Samuelson's Words of Warning
Up until now, China has been willing to hold her recycled resources in the form of lowest-yield U.S. Treasury bills. That's still good news. But almost certainly it cannot and will not last.
Some day -- maybe even soon -- China will turn pessimistic on the U.S. dollar. That means lethal troubles for the future U.S. economy. When a disorderly run against the dollar occurs, I believe a truly global financial panic is to be feared.
China, Japan and Korea now hold dollars not because they think dollars will stay safe. Why then? They do this primarily because that is a way that can prolong their export-led growth.
I am not alone in this paranoid future balance-of-payment fear. Warren Buffett, for one, has turned protectionist. Alas, protectionism may well soon become more maligned.*
President Obama struggles to support free trade. But as a canny centrist president, he will be very pressed to compromise.
And he will be under new chronic pressures. His experts should right now be making plans for America to become subordinate to China where world economic leadership is concerned.
*From Greg: I wonder whether the intended meaning of this sentence was lost in editing. "Malign," the adjective that means "injurious," makes more sense here than "maligned," the past participle that means "spoken ill of.".