Spending Beyond Our Means? It's All China's Fault

The time of the reckoning is here, NYT says
By Kevin Spak,  Newser Staff
Posted Dec 26, 2008 12:13 PM CST
U.S. Treasury Secretary Henry Paulson, left, shakes hand with Chinese Premier Wen Jiabao during their meeting at the Zhongnanhai leadership compound Dec. 5, 2008.    (AP Photo)
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(Newser) – The financial crisis is, in part, a result of the uncomfortably tight economic embrace between the US and China, New York Times reports. China has long fostered an unsustainable credit cycle by keeping its currency artificially cheap and lending massive sums to the US. “Nobody wanted to get off this drug,” explains Senator Lindsey Graham. “Their drug was an endless line of customers for made-in-China products. Our drug was the Chinese products and cash.”

Even before he became Fed chairman, Ben Bernanke warned about China's savings underwriting US consumption. "The problem was recognized,” he tells the Times, “but sufficient international cooperation was not forthcoming.” Even now, as both countries are in freefall, the embrace continues. The Treasury is counting on China to help finance its $700 billion TARP program.