Did America hang itself with Asian rope? I put this to a Chinese official last week and, quick as a flash, he responded: “No. It drowned itself in Asian liquidity.”
Asia's part in America's financial downfall has been two-fold. First, shiploads of cheap goods from China and other low-cost producers helped keep a lid on US prices. That lulled the Fed, with its tight focus on the consumer price index, into thinking it could have it both ways: high growth with low inflation.
Second, Asian bank reserves of $4,300bn (£2,400bn) combined with petrodollars to provide the US with almost endless liquidity. This poured into US Treasuries and Fannie and Freddie bonds, suppressing US interest rates, inflating the housing bubble and funding buy-now pay-later consumption.