This piece by Paul Krugman covers a range of interesting issues. One is the attempt by US Treasury Secretary John Snow to push China into floating or revaluing (upwards) the yuan. Similar pressure is being applied to other Asian governments whose central banks have been resisting appreciation of their currencies and buying US dollars. Obviously if the yuan and yen go up, the dollar goes down. Despite this doublespeak from the US Treasury, the Snow initiative marks the abandonment of the misconceived strong dollar policy, which has helped to drive a 20 per cent reduction in US manufacturing employment over the past three years (for a detailed PDF file on employment and productivity, go here). But as Krugman implies, any serious adjustment of the dollar relative to Asian currencies will necessitate a significant rise in US interest rates.

The other point that comes through the whole piece is how rapidly the rhetoric of US hyperpower is becoming obsolete. The US has an impressive, and unique, capacity to deliver overwhelming military force anywhere in the world. But in economic terms, it produces about 21 per cent of world output and consumes about 22 per cent. The result, as Mr Micawber said is misery (or, if things are managed very well, unaccustomed austerity).

Australia’s situation is a little bit different. We actually consume about the same amount as we produce (that is, we have a near-zero balance on the goods and services account). But this means we keep on racking up interest on the money we already owe. As long as the growth rate of nominal GDP is roughly equal to the nominal interest rate, this is a sustainable, if precarious, position.