-- Paul Taylor is a Reuters columnist. The opinions expressed are his own --

The United States is fighting a fire in the world economy, but Germany and some other European countries fear a flood of inflation as a result.

That clash of cultures is at the heart of transatlantic debate over whether Europe should spend more and ease monetary policy to revive growth, with a deep economic contraction certain this year and an end to the recession not yet in sight.

The perception gap could cause lingering resentment among Americans and Germans on the way out of the crisis.

World Bank President Robert Zoellick sees concern on both sides of the Atlantic, not just in Europe, at the risk of inflation down the road from the massive additional liquidity created by the U.S. Federal Reserve and soaring public debt.

The current gush of liquidity made the glut after the bursting of the Internet bubble in 2001 look like a desert, he told the weekend Brussels Forum, a conference of North American and European policymakers, business and opinion leaders.

The dollar's sharp fall and the jump in the price of gold after the Fed's announcement of a giant purchase of long Treasury bonds reflected fears that the United States will try to inflate its way out of the crisis.

"What some political leaders say when you bring this up is: "Well gee, when we're putting out the fire, can you really worry about the water damage?" In a way, you really do have to worry about both," Zoellick said, advocating a timely pathway back to fiscal and monetary discipline.

The European Central Bank has provided unlimited liquidity for banks to unfreeze credit markets and is weighing following the Fed into unconventional measures such as buying bonds to provide an extra monetary stimulus. But Germans are especially wary due to their traumatic history of hyperinflation in the 1920s, something that contributed to the rise of Hitler.

"I can promise you the European response to this crisis will not be inflationary. That's why guys like me exist," German Bundesbank President Axel Weber, a member of the ECB's Governing Council, told the Brussels Forum. "I can promise you once it starts looking inflationary we will tidy up the mess."

European Union leaders agreed at a summit last week they had taken enough fiscal stimulus measures for now and rejected pressure from the Obama administration to do more.

German leaders were particularly dismissive of calls to throw more money at the crisis when two stimulus packages adopted in the last five months are still being implemented.

European Commission President Jose Manuel Barroso made clear EU countries would review their stimulus efforts if the economy continues to deteriorate. European Economic and Monetary Affairs Commissioner Joaquin Almunia said the high debt levels of many states before the crisis were a constraint on further deficit spending.

"We are concerned by countries whose public debt is increasing very, very fast," Almunia told the forum. "We cannot afford to spend the next two decades absorbing the debt we have created to tackle this very deep recession."

The dispute about how to fight the crisis may have longer term negative consequences on both sides of the Atlantic -- fuelling pressure in the United States for trade protectionism and stoking opposition in Germany to helping European partners.

Germans feel they made tough choices in the good times to balance their budget and cut unit labor costs to improve their competitiveness. Now many feel they are being expected to pay for the fiscal recklessness of other European countries.

Americans are raging at the greed and irresponsibility of bankers and corporate moguls. But if Main Street resents bailing out Wall Street, it will be even more resistant to paying to revive European or emerging economies through imports.

Lord Mark Malloch-Brown, the British minister in charge of preparing next week's London crisis summit of G20 nations, said there was a big risk if Americans felt other countries were not pulling their weight in reviving the global economy.

"The most dangerous idea out there is that the world is somehow going to expect the American consumer to ride to he rescue," the former senior U.N. official said. "If that idea is left out there, it's going to lead to protectionism in America."

-- Kristin Lord is a fellow at the Brookings Institution and author of the recent report, “Voices of America: U.S. Public Diplomacy for the 21st Century.” The views expressed are her own. --

As Senate confirmation hearings approach, America’s next public diplomacy leaders will get abundant advice about how to improve America’s standing in the world. The Obama administration’s nominees (an under secretary and at least two assistant secretaries in the State Department alone) would be wise to listen.

Yet, in truth, America’s new public diplomacy team can accomplish much by following that age old maxim: first, do no harm.  Seven key “don’ts” are worth bearing in mind.

