Last week, I wrote a column in Time about the unfortunate tendency of investors, pundits, economists et al to view stock markets as barometers for the economy and economic data as indicators of the markets. This tendency is pronounced in the media in general and the financial media above all, which looks daily for a story about why markets move up or down.

Almost everyday, some sort of economic statistic is released by government, ours or some government somewhere. Whether that is GDP data (which was released today and showed a not-too-impressive 2.4% growth for the second quarter) or inflation or durable goods or consumer confidence (not a government statistics but one that gets a lot of attention), each day brings some economic news. That permits a daily narrative that links the release of the statistic to the movement of the markets.

As if to prove that point, an article appeared in the New York Times on July 28, with the following headline” “Shares Fall as Data Says The Economy is Weakening.” The piece actually came from Bloomberg news, but no matter. It was yet another example of the false correlation between markets and economies.

Stocks represent ownership stakes - tiny ones - of companies, and companies increasingly exist in a universe only marginally related to any one national economy. They can, in fact, avoid many of the things that drag down national economies - labor, health care, taxes, old people, young people. And they can take advantage of things like cheap and plentiful global capital, easy mobility of goods, and increasingly helpful information technology systems that allow them to increase efficiency and productivity. They exist in their own transnational economic system, and the value of their stocks has little to do with whether the U.S. economy or any economy is ailing.

Of course, investors still believe in that correlation, and so trade the economic news, which in the short term means that stocks can track the economic data for that reason. But that doesn’t mean that a company such as Microsoft or Caterpillar is nearly as tethered to or dependent on the health of the economy in order to make colossal profits. And the sooner we collectively recognize the degree to which corporate land has broken free of national economies, the more we will be able to have the right discussion about national economic policy and about how and where to invest.

The fact that the Greek restructuring of about $140 billion was less than the single bail-out of financial firm AIG in the fall of 2008 seems not to matter; nor does the fact that while AIG and a half dozen other “too big to fail” financial institutions had trillions in derivatives outstanding, the country of Greece does not. Its history is rich, but its economy is not. Yet that isn’t deterring people from panicking, nor preventing the hobgoblins from feasting on collective fears.

Markets have to be respected – it doesn’t matter much if you’re “right” when the streets are filled with panic and volatility. But that doesn’t mean we have to join the party and play in the wagon’s band. The problems of Europe are real, and political. Relatively cash-rich Germans resent helping Greece, and Greece resents being in the position of requiring help. The entire European Union, meanwhile, continues to confront the challenges of its unwieldy currency and strong social safety nets, but I doubt the current crisis will lead to much less partying on Mykonos this summer. And in northern and Eastern Europe, newer members  like Latvia are embracing levels of austerity that the Greeks aren’t even contemplating – without riots, because the fear of Russia is greater than the perils of restructuring their economy. And while debt levels in Spain and Portugal alarm, their issue for now remains the myopic and knee-jerk reflexes of ratings agencies such as Moody’s and S&P that everyone knows are broken but no one really wants to fix. Without them to blame, people would have to start taking responsibility for their own risks and do their own due diligence.

So let’s respect the panic for the harm it can do, but not grace it with a substance that it lacks. We’ve been down that path recently, and it’s not one we’d want to walk down again soon. The world is full of problems, always has been, likely always will be. Greece is currently one of them, but there will still be lots of people basking in the Mediterranean sun reading about it on their $1000 iPads in a few weeks time. That is no less a reality, and it says something quite different about the world we’re in

The piece met with resounding, passionate anger. Writing about debt is a third rail on par with religion and sex: people don’t see straight. They react with disbelief, anger, insults, and even threats of physical harm. You’d think I’d advocated water-boarding given the vituperation. Instead, I’d suggested that our concern is misplaced and that all the fiscal austerity in the world wouldn’t restore American dynamism, enhance our competitiveness, or create the innovative economy of the future to rival and surpass China, India, and whoever else has been on the same sort of upsurge that once was the sole province of the United States.

It’s now a cultural cliché to say that Americans have been living beyond their means, that the financial crisis was the great comeuppance, and that now the bill is coming due. But it isn’t true. The fact is that more than a third of Americans own their homes outright - they weren’t living beyond their means and they never had any mortgage debt or refinancing. Of those who do have mortgages, even at the worst of the foreclosures, about 90% of Americans are current on their payments, as are about 90% on their credit card bills. The fact is, therefore, that the vast majority of Americans have been living within their means. The financial crisis was a product of technology-fueled trading and leverage, astonishingly short-term greed by banks and real estate investors, and a world awash in capital. Government regulations and the lack thereof played a role, but while it’s easy to say what might have prevented the crisis, it’s hard to know what could actually have been done in the real and dysfunctional world of Washington politics.

