The key purpose of all wars is to plunder wealth. Compared with traditional wars, a currency war seems more "civilized" because it is wealth-plundering without bloodshed.

By virtue of being the most developed country and its currency being the world's monetary reserve, the United States occupies high ground in the global financial market. That gives it the advantage to start a currency war without suffering much loss. The only way to stop a war, therefore, is to make the US realize that the losses it would incur by starting a currency war will far outstrip the gains. And the best way of doing that is to make other countries stick together.

But the US has used the differing orientations of other countries to ride over them one by one.

At the World Knowledge Forum in Seoul, South Korea, on Oct 13, 2010, Nobel Prize-winning economist Paul R. Krugman and Harvard University's Niall Ferguson initiated a debate on "whether or not the US Treasury bond market can withstand China's selling". Ferguson said the aim of the second round of the Federal Reserve's (Fed) currency printing plan is monetization of debt on a much larger scale, maybe up to $1 trillion. But the real worry is that investors in US Treasury bonds may lose confidence in national debt and start selling them.

Krugman, on the hand, said the aim of the plan is to force those saving for the future to consume more in the present to stimulate economic recovery, and those who don't do so will see the erosion of their wealth.

The financial debt is not a problem for the US, Krugman said. The US is not worried whether China will sell the US Treasury bonds it holds, for the Fed can buy them back. Ferguson, however, expressed concern over the possible selling of US Treasury bonds.

Who is right, Krugman or Ferguson? And why is the US implementing a second round of quantitative easing monetary policy when it knows it will hurt the global foreign exchange market?

The main reason is that the US' credit expansion stopped. Since the global financial crisis broke out, a loss of $13 trillion for the heavily indebted US consumers and enterprises, and the decline in real income because of the about 10 percent unemployment rate prompted the government to stimulate savings, reduce consumption and repay debts. In 2009 alone, the debts of the US private sector reached $1.8 trillion.

If we assume the US economy to be a huge water mill, its credit expansion is the flow of water. Once the flow of water stops or even slows down, the water mill, that is the economy, will stop moving.