1) Don’t let the pollsters get you down. Being liked and admired, while useful, should not be the sole metric of success in public diplomacy. The job of American public diplomacy leaders is to promote American national interests through the power of communication, build mutual trust and understanding, strengthen support for universal values Americans share, and build enduring relationships with current and future opinion leaders around the world. Measuring achievement through poll numbers encourages short-term thinking and can jeopardize long-term success.

2) Don’t forget the borders. More than 50 million foreign travelers spend their own money to visit the United States each year, a number that vastly exceeds the number of participants in U.S. government funded exchange programs. Talk of re-booting America’s image in the world will fall flat if those visitors feel badly treated at U.S. borders and consulates.

3) Don’t forget the Pentagon. The State Department controls just a fraction of the U.S. government’s personnel and budget for public diplomacy and strategic communication.  To have impact, the State Department’s public diplomacy leaders should engage the Defense Department and the rest of the U.S. government early on.

4) Don’t go it alone. As the State Department’s new director of policy planning wrote in a recent "Foreign Affairs" article, in today’s world the “measure of power is connectedness,” a fact that should give the United States tremendous advantages.  But to fully embrace the power of networks, the U.S. government must find new ways to mobilize private actors it does not control, support and call attention to the good work of others without taking credit, and (when it advances important American objectives) empower credible voices to speak out even if they fall out of step with official U.S. policies.

5) Don’t forget old standards. New leaders typically want to put their own mark on an institution.  Since U.S. public diplomacy needs fresh perspectives, this is desirable as well as understandable.  Nonetheless, enthusiasm for signature programs and whiz-bang technologies should not be allowed to overshadow the tried and true workhorses of public diplomacy: educational and professional exchanges, visitor programs, and personal outreach by diplomats in the field.

6) Don’t trust your gut. As a former senior official once remarked to me, “we cannot remind ourselves often enough that the rest of the world is not just like us.” Even the most savvy, knowledgeable, and experienced public diplomats can hit off-key notes or design poor public diplomacy programs by forgetting this simple rule.  Public diplomacy leaders must resist the urge for speed and remember to both listen and test new ideas against foreign ears.  They will sometimes be surprised at what they learn – and save themselves a world of trouble.

7)   Don’t forget friends. During the Cold War, the United States devoted substantial public diplomacy resources to winning and maintaining allies in Europe, Asia, Latin America, and Africa.  As we again (quite reasonably) worry about enemies, that lesson is worth remembering.  The United States faces a host of complex transnational challenges ranging from financial crises to narcotics trafficking, climate change to terrorism, and we will need all the help we can get to confront them.

In a world where two-thirds of the world’s nations are democracies and citizens worldwide have unprecedented access to information, the United States must engage foreign publics, not just their governments, if it wishes to garner foreign support.

Public diplomacy is a tough business.  Success usually goes unnoticed, but failures can resound globally.  Avoiding missteps is impossible but avoiding these seven mistakes will give America’s next public diplomacy leaders a useful head start.

-- Alexander Smith is a Reuters columnist. The opinions expressed are his own --

New regulations may be cooked up to curb the excesses of its bankers but London will always attract those who believe its streets are paved with gold.

Some predict that the financial crisis spells the end for London as a major global financial centre, arguing it has thrived on lax regulation and a quasi-tax haven status and that the regulatory backlash which inevitably follows such a catastrophic economic debacle will suffocate the innovation and the financial incentives which have driven the growth of services in the British capital.

But these doomsters are overlooking key factors which have made London a world hub for centuries. London's geographical position -- most notably Greenwich Mean Time -- has served it well as a bridge between the time zones, its almost unrivalled cultural diversity, its global outlook, the advantage of English as the common language of finance and not least the trading and financial heritage it has built up since Roman times.

Throw in the advantages of maintaining its own currency during a period of downturn (particularly when a weaker pound gives it an economic advantage) and London is well served alongside New York and Singapore, Hong Kong or Tokyo when competing with other centres which have harboured global ambitions such as Frankfurt, Paris or more recently Dubai.

The City of London, also known as the Square Mile, which immodestly by British standards bills itself as "the world's leading financial centre" also clings to a host of antiquated traditions whose quaintness, including the appointment each year of a Lord Mayor, remains a tourist draw if nothing else.

