Thanks to globalisation and technology, which have helped toholddowninflation, central banks have recently not needed to raise interest rates by as much as in past cycles.
By producing goods more cheaply and so helping toholddowninflation and interest rates in rich economies, China may have indirectly encouraged excessive credit creation and asset-price bubbles there.
It is true that bond yields usually start to rise once recoveries are firmly under way, because investors expect central banks to raise short-term interest rates in order toholddowninflation.
Not only has the currency's strength helped toholddown American inflation, but a collapse would make it harder for the Fed to slash interest rates if the economy were to slow more sharply than expected.
Other factors I expect to help holddowninflation include the downward pressure on labor costs of the rapid expansion in productivity since the middle of 2009.
Instead of allowing yuan appreciation to reduce imbalances and inflation directly, the PBOC is forced into exchange pegging purchases of dollars toholddown the yuan.