Even though China buying a lot of US bonds was something pushing the US dollar higher than it otherwise might have been, I don't see how that relieves the US government from the responsibility of maintaining it's own currency. Shouldn't the Fed by controlling the supply of dollars to keep it's currency in good order reguardless of who is using it or what they are using it for?

And how many forward contracts for international trade are priced in US dollars and not hedged? Surely many organisations and people have been caught out by the change in the value of the US dollar.

Anyone who is surprised by the plunge in the dollar absolutely deserves to lose their shirt. Did they notice the $700 billion trade deficits (6 percent of GDP). We can not look out for highly paid money managers without a clue.

Andrew, you seem as blythly and perhaps as willfully unaware of the fundamental reasons leading to the dollar decline as the Chinese WTO rep. I think this is a case where Benjamin Franklin's aphorism about "how delightful it is to be a reasoning creature, since one can usually find a reason for anything you want." The Chinese are being inconveninced by some of their prior policies and their determination to stay linked to the dollar and would prefer that their people blame the U.S. rather then their own Government for these problems. We Americans should be familiar with the phenomena of looking for outsiders to blame so as not to note the "mote in our own eye." The Chinese (and the Japanese, who are being quieter this time) intervened to raise the value of the dollar to support their export industries. But as Herb Stein once said, if something can't go on forever, it won't, and U.S. current account and trade deficits at 5% or more of GNP simply could not go on forever Andrew. 30 years of repeated tax cuts and deficit spending to support empire eventually leads to a financial crisis. The only way to raise or support the value of the dollar in these circumstances is to raise interest rates to a very high level, as was done in 1980-1983, although that was done to primarily choke off double digit domestic inflation. Doing it now, besides choking off the export boomlet that is keeping the U.S. economy crawling along, would have a very "interesting" effect on the already depressed housing market and the financial sector of the U.S. economy, and ultimately the consumer and her twin, the worker (since with less consumption, you need less workers, and less workers mean less consumption).

It will take time, tax increases, redistribution of wealth, infrastructure investment, spending restraint, regulation of credit (in this the Chineses are right), and the adjustment of the dollar downward sufficiently to erase the trade deficit and current account deficit, including oil, for us to get out the fix we are in.

The statement by the Chinese WTO representative is not so much naive as disingenuous. The Chinese have their own priorities with respect to currency valuations and interest rates, but they want to US to suffer the pain of adjustment (not completely unfair, since many of our policies have been irresponsible).

Wow. How did a mediocre public policy grad student (me) know enough about this subject to write a paper on it in January 06, while this guy was caught off guard?