Mark Thoma finds Martin Feldstein in the Financial Times worrying about the state of the international economy:

Economist's View : Martin Feldstein: Uncle Sam’s bonanza might not be all that it seems, Commentary, Financial times: A major reason for the dollar’s current overvaluation is the widespread misunderstanding of the nature of capital flows to the US. The business press and many financial analysts provide the reassuring message that the flow of capital to the US substantially exceeds the amount needed to finance the US current account deficit, and that that inflow is coming primarily from private investors.... This... results from a misinterpretation of the data provided by the US Treasury.... The figures... while technically correct, are misleading for two reasons. First, the... [Treasury] release... excludes bank deposits... bank lending... foreign direct investment.... If the total net inflow were larger than the current account deficit, the US would be accumulating large reserves of foreign exchange....

A second source of confusion... is... the ... measure of inflows from “private” sources overstates the actual private investment... if the Chinese government purchases US bonds through... private bank[s], these funds will be recorded in the... data as a private purchase.... My own belief... is that the inflow of capital that now finances the US current account deficit is coming primarily, perhaps overwhelmingly, from governments and from institutions acting on behalf of those governments.... OPEC governments and other oil producers that are temporarily placing revenue in dollar bonds and bank deposits... Asian governments that wanted to accumulate foreign exchange to eliminate the risk of speculative attacks... China and other Asian governments to stop a falling dollar reducing their net exports....

The US current account deficit... is widely predicted to move much higher in 2006... equal to 6.4 per cent of US gross domestic product.... [T]he dollar must fall by at least 30 per cent just to shrink the trade deficit to a more sustainable level of 3 per cent of GDP. Much larger dollar declines are also possible....

The current small interest rate differences in favour of US bonds are not nearly enough to compensate investors for the fall in the dollar that is likely over the next few years.... The dollar must fall faster than these small interest differentials.... At some point, that will trigger a shift away from the dollar. Private investors and the governments... will inevitably shift at some time from dollars to euros or yen.... That that has not happened already reflects investors’ belief that it is still possible to benefit from the interest differentials before the dollar depreciates. That sanguine belief may, however, reflect a serious misunderstanding of the magnitude and nature of the capital flow to the US.

I am still looking for somebody who can tell me how China (and the rest of Pacific Asia) are financing their reserve accumulations. How much are they borrowing from the good burghers of Shanghai? How much are they raising by increasing the supply of high-powered money? How much is coming straight out of tax revenue? These are very important questions, and I don't know the answer to them.