Gordon Chang gives a nice summary of current talks between the Obama Administration and China concerning monetary policy. The U.S. wants the Chinese to encourage more consumer spending (their savings rate is 30%) while China wants the U.S. to stop printing money.

In short, each country knows what the other should do but neither of them will take the good advice of the other. Although Beijing talks about developing a domestic consumer market–Washington’s recommendation–China’s new export-promotion policies dampen local consumption, as does its fiscal stimulus program.

Sadly neither side will correctly take the advice of the other. China will continue its traditionally high savings rates, while the U.S. consumer will continue to save at levels not seen since WWII. The Obama administration will continue its stimulus plans, creating more dollars that will inevitably lead to inflation, decreasing the value of China’s hold of treasuries.