The New Yorker: The Talk of the Town

Here is another viewpoint on our current account deficit (less dire than the article I linked to from exFed Head Paul Volcker yesterday...
But, still if... If you owe the bank a hundred dollars, you’ve got a problem. If you owe the bank three trillion dollars, the bank’s got a problem...

The New Yorker: The Talk of the Town: "In the past three years, the value of the dollar has fallen by more than fifty per cent against the euro and twenty-five per cent against the yen, and, a recent rally notwithstanding, most analysts say that the dollar is only going to get weaker in the months to come."...
The dollar has fallen for a simple reason: Americans spend a lot more than they save...
Because we keep piling on this foreign debt—more than three trillion dollars so far—and have no clear strategy for paying it back, people are made anxious about the United States economy; this anxiety encourages them to sell dollars, and that drives down the value of our currency...
Doomsayers have been predicting for a while that the profligacy will lead to serious trouble. So why hasn’t it? One answer is that Asia won’t let it...More than any other nation in history, the United States depends, economically, on the kindness of strangers. Right now, Asian investors appear very kind...
Of course, the Chinese and the Japanese could decide that the costs of the falling dollar are too great, and suddenly stop (or, at least, cut back sharply) their lending to the United States. This would lead to a so-called “hard landing” for the U.S. economy: high inflation, punitive interest rates, collapsing stock prices and housing prices. It would also lead to bedlam for China and Japan. Their best customers would effectively be unable to afford their wares. To paraphrase John Paul Getty: If you owe the bank a hundred dollars, you’ve got a problem. If you owe the bank three trillion dollars, the bank’s got a problem...
There’s a good chance, then, that the landing will be soft—we lose the truffles but keep our homes—as long as everyone involved in keeping the dollar aloft continues to play the same game. No one, in Asia or anywhere else, wants to be the last guy out. What the Chinese and the Japanese do depends in large part on what they think everyone else is going to do.
Our lenders are trying to strike a delicate balance: they’d like the dollar’s predicament to seem dire enough to make us change, but not so dire as to spark panic. So be afraid. Just don’t be very afraid.