China and the US have entered an unholy alliance: China finances the US war in Iraq and in compensation the US keeps its markets open to Chinese consumer goods. Marcello De Cecco, an expert in the international monetary system, calls this Bretton Woods Two. Another way of describing it is that the US is forcing foreign central banks to finance the US trade deficit in order to keep their exchange rates from appreciating and their export-based economies from collapsing.

De Cecco, who is a professor at the University of Pisa, advisor to the Italian government, newspaper columnist and author of Money...

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