Old: Chinese sell stuff to Americans. Since the Chinese are not yet high consumers, they can afford to invest the profits in American debt. We use that borrowed money to buy more stuff. They use the additional surpluses to lend us more money. lather, rinse, repeat.

New: Americans can't afford to borrow any more. Therefore, we don't buy stuff from China. Chinese factories sit idle and workers are unemployed. China is no longer generating surpluses to invest in American debt as they need the money at home. Meanwhile, all levels of U.S. government go into more debt due to declining tax revenues. Scarcer capital pushes interest rates up. Higher interest rates cause investments in plant and equipment to decrease and more people are thrown out of jobs. Americans buy less...(repeat cycle).

Nothing matters until it matters, and it seems that we have reached that point.

A well managed public infrastructure program seems to be the best way to stimulate the economy. Borrowing more money to prop-up consumption only defers the day of reckoning.

I don't see any way out of this that doesn't involve pain.

The world economy has an unhealthy dependence on the continued good health of the American Consumer. Much has been said about our lack of consumptive discipline. There has not been as much mention of the business model that depends on selling stuff to people who can't afford to pay cash.

It is reminiscent of how computer equipment companies in the late-1990s stuffed the channels using vendor financing for shaky customers. Or, to use a more current example, providing mortgages to subprime borrowers. I don't have much sympathy for people who should know better getting taken to the cleaners on account of their greed.

The only good thing about all of this is that foreign investors have a history of buying into our markets just in time to take big losses. They are likely to write-off a lot of our debt to them...at least in real terms.

I believe that the following two statistics are not meaningful:

Fully half of the U.S. trade deficit is accounted for by one country -- China.

A rough estimate holds that fully 10 percent of the annual trade deficit between the U.S. and China is accounted for by one company -- Wal-Mart.

They are not meaningful for the same basic reason: the U.S. trade deficit is the sum of a large number of positive and negative components, so we cannot meaningfully compare one component to the whole (as though it were the sum of positive components).

For example, consider if we only traded with two countries: we had a $1000 surplus with one, and a $1001 deficit with the other. Our deficit with the second country would be 1000x our total deficit! When you say that China accounts for 50% of our total deficit, that makes it sound like a lot, but it could in fact be very little in the grand scheme of things. I think it would be better to compare our deficit with China against our total GDP (or China's).

Similarly, Walmart is not in the export business--they only import goods from china, so it is inappropriate to compare their deficit against the country's as a whole (including both imports and exports). It would be more meaningful to compare Walmart's imports against total imports.

When writers use statistics like this, I get the impression that they are just trying to manufacture a big, scary number in order to get me excited about whatever BS they are spewing. I don't appreciate it, and I actually stopped reading "Free Lunch" for this exact reason. I have a bit more experience in HTWW, so this won't turn me off.

Not to pile on the questionable use of stats or anything, but comparing the total trade deficit to an individual country using is apples to oranges. The -$56.5b contains both goods and services and is seasonally adjusted. The China deficit is goods only and not seasonally adjusted.

Apples to apples comparison: China's -$27.8b deficit compared to the not-seasonally adjusted goods deficit of -$76.0b.

Still a hefty chunk, but not near half.