Another factor in London's immediate favour is the infrastructure spending which is taking place to coincide with the Olympics in 2012. The massive Crossrail project will link the capital's east and west, while despite constant carping from its users, the underground "Tube" network is undergoing a major upgrade to bring it into the 21st Century. The lure of the capital's arts and culture, its shops, restaurants and pubs all combine to keep people coming to visit and to live and work.

Mayfair's hedge funds, the mammoth City bonuses and the days of light-touch regulation may be a distant memory, but London still has the trading infrastructure, the expertise and the confidence to reassert its position at the heart of the financial system. Given its dependence on financial services, London is far from immune from the global downturn, but with huge volatility in the markets it has traditionally dominated, including foreign exchange and commodities, as well as booming equity and debt issuance, its prospects are nothing like as bleak as its detractors would have us believe.

London's streets may be paved with less gold than before, but that won't stop people finding new and inventive ways to make money on them.

-- At the time of publication Alexander Smith did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund.

-- Bernd Debusmann is a Reuters columnist. The opinions expressed are his own. --

In the first two months of this year, around 2.5 million Americans bought guns, a 26 percent increase over the same period in 2008. It was great news for gun makers and a sign of a dark mood in the country.

Gun sales shot up almost immediately after Barack Obama won the U.S. presidential elections on November 4 and firearm enthusiasts rushed to stores, fearing he would tighten gun controls despite campaign pledges to the contrary.

After the November spike, gun dealers say, a second motive has helped drive sales: fear of social unrest as the ailing economy pushes the newly destitute deeper into misery. Many of the newly poor come from the relentlessly rising ranks of the unemployed. In February alone, an average of 23,000 people a day lost their jobs.

Tent cities for the homeless have expanded outside a string of American cities, from Sacramento and Phoenix to Atlanta and Seattle, for people who are living the American dream in reverse. First they lose their jobs, then their health insurance, then their homes, then their hopes. The encampments are reminiscent of Third World refugee camps.

Often former members of the middle class, tent dwellers' accounts of their plight to television cameras have a common theme: "I never thought this could happen to me." Unlike the victims of Katrina, the 2005 hurricane that destroyed much of New Orleans, many of the newly-poor are white.

The FBI says it carried out 1,213,885 criminal background checks on prospective firearms buyers in January and 1,259,078 in February, jumps of 28% and 23.3% respectively. Keen demand turned the stocks of publicly-trade firearms companies like Smith & Wesson (up 80% since November) and Sturm Ruger (up more than 100%) into shining stars on the New York Stock Exchange.

There are no statistics on how many guns are bought by people who think they need them to defend themselves against desperate fellow citizens.

But, as columnist David Ignatius put it in the Washington Post, "there's an ugly mood developing as people start looking for villains to blame for the economic mess." In November, an analysis published by the U.S. Army War College's Strategic Studies Institute listed "unforeseen economic collapse" as one of the possible causes of future "widespread civil violence."

The American economy is down but not out, and in mid-March some experts reported signs that the pace of the decline was slowing. But it hasn't slowed enough to sweep away the sense of anxiety and fear that comes through in many conversations and commentaries about the future of this normally optimistic country.

While Obama's approval rating remains high, at 59%, almost two thirds of the population thinks the country is on the wrong track, according to a poll commissioned by National Public Radio in mid-March.

"What is really remarkable about all this is that there hasn't been social unrest," remarked an executive with business interests in Latin American countries where riots and street demonstrations in response to economic squeezes are routine. "The conditions for it are all there."

ANGER ABOUT BAILOUTS

Anger is building. Just under half of those surveyed in a poll by the Pew Research Center this month expressed anger about "bailing out banks and financial institutions that made poor decisions." The poll was taken before details became known of the full extent of the bonus-paying spree to members of the very team that brought the insurance giant AIG close to collapse.

The government propped up AIG with close to $200 billion and now owns 80% of the company. The argument that $165 million in bonuses had to be paid under contractual obligations went down particularly badly with workers of the three U.S. car companies whose leaders appealed for support from the Bush administration last year when the economic crisis gathered steam.

