This week, in what I believe to be an unprecedented diplomatic pilgrimage, the sitting U.S. Secretary of the Treasury and the Chairman of the Federal Reserve were dispatched to China. Ostensibly they were sent to pressure the Chinese into allowing their currency to appreciate against the dollar. In reality, they were more likely sent there to do just the opposite.

Despite the hawkish public tone coming from Washington, the private dialogue was likely to have been far meeker. My guess is that Bernanke and Paulson kowtowed to America's biggest supplier and largest lender, and pleaded for them to keep the goods and credit flowing. Although it didn't take place in Macy's window, the affair may qualify as the "mother of all butt kissings."

The last thing that Paulson and Bernanke want is for the world to recognize the financial precipice upon which the U.S. economy now teeters, and China's unique ability to push it over the edge.

It is absurd to imagine that they would actually demand that China revalue its currency. Think about what such a request actually implies. It means that Americans would pay higher prices for the goods they buy and higher interest rates on the money they borrow. Does anyone really believe that American politicians are in China to demand higher prices and higher interest rates for American consumers? Since such a combination would surely produce a sever case of stagflation, does anyone really believe that Greenspan and Bernanke went to China to demand that they push the U.S. economy into recession?

It is far more likely that they are there to persuade the Chinese to maintain the current currency peg so that Americans can continue to enjoy the artificially high standard of living that the massive subsidy provides. No doubt they will likely try to convince the Chinese that doing so is in their interest as well, though I am not sure just how much longer that dog will continue to hunt.

Once Chinese officials grasp the concept that the only thing standing between their citizens and much higher standards of living is the currency peg, they will abandon it completely. The result will be abundance in China and scarcity in the U.S. China will then be awash in credit and consumer goods while America will be devoid of both and awash in paper dollars.

Think about today's unchanged reading on November CPI, or Wednesday's 1% gain in November retail sales. What would happen to the CPI and retail sales if both prices and interest rates surged? The biggest factor boosting retail sales was the 6.5% gain in consumer electronics. Does anyone want to guess where most of that stuff was made, or how it was paid for? How many big screen TVs could Americans "afford" to buy on credit if both prices and interest rates went up by 25% or more? As usual, the media interpreted the recent retail sales figures as evidence of a strengthening U.S. economy. Nothing could be further from the truth. Such sales merely reflect the strength of the economies that produced the goods in the first place, not the economy of the nation that went deeper into debt to consume them.

Ironically, during the very week that Paulson and Bernanke were trying to convince the Chinese to keep buying dollars, Alan Greenspan was making a good case why the rest of us should sell. The former Fed chairman, adding his voice to that of his predecessor Paul Volcker, predicted that the dollar's recent slide would continue for years to come and cautioned that it would be foolish for anyone to keep all of their money in just one currency.

From my perspective it would be foolish for anyone to keep any money in U.S. dollars. If the Chinese come to their senses and pull all that American wool out of their eyes, then look out below.

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