Okay, so a lot of this economic debate is complicated and hard to understand.  In particular, is the brewing currency war that we are seemingly intent on starting with the Chinese.  The minute somone starts talking about currency exchange it does tend to make one's eyes roll back in the head, but this singular issue has the potential to be the straw that breaks the camel's back and throws us into a Depression - so it needs to be understood.  Let's start with this; our side is wrong. 

It all starts with the Chinese, who pegged (linked) their currency directly to the dollar decades ago.  It goes up and down depending on the value of the dollar on world markets.  This has allowed them greater access to our markets as the exchange rate has remained rock steady.  It has also, and this is important, allowed them to be our banker.  China is the number one holder of US debt, passing Japan.  As our government is spending tons more than it takes in, we are going to be borrowing for a long time.

Now we also have a Trade Deficit with the Chinese.  This means we buy more from them than we sell to them and according to economists (who are largely idiots), this is bad.  I would submit that there is no such thing as a trade deficit, as we get goods and services for the  dollars we spend and therefore all is in perfect balance, but I am in the very small minority in this view.  Politicians and economists intent on improving the economy by any means but the obvious one (shrinking government and cutting taxes) think one way to do that is to sell more to the Chinese which would be easier if their currency, called the Yuan (pronounced You-ahn), were cheaper against the dollar.  It’s a nice theory that has been tried before lots of times and never works (think the 1970s) but nothing comes back to life like a bad idea in American politics.

The thing is that, as I said, they are our banker.  If they revalue their currency it will make their huge holdings of US Treasuries immediately worth a lot less (less valuable dollars means less valuable bonds).  So they would buy a lot less and demand a lot higher interest rates from us if they did continue to buy.  That would mean a much higher deficit and since our ability to borrow would be so expensive, that would inevitably lead to higher taxes and, you get it now, a Depression.

Let's hope the Chinese win this argument.