One of the conditions for the billions that were dispensed to the car industry was that contracts between auto workers and their union, the United Auto Workers, had to be renegotiated to cut costs. The union agreed, and the question arises: are contracts with blue-collar workers less binding than those with highly-paid derivatives traders?

Some see this as another sign of the inequalities that Obama promised to address. Remember his famous exchange with Joe Wurzelbacher, aka Joe the Plumber, during a campaign stop? "I think when you spread the wealth around, it's good for everybody," Obama told him.

There's less wealth to spread around now as trillions of dollars has evaporated with increasing speed in the deepening crisis. In housing alone, more than $5 trillion has vanished. The gap between rich and poor, a gap of Third World proportions, has not changed. A full-time worker, on average, made $37,606 last year, considerably less than in 1973, adjusted for inflation.

While CEOs made 45 times as much as workers in 1973 they make more than 300 times as much today, according to Holly Sklar, author of "Raise the Floor, Wages and Policies that Work for All of US."

To what extent those gaps will shrink under Obama remains to be seen and the outlook for swift action is not promising. There are, in fact, not many things for which the outlook is promising. Exceptions include Smith&Wesson. They expect revenue to double within the next three years.

You can contact the author at Debusmann@Reuters.com.

-- John Kemp is a Reuters columnist. The views expressed are his own --

It is time to add another victim to the ever-growing list of institutions (Bear Stearns, Lehman Brothers) and theories (value at risk, fair value accounting and originate to distribute) which have been tested by the financial crisis and found wanting. The central bank practice of inflation targeting -- the jewel in the crown of modern monetary economics -- has palpably failed.

Over the last two decades, inflation targeting has emerged as the most popular strategy for monetary policy among the world's major central banks, and become something of a state-of-the-art choice among theorists and central bankers.

Even the Fed, long skeptical, considered announcing a formal target for inflation last year. Senior officials considered whether it would be a useful way to counter the threat of deflation by providing an "anchor" for expectations about future prices. In the end the central bank ducked the decision and decided to press ahead with long-term inflation forecasts instead, as a form of "soft" targets.

But the experience of major central banks over the last five years -- both those pursuing formal targets and those like the Fed which have been employing "shadow" ones -- suggests inflation targeting has failed and will need to be overhauled once the immediate crisis has passed.

CENTRAL BANK PERFORMANCE

Controlling inflation has been the central objective for monetary policy for the last 30 years. But using interest rates to target the inflation rate directly emerged only in the early 1990s. In many countries, it was something of a default choice after strategies targeting intermediate variables (such as the money supply and the exchange rate) had been tried and failed.

In its own (narrow) terms, inflation targeting has been successful. In the United Kingdom, consumer prices have increased broadly in line with the Bank of England's target since the central bank was given operational independence to set interest rates in May 1997.

Evidence from the United States is more mixed. The Fed has long insisted it does not have a formal inflation target (preferring to retain flexibility for what it calls a "risk-management" approach). But senior officials have defined the "price stability" component of its dual mandate as an inflation rate of about 1.5-2.0 percent per annum.

Both the all-items consumer price index and the core index excluding food and energy have consistently risen faster than the Fed's implied target since 1997. Access PDF here.

In fact, the performance of inflation and the Fed's interest rate decisions suggest the Fed has actually been targeting a core inflation rate of about 2.25 percent per year, or an all-items rate of 2.50 percent.

While this is slightly faster than officials have been prepared to admit publicly, it is still respectable by historical standards.

The real problem is that a narrow obsession with hitting inflation targets blinded central bankers around the world to the build up of other problems, including bubbles in the bond and real-estate markets, as well as the build up of excessive levels of household and corporate debt.

Moderate growth in each month's consumer price numbers provided false comfort even as distortions built up in other parts of the financial system (overvalued asset markets) and economy (a gaping trade imbalances and surging commodity prices).

If the ultimate purpose of inflation targeting was to provide a stable economic framework for long-term decision-making by households and businesses, it has failed. Bubbles and over-indebtedness have caused far greater output losses when they collapsed than any amount of moderate consumer price inflation.

