Some thoughts:
China exports cheap goods to US and keeps inflation low. China in turn buys T-bills and keep long term rate lows. In this environment, Fed keeps low rates. All reinforce a non-sustainable credit expansion.
So long as China is willing to sell large sums of goods for low yields T-bills, US people do not have to increase productivity. They can rely on the paper money and wealth to sustain their living, until they find that China is no longer willing to sell goods at cheap price or buy T-bills at low yields.
Is this similar to Dutch Disease? If so, what could US have done to sterilize the effect?
So long as China as a trading partner is willing to trade goods for paper (i.e. debt), not seem much can be done. Maybe FED can raise reserve ratio, tighten short term rates to avoid excessive credit expansion. But if rates are high, Treasury has to sell debts to China at a higher yield and that’s a higher costs to US as well.