Forward to today, at the federal level, because the borrowing costs are so low - 2.5% compared to 6.5% at the start of the millennium - the cost of servicing the debt are also proportionately not much different than it has been for much of the past 25 years.

The rejoinders are familiar - interest costs must go up; we are dangerously in hoc to China; only Democrats with their tax-and-spend views could defend debt. In fact, this last issue was the one that figured most prominently in the response to my piece: that I am a Democratic Party shill defending Obama and congressional reckless spending (and that is a much more polite way of putting it than what the piece generated). It’s true that I have given to the Democratic Party and to various candidates. But the Republicans have certainly run up deficits (George Bush anyone?) and the hysteria over that was equally misplaced. This isn’t a defense of Democratic policies. In fact, the way that spending is allocated reeks of ineffectiveness and at times veers towards the corrupt. But that’s a crisis of how we are spending our debt, not that we using debt to fund spending. What’s more, in a world that is seeing massive wealth creation outside of Europe and the US with the dollar still the world’s reserve currency (for lack of viable alternative), it’s not clear that interest rates must go up, and the past may be a poor guide to the future.

The larger issue may be that we lack the ability to argue these issues coherently. America has never been a genteel place of measured arguments, and today’s blogosphere attacks and counterattacks would have been familiar to any pamphleteer in the 18th century and anyone standing on a soapbox at the end of the 19th. But our collective inability to get anything done and to act with urgency is paralyzing our ability to deal with the world today, and the tempests over debt are just one more example.

Most news on China is greeted with suspicion, or the suggestion that the numbers are cooked. The recent Google China controversy fueled that suspicion and obscured the degree to which some sectors of the Chinese economy–namely the New Economy of information and entertainment–are becoming robust and innovative and can compete with a dynamic powerhouse like Google.

As for the official statistics, sure, they are far from accurate, but then again, no government is able to precisely gauge in real-time what’s going on. The United States still revises GDP numbers years after the fact, sometimes substantially. But even inaccurate numbers give an indication that whatever formulas China is using to muddle through are working. Its much-criticized domestic consumption rose nearly 20% for the quarter and 15% for the year, in a year when much of the world was mired in recession. Critics say that domestic buying was “artificially” boosted by government subsidies, but how is that any different from tax relief and domestic stimulus throughout Europe and the United States? And trade fell only 12 percent for the year, in a year when the global economy and trade contracted more sharply than in decades.

No doubt, China’s trajectory will include bubbles forming and popping (or most precisely, being popped by government policy). No doubt, that will have an effect on stock prices and sentiment in the short-term, mostly negative. But make no mistake: this story is not Japan in the 1980s, and it isn’t a flash in the proverbial pan. It is real; it is shaping the global system; and it will remake the economic landscape as surely as the emergence of the United States in the early 20th century did. Skepticism is healthy, but not when it becomes dogmatic and blinds the eye to real change. Overestimating China is a risk, but the consequences of underestimating it are far worse.

That China has emerged is secret to no one, but the consequences haven’t been fully integrated - either by the United States or by China. The level of intertwinement between the two economies has reached the point where they have effectively merged, forming what I’ve called an economic “superfusion.” But that fusion hasn’t yet altered political and cultural mindsets.

The ministers of the world still beseech the United States to “do something” about a weakening dollar, and U.S representatives on the eve of this trip announced that after the financial morass of the past 15 months, the United States “is back.” Yes, the United States remains the world’s largest economy - though technically the combined income of the European Union is greater. But size isn’t everything - just look at Japan, which is still the world’s second largest economy but whose influence and impact are substantially less. China may be poor on a per capita basis (perhaps $5000 per person relative to nearly $50,000 in the United States), but it is changing more rapidly and consuming more hungrily that any other society in the world. It is the change factor in the global system.

Chinese leaders, however, have a tendency to downplay their outsized presence and retreat to a combination of false modesty (”Who us? We’re just a poor, developing nation”) and baton-passing (”The Americans are the ones who messed up the system and they are the ones who have to fix it, and oh by the way, make sure that our $800 billion in Treasury bonds and $500 billion in other investments don’t lose value!”). Their doctrine of non-interference in the internal affairs of other countries is a welcome relief for some who have grown tired of the American tendency to do the opposite, but it also is an increasingly ineffective dodge of the responsibilities that come with hundreds of billions of dollars of investment in Africa, Latin American and Central Asia, as well as hundreds of billions of dollars in trade with the United States, Japan, Korea, the EU and the rest of the world.