FLAWED THEORY

The excessively narrow focus of inflation targeting reflects conceptual shortcomings.

In 1952, Professor Jan Tinbergen proved that to achieve two independent policy objectives simultaneously, policymakers must employ two independent policy instruments.

Tinbergen's rule implies monetary and fiscal policy work best when coordinated to achieve the optimal joint outcome for inflation and growth, or between internal balance (inflation-growth-employment) and external balance (the trade deficit and exchange rate).

But in a curious inversion, modern economics has sought to separate them, assigning monetary policy the role of pursuing price stability, while leaving fiscal policy to worry about growth and employment.

It reflects the impact on the discipline of Milton Friedman's famous comment about inflation being "always and everywhere a monetary phenomenon," amplified by the impact of the rational expectations revolution, which seemed to indicate monetary policy could not have an enduring impact on the level of business activity and employment, only on prices.

From this stemmed the idea monetary policy should focus on choosing a desirable (low) rate of inflation, leaving other aspects of demand-management and employment policy to fiscal policy.

The discipline has gone further, and sought to implement an institutional separation between the fiscal and monetary authorities. Most theorists have supported establishment of "independent" central banks able to set monetary policy at arms length from the fiscal authorities.

This reflects a mistaken view that monetary policy is essentially a technical academic exercise that can and should be insulated from other aspects of the policymaking process.

Reflecting this technocratic approach, modern monetary economics has been dominated by a debate over rules versus discretion -- with a rule-based system generally held up as superior.

The history of the discipline since the late 1970s can be summed up as the perfect monetary "rule," specifying how much the central bank should adjust the instruments under its control (reserves and interest rates) to achieve some intermediate variable (money growth and the exchange rate) or direct target (consumer prices) and ensure the ultimate goal of price stability is met.

PRACTICAL SHORTCOMINGS

But focusing monetary policy on consumer prices encouraged central banks to ignore signs of growing instability in other parts of the financial system (such as asset prices and lending). The target was too narrow and needs to be broadened in future.

It was a mistake to separate monetary policy and fiscal policy and assume monetary policy could somehow operate in isolation from tax and spending decisions and other interventions in the economy. Macro management would be more effective if monetary policy and fiscal policy were coordinated.

Elsewhere, I have suggested the authorities might need to go further and supplement existing monetary and fiscal policies with a third, distinct policy to govern the quantity of credit and build up of debt to ensure that internal balance, external balance and financial balance can all be achieved simultaneously.

Finally, it was a mistake to pretend monetary policy is a technocratic exercise. Decisions about interest rates have distributional effects (between savers and borrowers, more and less growth, more and less employment) and are inherently political.

This is not an argument for interference. But it is an argument for greater honesty about the social trade offs involved.

It is also an argument for allowing discretion back in. Rather than mechanically applying rules targeting a single variable such as consumer prices, central banks need freedom to respond to changing circumstances. That means freedom to cut interest rates dramatically in response to a financial panic. But it also means freedom to raise them during a boom to prevent wider distortions in the financial system even when there are no obvious signs of consumer price inflation.

Inflation targeting needs to be reworked in favor of a more holistic approach that gives central bankers more discretion to pursue a complex set of goals (including financial stability. But they must also be held more accountable, and accept this not just a technical exercise but one which involves difficult choices for society as a whole.

-- Alexander Smith is a Reuters columnist. The opinions expressed are his own --

Big countries have got the world's tax havens running scared. They must now press home their advantage to stop such countries providing oases for tax dodgers and money launderers.

Switzerland, Austria, Luxembourg, Liechtenstein and Andorra have all responded to a global crackdown on tax evasion by offering to relax strict bank secrecy laws. This is an important victory for campaigners to put tax havens on the straight and narrow. Until their recent climbdown, Liechtenstein and Andorra were two-thirds of a trio of hardliners that refused to commit to Organization for Economic Co-operation and Development (OECD) standards on transparency and the exchange of information, earning them a place alongside Monaco on the OECD's blacklist of uncooperative tax havens.

