At the same time, Washington desperately needs Beijing to keep buying American bonds, so that the U.S. government can run up a deficit and launch its own fiscal stimulus. In effect, we're asking China to finance simultaneously the two largest fiscal expansions in human history—theirs and ours. They will probably try to accommodate us, because it's in their interest to jump-start the American economy. But naturally their priority is likely to be their own growth.

"People often say that China and America are equally dependent on each other," says Joseph Stiglitz, winner of the 2001 Nobel Prize in Economics. "But that's no longer true. China has two ways to keep its economy growing. One way is to finance the American consumer. But another way is to finance its own citizens, who are increasingly able to consume in large enough quantities to stimulate economic growth in China. They have options, we don't. There isn't really any other country that could finance the American deficit."

In his fascinating new book, "The Ascent of Money," Niall Ferguson describes the birth of a new nation after the cold war. He calls it Chimerica—and it accounts for a tenth of the world's land surface, a quarter of its population and half of global economic growth in the past eight years. "For a time it seemed like a marriage made in heaven," he writes. "The East Chimericans did the saving, the West Chimericans did the spending." The Easterners got growth, the Westerners low inflation and low interest rates.

Like Stiglitz, Ferguson believes that China has options. "They will certainly try to keep American consumption going, but if it becomes clear that it isn't working, they do have a plan B," he said to me last week. Plan B would be to focus on boosting China's own consumption through government spending and easing credit to their own people.

"The big question today," Ferguson said, "is whether Chimerica stays together or comes apart because of this crisis. If it stays together, you can see a path out of the woods. If it splits up, say goodbye to globalization."

In recent years the most important and difficult ambassadorial posting has unquestionably been the one to Baghdad. Over the next decade, the toughest and most crucial assignment may well be in Beijing.

© 2008