New Yorker: The Fall of the Dollar

The dollar’s decline, grim as it seems, has so far had little impact on the everyday lives of most Americans. To be sure, there are new burdens: the price of truffles is up sharply, and the cost of a trip to Paris now rivals that of a semester in college. But inflation and interest rates are still low, the stock market is above where it was three years ago, and Americans have had no trouble slaking their appetite for foreign-made goods. 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. Last year, Asian countries invested almost four hundred billion dollars in the United States, mostly in government bonds. China is effectively taking most of its excess national savings and lending it to the United States. The Japanese, who despite their creaking economy remain flush with savings, bought a quarter trillion dollars of American debt last year, even though the interest is lousy and the assets themselves are losing value. More than any other nation in history, the United States depends, economically, on the kindness of strangers. Right now, Asian investors appear very kind.