G20 nations are right to point to the shift as progress, but they must not let it lie there. The concessions are too little, too late. They smack of opportunism, giving G20 leaders a chance to trumpet a crowd-pleasing success at a time when governments are failing to get a concerted grip on the financial crisis.

Some of the targeted countries make no secret of their intention to drag out reforms. Just look at the timeframe that Andorra, a safe-deposit-box-sized Pyrenean principality whose two rulers are a Spanish bishop and the French president, has set itself for complying. It plans to pass a law on relaxing bank secrecy by November. Switzerland's finance minister has said it could take years for his country to renegotiate 70 separate double taxation agreements and have them approved by parliament or referendums. Monaco, a glamorous Riviera principality that attracts millionaire tax exiles, has so far said nothing about its plans.

With estimates of between $1.7 and $11.5 trillion in assets held in the so-called offshore financial services industry, the OECD is unequivocal in its position: "Tax havens deprive governments of revenues needed for vital infrastructure, and undermine the confidence that citizens have in the fairness of their tax laws. Countries must take firm action to stop this loss of revenue."

TAX HAVENS NOT TO BLAME

The argument that tax havens are sovereign states whose independence must be respected cannot be used in good faith to protect countries that make a living by tacitly allowing citizens of other states to evade tax, or in the worst cases conceal the proceeds of crime. Tax havens didn't cause the global financial crisis. But with tax receipts dropping as the recession bites, governments are going to need every penny of revenue they can recover to pay for essential public services and keep already heady borrowing plans in check.

So U.S. senator Carl Levin, a Michigan Democrat and the author of legislation attacking offshore tax havens, is right to say the recent moves by Andorra and Liechtenstein are long overdue and to push ahead with a bill which will target dozens of offshore havens for increased regulatory attention. It's not surprising U.S. President Barack Obama has his eye on the Cayman Islands, America's principal offshore center. A U.S. Senate report last year estimated that some $100 billion in taxes could be being evaded by the use of offshore tax abuses.

It is not just the wealthy nations that are losing out as a result of capital and income being sheltered offshore. British charity Oxfam says developing nations lose as much as $124 billion in taxes a year, outstripping the $103 billion they receive in foreign aid. Oxfam's study found that citizens of developing countries hold more than $6.2 trillion abroad and capital flight is increasing by $200-$300 billion a year.

The tax havens will need the help of the United States, Germany, France and others to help them disentangle themselves from the business which has provided them with their economic backbone for so long. As with Afghan poppy farmers or Colombian coca growers, just blitzing their fields is not the answer. They need alternative crops and sources of income.

Switzerland, the world's biggest offshore financial center, is big enough and has a sufficiently well established asset management industry to survive in a post-haven world. The country has been under pressure to relax its bank secrecy rules since its biggest bank, UBS, agreed last month to pay a $780 million fine and identify some of its U.S. clients in a legal deal to end U.S. criminal fraud charges.

Singapore and Hong Kong have both made moves toward complying with OECD standards on exchanging information and both can adapt to survive. For others such as Andorra, skiing and tourism may have to take the place of dusting gold bars. But for some of the island paradises which have made discreet money management their hallmark, more comprehensive plans will need to be put in place to ensure that disruption is minimized.

The OECD is the best vehicle to ensure proper rules are put in place globally, and to monitor the performance of individual countries. But the political momentum has to come from across the spectrum. The G-20 has begun this work. Its members owe it to their taxpayers to follow through.

-- At the time of publication Alexander Smith did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. --

-- James Saft is a Reuters columnist. The opinions expressed are his own --

What is more remarkable, that the premier of America's largest creditor publicly raised concerns about U.S. creditworthiness or that the market took the news so easily in its stride?

"We have lent a massive amount of capital to the United States, and of course we are concerned about the security of our assets," Chinese premier Wen Jiabao said on Friday at a news conference to close the annual session of parliament.

"To speak truthfully, I do indeed have some worries. I would like, through you, to once again request America to maintain their creditworthiness, keep their promise and guarantee the safety of Chinese assets."