Americans, however, still don’t quite get it. China represents the first time in any American’s lifetime that the United States is faced with a country that it cannot coerce. Even the Soviet Union was vulnerable in its way to American military might. China doesn’t even pretend to compete with the United States militarily (though it is aggressively spending on “asymmetric” warfare such as disruptive communications technologies and other methods that would impede the ability of the U.S. military to operate smoothly in the Pacific Rim). And there is no real stick for Americans to wield when it doesn’t like how China behaves, whether that is in the realm of human rights or intellectual property. For America, China is a ‘welcome to the real world’ phenomenon, a case where the United States has to do what most other societies have learned to do for centuries: deal with things they don’t like in other countries without being able to force them to behave differently.

The issue for American going forward has little to do with China and everything to do with America. Can Americans rediscover the energy and innovation that brought such power and prosperity in the first place? Can the United States respond constructively to a changed global status that sees the rise of wealth and prosperity everywhere from Brazil to India to China? And can the U.S. government remove its collective head from the sand and act with the urgency that everything from climate change to economic competitiveness demand?

The problem of China for America is that it is a large but amorphous issue, unlike Afghanistan (do we send troops NOW?) or health-care, with its endless and acrimonious battles in the beltway. There is no vote, or quick resolution or unitary policy that will “solve” China. That allows it to linger as a concern, but not to shape action.

So while Obama’s visit is important in form and a start, it cannot be a one-off, full of pomp and devoid of substance. Somehow, the United States must shake of the collective grogginess of Cold War, terrorism, financial crisis and inequalities and grapple with a world that is evolving and changing around us whether we like it or not. There is still time, but that clock is ticking and midnight is approaching.

But what exactly must be done? And more to the point, what can be? Declaiming that something must be done assumes that the United States or some other world power can coerce or force the Chinese government to change their approach to currency in particular and economic policy in general. Before the crisis of the past year, Chinese authorities had actually begun a slow, quiet revaluation of the currency, but only after American politicians and officials stopped using the currency question as a cudgel against China. The recent decision of Timothy Geithner and the Obama Administration not to label China a currency manipulator marked a welcome change in tactics. Compare that choice to the much-publicized Schumer-Graham tariff of 27.5%. It never went into effect, but it hovered as a threat that if China didn’t immediately revalue its currency, dire things would follow.

But with China now accounting for nearly $1 trillion of American debt, and with the two economies in a symbiotic relationship which neither loves but which neither can escape, the U.S. cant simply insist that China do something about its currency and expect action. These economies are now fused (see my new book <em>Superfusion</em>). Much like the United States for last half of the 20th century, China is becoming a global economic behemoth. It isn’t supplanting the United States anytime soon, but it is rapidly joining the U.S. as the other most important engine of the global system. It remains much poorer and less developed, but it is generating a substantial share of global activity and its cascade can be felt from Rio to Melbourne.

Given that, why would China decide to disrupt the system simply because it causes consternation in America or Europe? Its economy is booming and its policies, however unorthodox, are working. China will again allow its currency to appreciate when it feels that doing so won’t cause a crisis of disrupt growth. Its massive accumulation of reserves is an issue. As the crisis eases, it’s likely that Beijing will return to its pre-2008 policy of gradual appreciation, especially now that it is focusing on generating domestic demand and wants greater purchasing power for Chinese citizens. But Secretary Geithner - contrary to the criticisms of Krugman and others - has been exactly right in not publicly calling out China. Such an act would be both arrogant and foolish. In the world today, the United States can afford to be neither. Let’s hope we remember that.

The rise of China is hardly a secret, but because it is a complex economic that is constantly evolving, it gets less attention than hot-button issues. Absent a real crisis between the two, the relationship is more about the flow of capital and the nature of global business than it is about heated battles inside the Beltway or on Main Street. And while the rise of China and America’s increased dependency on Chinese loans to fund its deficits certainly generates anxiety, it’s mostly amorphous barring some specific issue to focus it.

