In effect, the Bush administration's combination of tax cuts for the Republican ''base'' and a Global War on Terror is being financed with a multibillion dollar overdraft facility at the People's Bank
of China.

The U.S. current account deficit is now within sight of 6 percent of G.D.P., and net external debt stands at around 30 percent. The precipitous economic history of Latin America shows that an external-debt burden in excess of 20 percent of G.D.P. is potentially dangerous.

It is only when your power wanes -- as the British learned after 1945 -- that owing a fortune in your own currency becomes a real problem. As opposed, that is, to someone else's problem.

... according to a growing number of eminent economists, this arrangement simply cannot last. The dollar pessimists argue that the Asian central banks are already dangerously overexposed both to the dollar and to the U.S. bond market. Sooner or later, they have to get out--at which point the dollar could plunge relative to Asian currencies by as much as a third or two-fifths and U.S. interest rates could leap upward. (When the South Korean central bank recently appeared to indicate that it was shifting out of dollars, there was indeed a brief run on the U.S. currency--until the Koreans hastily issued a denial.)

If the dollar fell by a third against the renminbi, according to Nouriel Roubini, an economist at New York University, the People's Bank of China could suffer a capital loss equivalent to 10 percent of China's gross domestic product. For that reason alone, the P.B.O.C. has every reason to carry on printing renminbi in order to buy dollars.

How long can the Chinese go on financing America's twin deficits?  The answer may be a lot longer than the dollar pessimists expect.  After all, this form of tribute is much less humiliating than those exacted by the last Anglophone empire, which occupied China's best  ports and took over the country's customs system (partly in order to flood the country with Indian opium). There was no obvious upside to that arrangement for the Chinese; the growth rate of per capita G.D.P. was probably negative in that era, compared with 8 or 9 percent a year since 1990.

... there is one key difference between the United States and the countries south of the Rio Grande. Latin American economies have trouble with their foreign debts because those debts are denominated in foreign currency. The United States' external liabilities, by contrast, are almost entirely denominated in its own currency.