Good news, bad news in Asia

The Medium Lobster tours the blogosphere this afternoon...

Laura Rozen calls our attention to a good news, bad news situation from the Washington Post. The bad news is that the Bush administration has been lying to its Asian allies, saying that North Korea sold nuclear materials to Libya. The good news is that North Korea didn't sell nuclear materials to Libya! The bad news is that Pakistan did. The good news is that Pakistan is a praiseworthy exemplar of democracy!

Doctor Rice's trip to Asia has led to some strangely contradictory headlines.

Based on Rice's recent pronouncement, is China friend?

U.S. pushes China to return North Korea to nuke talks

Or foe?

Rice stresses need for China arms embargo

It's difficult to say.

Mutual suspicion ahead of Rice's China visit

It'd be kinda good to clarify this, because China has certainly long since become our banker.

Until now, the U.S. has been able to dazzle currency traders with its deficits-don't-matter poker face. Yet it's clearly losing its ability to keep investors -- and central banks -- in check. Once central banks here in Asia turn on the dollar, the U.S. is in for some very turbulent times as bond yields surge.

The risk can be seen in China's evolving incentives to alter its dollar peg. The U.S. has been using its strength to push China to boost the yuan, thereby reducing its trade advantage. Yet it's the risk of instability and big losses on dollar holdings that may ultimately force China's hand. So it's U.S. weakness, not strength, that's turning heads in Beijing.

The Bush administration lies to them about N. Korea, yet demands they re-enter talks with Pyongyang, blusters about arms sales, and threatens them about trade balances, the administration seems to think China is in no position to fight back. That's obviously not the case, and the first example may be the unfortunate people of Taiwan, as China gets more aggressive in opposing Taiwan independence. The second example may well be a sell-off of dollars.

It's becoming the M.O. for Bush & Co. During the run-up to war in Iraq the Pentagon ran a simulated war game. But it was discontinued when the virtual Iraqis didn't just surrender, and instead retreated to mount a guerrilla war. So the administration continuously acts under the belief that other countries are not actors in their own fate. Bush is assuming that China will simply do what he wants them to do.