I found the title and content of the NYT article quite surprising for two reasons. First, the US is going to increase its fiscal deficit to provide stimulus to its economy. The US does not need foreigners to finance this, just the opposite. To the extent that foreigners finance it, the package provides stimulus to their economies, not to the US. So, from the point of view of stimulus, the US administration should prefer that foreigners lose their appetite for US assets. In that case the US dollar would devalue sharply, imports would drop, and US demand would be met by US producers and workers. Admittedly, if the adjustment were too sudden that would be disruptive, but the notion that the US needs foreigners to finance its stimulus package seems odd to me. Second, I do not see much diminished appetite for US assets on the part of Chinese firms and the Chinese government. We are projecting an even larger trade surplus for China in 2009 than in 2008. True, China’s exports have declined sharply in the past few months; but imports fell even more, partly because the price of the big import item – petroleum – has dropped so much. So, recent monthly trade surpluses have hit new records. The trade surplus is the main source of China’s overall balance of payments surplus; capital flows are small in comparison because of pretty effective capital controls. The authorities say that they do not want sharp appreciation of the yuan; given the ever-larger trade surplus, that means they have to buy large quantities of US treasury bonds. My own view is that China’s large trade surplus is not in the country’s interest, just as such a large US trade deficit is not in that country’s interest. So, the best hope is that we will see gradual resolution of these imbalances.