How that relationship came to be is the subject of my new book, Superfusion: How China and America Became One Economy and Why the World’s Prosperity Depends On It. While this economic fusion has taken more than two decades to evolve, with the crisis of the past year, it has become both a tighter embrace and one more fraught with tension. It’s to the credit of both governments - for now - that those tensions have not boiled over.

For their part, the Chinese are concerned about the viability of the American economic system and about the long-term value of their more than $1 trillion of investments in American bonds. They are also dependent on the market even a recession-mired America offers, with exports to the United States still near $300 billion a year. Americans are worried about the effect of lower-cost Chinese labor on U.S. jobs, even though most of the lost jobs were lost long ago and have as much to do with the corrosive effects of technology on labor as they do with cheap production in China. Meanwhile, China offers turbo-charged growth for American companies, as the Chinese government turns to companies like Caterpillar and GE to help with the industrial build-out and as Chinese consumers buy more goods - even a bankrupt GM sold 1.6 million cars in China this year, more than in the United States.

But tripwires abound. The Treasury Department just submitted one of its many required reports to Congress, this one on currency and the Chinese currency especially. The Treasury, Secretary Geithner and by extension the Obama administration decided not to label China a currency manipulator, though the report did express serious concerns that the value of the Chinese currency pegged to the dollar left it undervalued and hence responsible for continued global imbalances.

These reports are dry in nature and are nothing if not wonky. But make no mistake: this was a delicate decision and a consequential one. If the Obama administration had labeled China a manipulator, the next step would be automatic sanctions. That in turn might have generated a domino effect of epic proportions. And given how entwined the U.S. and Chinese economies have become, any negative ripples threaten to halt what is for now a very delicate and incomplete global economic recovery.

For now, the relationship between the two economies is symbiotic, and is providing a degree of stability to both societies. In the absence of Chinese money, the Obama administration could not be spending its way out of recession, and without American companies operating in China and without Americans purchasing Chinese goods, China wouldn’t have the money to lend and spend. But no country likes to see its sovereignty eroded and its ability to be master of its own fate undermined - and that is precisely what the economic relationship between the China and the United States does to their respective governments. National sentiment in both countries is also strongly suspicious, and that is likely to intensify.

But for now and for many years to come, we are joined at the hip, China and the United States, and how that relationship is managed by both will determine whether the world ahead is one of increased prosperity or ever-more conflict between winners and losers, between haves and have-nots, and between powers on the rise and powers on the decline.

Among others things, Putin - Russia’s man behind the curtain who has also been spending considerable time in front of the curtain - signed off on six billion dollars worth of trade deals Chinese counterparts, including moving ahead with a natural gas pipeline to open up the vast Chinese market to Russia’s equally vast supply of natural gas. The two sides also discussed policies to contain and manage North Korea. Trade between the two countries is approaching $60 billion a year, and while that is a faction of the more than $300 billion a year between China and the United States, it is hardly negligible.

For China, Russia is a vital supplier of raw materials and some ancillary higher-end equipment. For Russia, China is a vast market that is growing, compared to the European Union which is not. For both countries - who were once Cold War allies and then Cold War adversaries, these meetings signal a new move towards creating an economic and strategic access that bypasses the United States, and that alone is part of the appeal.

The United States wasn’t at these meetings, but it presence was felt nonetheless. For both countries, America remains the great question mark - whether it will help or hinder their desires for greater power and prosperity. Russia is a shadow of what it was during the Cold War, and Putin has clearly chosen a path of autocracy that will work only if demand for raw materials - oil above all - remains elevated. China is the crucial element of that equation. China is emerging as the new power in the global economic pantheon, and it is intent on diversifying away from its dependence on the United States for capital and for markets. While it remains tightly bound to America, its leadership would like to find ways to become less so. Whether they will or not remains to be seen, but the embrace of Russia is a clear sign that they wish to become less engaged with the U.S. rather than more.

For now, the emerging Chinese-Russian friendship is hardly a threat to the United States, but the shifting sands signify that the world no longer needs to go through Washington or through Wall Street. As long as the United States remains as large as it is, it will be an unavoidable market for China and even if Putin bought a house off of Tiananmen Square, all the deals between China and Russia wouldn’t change that. But the only way the U.S. will preserve its centrality to the global economy over the coming decades is to recognize that the winds are shifting east and that our attention and energy should be as well. The Taliban, Iraq and even Iran’s nuclear ambitions are all vital issues, but none of those may shape the future of the United States and the world at large more than the rise of China.

