I’ve talked alot about China and specifically about the hand-wringing over the question of China’s currency. Paul Krugman addresses this today—quite well, I think. He tells, in fairly accessible language for an economist, how the U.S.-China relationship works: China is keeping its currency lower than it should be for a country where investment is flowing like crazy, which makes its goods cheaper in foreign markets. China is financing the U.S. budget deficits (by buying U.S. dollar assets), which has kept U.S. interest rates low, which, in turn, has fueled the insane rise in housing prices.

Eventually, we’re going to feel the bad effects: China is like a drug dealer and the U.S. in the addict. But, eventually, the “dealer” will pull back and we’ll feel the withdrawal symptoms in the form of, at least, a housing market crash.

My one quibble with Krugman is that he has a recurring blind spot for labor. His one omission is a point I’ve made before—I don’t believe a correction in the yuan (also known as the renminbi) will make much of a difference in the vast chasm between wages in China and wages here. While the artificial suppression of the yuan is important to some, I think the more important issue is the artificial suppression of wages. And that leads to the ultimate issue about China: until there is a vibrant, independent labor movement, wages will remain at rock bottom prices. And that will continue to prove to be an irresistable attraction for business.