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ECONOMIC BULLETIN: This is a MAJOR economic story:

The Federal Reserve is taking no half measures in its efforts to stimulate economic recovery in the US. To ward off the spectre of deflation, it is prepared to generate inflation and reflate the asset bubble. China is a silent but active partner in the Fed's pump-priming. It would not be possible for US Treasury bond yields to be at current levels were China not a willing and able supplier of savings to the US. Combined annual purchases of Treasury securities from China and Hong Kong have reached $290bn - more than those by any other creditor nation. Both China and the US are having fun at this game. The flow of Chinese savings has enabled Americans to borrow more and spend more ...

And a great deal of this spending is on CHINESE GOODS. Industrial production for export in China is experiencing double digit growth, in large part because of exports to America. Go to Sears. Take a look at where the majority of what is sold there is produced. Follow the circle of money -- and ownership in capital and money instruments -- and it's plain for anyone to see that the Federal Reserve and the Bush government are playing a deeply destructive fools game. In the long run China owns the wealth and our children own some broken toys and one giant pile of foreign debt they'll be paying off for the rest of their lives.

But we have not only the Federal Reserve, the President, and the Congress to blame for this massive act of collective financial suicide -- we can also justly blame the Keynesians (of left, right and center) who rule the roost throughout all of our major institutions. They've told us that the way to wealth is to borrow our bread and eat our seed corn, and through the magic of "consumer demand" our breadbasket will refill itself. As Hayek pointed out several generations ago, this is nothing but a lie, built on a conception of the economy which can't explain how the market could ever work, or why it would ever be broken.

Read the rest of the article. There is a good deal more to the story.

UPDATE: Here's Roger Garrison on Keynes:

... It was not difficult to establish that Keynes saw no way for the market to work. Increased saving, for instance, would not finance increased investment but rather would send the economy into recession. The attempt to save would be aborted in the face of decreasing incomes. Keynes's Paradox of Thrift was a profound denial of even the possibility that the market might coordinate the plans of producers with the decisions of savers. Hayek showed just why Keynes "saw no way": he had no capital theory. We have to add Bohm-Bawerk's capital theory, allow for differential interest-rate effects within the capital structure, and acknowledge the existence of real, live entrepreneurs. These are the amendments that make Keynesianism morph into Austrianism. With this audience, putting the Hayekian graphics through their paces as the story was told had the intended effects. It was easy to come down on the side of Hayek. The economy is sent into recession not by some ill-fated attempt by workers to save more but by an ill-advised attempt of the central bank to stimulate more growth than savers are willing to finance. Further, the central bank's attempts to re-ignite the boom after the bust has come is more likely to postpone a genuine recovery than to hasten it. If Keynes won the day against Hayek, it was because of the political popularity of his policy prescriptions and not because of the cogency of his theorizing.