Can't be blunter than that; the Creditor-in-Chief at the top of the country whose foreign reserves include about $1.4 trillion of U.S. dollar assets is now fretting that he won't get his money back and is talking about "promises" and "guarantees."

Besides pointing out that there was very little of this kind of talk when Americans were stuffing their garages to the rafters with Chinese goods in 2006 and before, it is just amazing how little impact his words seem to have had.

U.S. Treasuries fell on the news, but not sharply and much of their moves throughout the rest of the day were driven more by the ups and downs of the stock market, which ended its best week since November with another day of gains.

So I offer two possible reasons why Wen's warning was so little heeded:

First, he's not telling us anything we don't already know.

The U.S. is a worse credit than it used to be, and likely to deteriorate still, especially for people taking currency risk. The cost of insuring the U.S. against default over five years has risen to about 80 bps, up from just 0.6 basis points in January 2007. And that is insurance that might prove mighty hard to collect on if the U.S. were actually to go bust, seeing it would take just about every counterparty in the world down along with it.

There is just no doubt that the aggressive monetary and fiscal policies the U.S. is pursuing, while perhaps appropriate, raise the risk to creditors that they see the value of their debts inflated away from them or eroded by a fall in the value of the dollar, or both.

CHINA'S UNAPPETIZING ALTERNATIVES

Secondly, even if Wen's analysis is correct, he's pretty much stuck as a passenger at this point. He has very little ability or willingness to do much about his U.S. credit exposure without hammering his own fingers in the process.

After all, if China cuts back radically on Treasury purchases the dollar will go into a spiral and the new higher interest rates the U.S. will be forced to pay to finance its spreading bailout will rise, giving China a rather ugly mark-to-market issue of its very own. God help them both if China actually starts selling.

And even if it does take the hard decision to aggressively diversify, what on earth is China going to buy instead and in massive size? European debt? At least no one is talking about Florida eventually seceding from the Union. And I'm not even going to start talking about Japan.

Or what about Switzerland? It always seems like a sober country, a safe haven in times of stress. Sorry, it has now embarked on a campaign of quantitative easing and is buying up foreign assets to drive the value of their own currency down. It may be however, that China is losing hope of the U.S. bouncing back strongly as a consumer of its goods and now realizes that its bread is buttered more as an investor than supplier.

None of this is to say that the message from Wen wasn't taken seriously in Washington.

"Not just the Chinese government, but every investor can have absolute confidence in the soundness of investments in the United States," U.S. president Barack Obama said at the weekend.

And indeed the quantitative and qualitative easing now going on in the U.S., Britain and Switzerland should scare creditors witless. The U.S. isn't going to default but that does not mean that its lenders will count themselves satisfied in five or ten years' time.

As for China, it may have other worries than simply its Treasury holdings. It also holds about half a billion in debt issued by Fannie Mae and Freddie Mac, now in U.S. conservatorship. China is thought to have scaled back sharply on these purchases when the two were taken under the government's wing but their debt not made an explicit full faith and credit obligation of the U.S.

So, China and the U.S. are joined at the hip. The interesting bit will be seeing how China reacts if the dollar starts falling or inflation gets out of hand. They won't start this fire, but they may add to it.

-- At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund --

-- Paul Taylor is a Reuters columnist. The opinions expressed are his own --

The day before he returned to the U.S. Treasury for six weeks to help the understaffed Obama administration, Edwin Truman published a proposal to give the International Monetary Fund more firepower to fight the financial crisis.

Truman's idea -- a one-off $250 billion allocation of Special Drawing Rights (SDRs) to IMF member states -- looks like the quickest way to put a safety net under developing countries and avert financial contagion. The Group of 20 world leaders should embrace it at the meeting in London on April 2.

U.S. Treasury Secretary Tim Geithner has not endorsed the plan in public, but the British minister preparing the summit confirmed it is one of the options under consideration. It could supplement a proposed doubling of the IMF's resources and get around the reluctance of surplus countries such as China and Saudi Arabia to contribute more for now.

