The dragon twitched. The dragon, which is China, twitches every so often, and when it does, ears prick up across the world of trade and finance. Dragons can, as you know, breathe fire when they choose to, and should the Chinese dragon emit a plume or two of flames, ordinary people living as far away as Ashtabula, Ohio, may get their fannies scorched.

The latest twitch took the form of Chinese Premier Wen Jiabao making the apparently tepid remark that his country would "actively explore and expand the channels and methods for using foreign-exchange reserves." The underlying meaning may not be so tepid, for Wen appears to be saying that the day may not be so far off when China is going to slow down giving American consumers credit for merchandise purchases.

Another way of looking at this would be that China may be losing its taste for lending the United States money that indirectly helps America to fight its ever-lengthening series of Middle Eastern wars. Every year America goes a couple of hundred billion bucks deeper into hock to the dragon.

No sooner had the dragon twitched once than it twitched again a few days later at the World Economic Forum in Davos, Switzerland, where the world's fattest money bags annually meet up with big-time politicians, whatever celebrities happen to be hot at the moment, chittering economists and enough journalists to make sure anything of moment is recorded. It was not the place you would expect to find a Chinese dragon, but the scaly fellow, this time in the person of Madame Wu Xiaoling, the deputy governor of the People's Bank of China, said that holding a trillion dollars' worth of another country's money was enough.

Wu Xiaoling's message, couched in much politer language, was that someday American consumers are either going to have to pay their way or do less shopping at the dragon's mall. This is news that ought to be received with joy in Washington.

For years American Treasury officials, often accompanied by the biggest of big names in America, have been trooping to Beijing to ask, beg, demand and implore the Chinese to let the value of the yuan, as their currency is called, rise in relation to the dollar. Doing so would make American products cheaper abroad, so that more would presumably be sold, while foreign products would become more expensive so that presumably less would be bought by Americans.

Americans claim that the Chinese are cheating by "artificially" keeping the yuan so cheap in relation to the dollar, but that argument is dribble. In these realms everything is "artificial." Money itself is just an idea that people have made up.

The "artificial" thing the Chinese do to keep their currency cheap is to take the dollars we pay them for the stuff we buy from China and put it in their piggy banks instead of spending it. Once those dollars disappear into the piggy banks, there are fewer of them floating around. That makes them scarce, which makes the dollar more expensive.

Why saving dollars is more artificial than spending them is a conundrum past solving. In any case, Washington wants a weak dollar--except when it doesn't. Treasury Secretary Henry Paulson Jr. says, "A strong dollar is clearly in our nation's interest." The whole business is a muddle. Obviously, a strong dollar brings with it financial power for the United States around the globe, even as it accelerates the "great sucking sound" of jobs fleeing overseas.

In the meantime the Chinese dragon seems to be stoking his boiler and is beginning to spend some of his piggy-bank dollars. He's opening his wallet to lock up oil and minerals in South America and Africa. He is using that American money to make deals in the Middle East as people everywhere learn that the yuan spends as good as the dollar.

As he does these things, the dollar will slowly weaken and American exports will slowly grow, but changes in the exchange rate are not going to give us a favorable balance of trade. We are not going to get back to where we once were when we sold the world everything and bought nothing. Not only has the United States exported jobs, it also cannot recapture the productive capacity it has given up. We couldn't make enough shoes or shirts or skirts to clothe ourselves now if we wanted to.

Our money is still good, but not as good as it used to be. We still make many things and very good things, we still have enormous know-how and vast resources of every kind. But we're not St. George anymore. We cannot slay the dragon.

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