LOS ANGELES -- Fasten your seat belts -- and get ready for a major test of the core stability of the global financial system. How do we know that a jolt is coming? Just consider that:

World markets went into a serious dollar tailspin on March 11 after Japanese Prime Minister Junichiro Koizumi raised the specter of his treasury "diversifying" its foreign-currency holdings. Implicitly referring to Japan's huge savings pile of $840 billion, Koizumi bluntly told a Diet parliamentary committee: "I think it's necessary to have diversity."

The prime minister's candor then triggered a selloff of U.S. treasury investments by foreigners (who feared a plunge in the value of the dollar) that jacked up yields on long-dated U.S. bonds to an eight-month high. Today's markets are nervous about excessive foreign capital flows into the United States -- and they should be.