But GDP alone is a pretty poor proxy for the lived experience of many millions of people. Wall Street may be booming, the market rising, and many companies reporting strong profits relative to weak global economies. Yet that says little about any one national economy, even one as large and prominent as the United States (see my recent Wall Street Journal piece here http://online.wsj.com/article/SB20001424052970203517304574306414148814226.html).

This week, the Bureau of Labor Statistics reported that productivity soared in the second quarter, up 6.4%. Economists will tell you that productivity is the key to an expanding economy and to keeping inflation in check. But this surge in productivity – which is unequivocally good for corporate profits – comes at the expense of labor. Unit labor costs plunged 5.8% and hours worked were down almost 7%. So even those still gainfully employed are working fewer hours as companies eke out efficiencies, do much more with less, and make money from diverse markets. As of this year, half of the profits of the S&P 500 companies will come from outside the United States. So companies are doing well, in spite of labor and in spite of the U.S. economy. If you depend on a wage and you live in the United States, this recession began before last year and is likely to last much longer. If you’re a company or if you can access the world of capital in some form or another, this recession was a brief, sharp, and very frightening financial panic that is now ending.

Retail sales – not the best of statistics given the frequent revisions and the fact that gasoline sales and auto sales can shape the overall figure and often do – were also anemic in this week’s release. While reports of the death of the American consumer are much overstated, there should be no doubt that some spending will be decreased by the absence of easy credit and by the psychological overhang of the past year.

The larger point, however, is that we no longer exist in “one” economy that can be simply described by a few select figures. The experience of people in different parts of the country and who are exposed to different aspects of economic activity will vary so profoundly that it is impossible to make any sweeping generalization. That won’t stop people from making them, nor will it prevent analysts and politicians from proclaiming the end of the recession as if that statement meant universal relief. The world has become too complicated for such simplicities, and reality will continue to be far messier than the pat statements and neat headlines that seek to contain it.

The speeches struck all the rights notes - “the United States and China share mutual interests,” President Obama announced. “If we advance those interests through cooperation, our people will benefit, and the world will be better off - because our ability to partner with each other is a prerequisite for progress on many of the most pressing global challenges” Those sentiments were echoed by both Hillary Clinton and Timothy Geithner in an op-ed published in the Wall Street Journal. The Chinese delegation spoke of the two nations as traveling in the same ship, a ship which was wracked by the global financial storm of the past year. In general, the rhetoric could not have demonstrated more clearly that both see themselves as locked in a relationship of mutual dependence.

Yet the words of officials belie the more ambivalent feelings of both governments and especially of domestic public opinion in both countries. The best-selling book in China over the past months has been a nationalist screed entitled “China is not happy,” which argues for detachment from the United States as well as divestment from the U.S. dollar and which warns darkly that the ultimate goal of America is to keep China down. In the United States, there remains a strong current of distrust that sees Chinese policy around its currency as purposely aimed at conferring illegitimate advantages for Chinese goods and which views the authoritarian nature of the Chinese government as an absolute obstacles to future concord. And many U.S. economists do not believe that China - reliant as it is on state-spending rather than domestic consumer consumption - has a viable model for long-term growth.

While there are positive signs in the discussions around alternative energy, climate change, and the long-term security of the dollar, what’s striking is how little has changed between the two as a result of the economic crisis. In fact, the events of the past months have propelled the two closer together, contrary to the arguments of those such as Niall Ferguson who are now predicting an impending divorce. The U.S.-China trade deficit is still immense, running at an annualized rate of nearly $250 billion a year in U.S. imports and $60 billion in exports, down from almost $340 in imports in 2008 and nearly $70 billion in exports (http://www.census.gov/foreign-trade/balance/c5700.html#2009), but still considerable given the sharp contraction in overall economic activity globally. And China has been adding to its dollar reserves every month and has been a steady buyer of U.S. debt, which means it had become an even more significant creditor of the U.S. and a facilitator of U.S. government spending.

For now, elites in both countries speak the mantra of closer integration, but it’s fair to say that their views do not accord with popular sentiment. It’s also fair to say that neither government is prepared to face the real consequences of their economic relationship, which is a loss of control. China wants to diversify away from the dollar, but it has no alternative; the United States wants to be less dependent on China, but there is no other ready source of loans.

So this phase of the dialogue ends on promising notes. But reality will be harder to live, and its ramifications difficult for both sides to accept. For a 21^st century relationship, this looks increasingly like a 19^th century marriage, one of convenience and necessity rather than love and affection and one that is nearly impossible to end even if both parties desire it.