SDRs are international reserve assets, calculated in a basket of major currencies, that are allocated to the IMF's 185 members according to their quota of the Fund's capital. A special issue would be a bit like a global central bank printing money to help countries with payments difficulties.

A G20 endorsement would show financial markets that world powers are cooperating to overcome the crisis by supporting developing nations starved of credit by the collapse of international bank lending.

THE BENEFITS

Among the benefits, it would reduce the urge for developing and emerging countries to devalue by boosting exports and amassing balance of payments surpluses and currency reserves to protect themselves against attacks on their markets. That could avert the kind of destabilizing imbalances that arose after the 1990s Asian crisis and ease growing pressure for trade protectionism.

Truman calculates that the poorest developing nations would receive $17 billion in SDRs directly and other developing countries would get a total of $80 billion.

Most SDRs would go to industrialized nations. But they could transfer them to developing countries at a nominal interest rate or hold them in reserve, for example giving European Union states a bigger war chest in case they need to support east European new members or neighbors with payments problems.

Sticklers for financial orthodoxy contend such a special issue of "funny money" would reduce the IMF's leverage to enforce structural reforms in recipient countries through the conditionality of its loans, and could be inflationary.

But the proposed one-off SDR allocation is far smaller than the sums already being pumped into the system by western central banks, and it would not replace conditional IMF lending programs for individual countries in financial distress.

The move requires the support of 85 percent of the Fund's membership. Geithner can approve up to $250 billion in SDRs without requiring Congressional authorization. Such a bold move would provide a tangible outcome to the London summit.

-- Margaret Doyle is a Reuters columnist. The opinions expressed are her own --

The Myerson divorce case in Britain makes compelling reading, as all rich bust-ups do. Regardless of whether the judges make Ingrid Myerson hand back 3.2 million pounds of her 11.1 million pound payout to compensate for the decline in her ex-husband's shares, she is a lucky woman.

Thanks to her divorce last year from fund manager Bryan who, as one half of Active Value Advisers, was the scourge of corporate UK, she is independently wealthy. Had the marriage survived, she would probably be -- like him -- worthless.

The lesson from the Myerson divorce is that wives who cede control of the family finances to their rich husbands will have to accept that marriage may be for poorer as well as for richer. If they do not want to risk their family's wealth being wiped out, they will have to take an interest in it.

is a sculptor, and presumably claims as little financial nous as most artists. But this model of marriage -- where one party, usually the husband, makes the money and all the financial decisions -- remains surprisingly common among the rich. It is easy to see why.

Over the past few decades, pay for senior executives and financiers has rocketed. And the demands on them have soared too: in terms of hours, overseas postings, travel and general stress. So it made sense for the other party, usually the wife, to become a "trailing spouse" whose job it was to support her high-earning husband and keep the family show -- and the second homes and dogs and ponies -- on the road.

With such a lifestyle and largely absent husbands, it was hard for these wives to maintain any sort of career at the same time. And with millions being made, that trade-off seemed to make financial sense. Why would a wife bother to work when she was paid buttons compared with her husband's lavish pay and perks? And why should she get involved in the family finances when her financier husband was doing such a good job at it?

MARITAL UNDERSTANDINGS

But these marital understandings are now being called into question. Because so many banking bonuses were paid in stock, there are few financiers whose wealth has not been hammered by the decline in financial stocks over the past year. Moreover, with governments taking stakes in banks across the world, bonuses are out of the question for the next few years.

Worse, many financiers took on a lot of debt, buying fancy houses on the never-never and using their stock and expected pay as collateral. But the value of property has been plummeting too. Now such families are not just worthless: they are worth less than nothing. And many are unable even to pay the interest on their home loans.

Working class women used to keep cash in a jar for a rainy day -- what some called "running away money". They understood the value of having some financial independence. But another group of women, who should have known better, do not.

This well-educated lot, often with MBAs, seem to have ignored what they learned in investment 101: don't put all your eggs in one basket. Instead, they are finding that their family's entire lifestyle: home(s), holidays and schools are all an unhedged bet on the future of the finance industry. Far wiser to have reined in their husbands' borrowing, and perhaps to have kept the job. They are now learning the lesson the hard way.