while btower uses graphs.
In short: A foreign policy of "We're going to do whatever the hell we want, and screw you because we don't need you" is foundering on the rocky shore of hard, cold Reality.