The Wall Street Journal’s Econoblog provides a useful look at China’s decision Thursday to slightly float the Yuan (this will likely drive interest rates here higher, unless we actually start to significantly reduce our deficits):

This would imply an unraveling of the Bretton Woods 2 regime and will force the U.S. to make significant and painful adjustments to its private and public savings droughts, droughts that much more than a global savings glut explain why the U.S. external balance has been worsening over time. Then, U.S. private spending, both consumption and investment, may have to fall sharply — driven by higher U.S. interest rates and a bursting of the housing bubble — relative to U.S. output to make room for an improvement of U.S. net exports.
And how much U.S. private spending may be squeezed will depend on whether there is a meaningful structural reduction in the U.S. fiscal imbalance. Less foreign financing of the U.S. external deficits would, for unchanged fiscal balance, tend to crowd out private consumption and private investment via higher interest rates. This U.S. adjustment could be painful.

Reminds of a tale that goes something like this (paraphrasing): a butterfly flaps its wings and this ends up being a hurricane halfway around the world.