Steve Keen, from the University of Western Sydney, said yesterday the US treasuries auction market was now a sideshow. Associate Professor Keen said by way of evidence, the US money supply doubled between 1994 and 2008 and "Bernanke has doubled it again in just the past four months". "The US has essentially abandoned conventional ways of raising money," he said. Asked about US Treasury Secretary Tim Geithner's attack on China's currency manipulation, Keen said that the rules of the game had now fundamentally changed and the US was, in expanding its money supply, pursing a policy eerily similar to Fed policies that preceded the Great Depression. Keen, who last week was interviewed by The Wall Street Journal and is fast becoming a world-recognised economic authority, outlined in his recent Debt Watch Report that Bernanke's famous "helicopter drop doubling of base money will be impotent against the US's credit crunch".

Most economists believe the US and China are bound irrevocably by US debt and China's continued purchase of that debt. They assume the US, with 46 states insolvent or approaching insolvency, will suffer immediate MAD if China ends the long financial arrangement. But with the US entering a period of deflation, its economic leadership appears to be doing the unthinkable — going it alone and letting the electronic printing presses take care of the huge sums required to keep the nation afloat. The consequences for the world economy are incomprehensible as China's purchases of US treasuries underwrite the US's unquenchable demand for money to service its multitrillion-dollar public debt, which President Obama said recently would reach $US11 trillion ($A17 trillion) this year. Faced with the huge sinkhole created by the financial meltdown and the prospect of deflation, US Fed boss Ben Bernanke has been printing money so rapidly that the US is being flooded with liquidity. This is beyond unprecedented. Many Americans believe printing money can free the country from the suffocating embrace of mutual dependence with China. In his blog earlier this week, Brad Setser from the US Council on Foreign Relations, and one of the world's most respected China commentators, outlined the US position: "Exchange rate policies can also influence the allocation of resources across sectors. China's de facto dollar peg is an obvious example … it is hard for me to believe that as much would have been invested in China's export sector if China had had a different exchange rate regime … "Those who attribute the growth of the past several years solely to the market miss the large role the state played in many of the world's fast growing economies."

Setser and others close to policymakers are realising the boom in China may not be a rerun of the Japanese and German postwar economic miracles but more akin to the creation of a giant sweatshop for the benefit of Western companies and the Chinese Communist Party. But this required US consumers to play their role as the linchpins. Now the linchpin has broken. There is no way the old arrangement can continue and the US is realising the system will end. By reverting to the printing press it can free itself from dependency on China. The risk is massive inflation but that has never been a matter to concern Bernanke nor, it seems, the team President Obama has assembled. And US debt can be paid with inflated dollars. China is onto the tactic, which explains why it is keen to convert its dollars into iron, coal and, I suspect, vast amounts of mineral wealth as well as property overseas. China must act, however, while the US dollar is strong. Don't be surprised if the Chinalco deal is but the first of many and keep your eyes on our resource stocks. There are many games being played at a geopolitical level and many a twist and turn to come. Andrew Linden helped research this article. David Hirst is a journalist, documentary maker, financial consultant and investor. His column, Planet Wall Street, is syndicated by News Bites, a Melbourne-based sharemarket and business news publisher.