New York Times ( NYT) columnist Paul Krugman argues quite persuasively that China needs to reconsider its fixed/tight band currency policy, and soon.

Krugman argues that not only is China encouraging the continuance of a key structural imbalance in the global economy – one that helped cause the world's first global recession since the end of World War II – it's also increasing unemployment in other nations.

Under the radar: Some trends are obvious enough and visible to all investors. Others are more-subtle, but are just as potent, and these often slip 'under the radar.'

Case in point: Saudi Arabia's oil exports to the United States have fallen to a 22-year low, at 745,000 barrels per day (bpd) in August, the latest month for which data is available, from 1.14 million bpd in July, according to data compiled by the U.S. Energy Information Agency. August's 745,000 bpd total is the lowest since December 1987. On a year-over-year basis (August 2008-August 2009), those exports are down about 50%.

It all started when President Obama, under pressure from U.S. unions, slapped a 35% tariff on tire imports from China. This move angered Beijing to no end, and to the point that China is challenging the action with the World Trade Organization.

China, in retaliation, has said that it would launch an "antidumping" policy against U.S. car exports to China. U.S. car makers export only about 9,000 vehicles to China at present. However, China is now the leading auto maker in the world, and barring U.S. imports would hamper the U.S. auto export market.

Markets throughout the world have been rallying on the expectation that the world recession is ending. Lurking underneath the surface are some disturbing events.

Japan is in a sharp deflationary spiral. The Corporate Goods Index, which measures wholesale prices, plunged 8.5%, this after a 6.7% drop in June. This is the fastest drop on record.

Let's look at other deflationary numbers. Import prices fell 33.3% in yen terms and 26.5% on a contract-currency basis. Export prices fell 15.3% in yen terms and 6.5% in contract currencies.

Good morning! A New York Times article reports that cheap booze is seeing a nice sale spike as folks swap out premium or even mid-market brands for rotgut. Popov & Tonic, anyone? The Prince of Darkness over at Zero Hedge illuminates us as to the possibility that a major supplier of financing to rural electrical cooperatives could go dark, taking down dozens of utilities in the sticks with it. Maverick ratings agency Egan Jones began calling this a while back.

Many economists agree the U.S.'s pronounced recession, and the global recession, to some degree, were triggered by a series of imbalances. One of those imbalances is correcting now.

The U.S. trade deficit declined again in December 2008, by 4%, to $39.9 billion -- the lowest level since February 2003 -- on a substantial decline in imports, the U.S. Commerce Department announced Wednesday.

Further, for all of 2008, the trade deficit narrowed to $677.1 billion from $700.2 billion in 2007. In 2008, exports increased 12% to $1.84 trillion, while imports climbed 7.4% to $2.52 trillion.

China created a huge middle class by bringing rural workers into large cities to work in the factories that built the nation's exports. As long as that huge export machine was allowing the nation to produce tremendous trade surplus and 10% GDP increases, that system worked fine.

Now the demand for Chinese goods is falling sharply as the recession hits its trade partners. Factories are becoming idle. Workers are heading back to farms. One by-product of this is that China is not able to sell goods that it makes "in country" to its own middle class, further hurting its GDP. The other consequence is that outside nations that have been importing goods to China are beginning to see steep drops in their sales.

According to Reuters, "Department stores such as Hong Kong-based Parkson Retail are pushing discounts to regain sales, and Kingfisher, Europe's largest home improvements retailer, is closing stores ahead of the week-long Chinese New Year shopping period."

The news shows that there is no escaping a deep downturn. Even a nation like China, which has enjoyed hyper-growth for nearly a decade, is becoming less attractive to firms that have counted on the world's most populated country for a big piece of their sales.

Welcome to the global recession.

Douglas A. McIntyre is an editor at 24/7 Wall St.

Can the U.S. government run $1 trillion budget deficits for two, three years? Indeed it can, Financial Times columnist Martin Wolf argues, and the deficits can even be higher, for a while. After that, there's more work ahead.

The specter of $1 trillion budget deficits may be vociferously opposed by Republicans and other economic conservatives, but Wolf, in so many words, says what other choice does the United States have? What would be the alternative? Simultaneously raising taxes now to lower the deficit? Hardly prudent. Doing nothing? Another dreadful idea. So, it's prime the pump, or sit there at the well and await nothing.

Up ahead: two bigger tasks

What's more, Wolf sees two additional tasks (structural changes) that are just as important to the goal of U.S. economic recovery -- but that may be even harder to implement: removing toxic assets from the banking system and reducing the U.S.'s structural current account deficit (the trade deficit).

The first is the forced write-off of bad assets, fiscal recapitalization of the banks, or debt-for-equity tactic, and it should be done comprehensively and quickly. Slow, gradual bad-debt reduction is not the correct policy, Wolf argues, as it would delay the economic recovery.

There have been almost no positives in the U.S. recession that has resulted in millions of job losses, and also hurt corporate revenue and earnings, most economists agree.

But at least one metric has moved in the correct direction: the U.S. trade deficit, which declined 29% in November 2008 to $40.4 billion on a record decline in imports, the U.S. Commerce Department announced Tuesday.

Economists surveyed by Bloomberg News had expected the November 2008 trade deficit to total $51.5 billion.

Imports declined a record 12% to $183.2 billion -- the lowest level in more than two years -- pushed lower by a large drop in imported oil prices.

Exports dropped 5.8% to $142.8 billion, on declining demand for industrial supplies and capital goods. The October 2008 trade deficit was revised lower to $56.7 billion from the previously released $57.2 billion.

China is supposed to be the perfect large economy. Its GDP has been growing at 10%. Its huge export base is driven by cheap labor. Its rising middle class has become one of the world's largest groups of consumers.

Someone forgot to tell the Chinese government that a deep recession would eventually undermine its exports. The world does not need inexpensive goods when it does not need any goods at all. When Japan, the US, and EU all fall apart at once, whatever edge China has as a manufacturer evaporates.

The part of the economic problem in China that is harder to see is that a bad economy hurts its imports. That new middle class starts to break apart as workers are laid off. They stop consuming foreign goods, and, even worse, they stop consuming Chinese goods. The entire economy of the world's most populated country starts to spiral down.

According to The Wall Street Journal, "China's exports in December fell 2.8% from a year earlier to $111.16 billion, while its imports fell 21.3% to $72.18 billion, the General Administration of Customs said Tuesday."

The Chinese economic miracle is broken and it cannot be fixed while the world economy is in trouble. China believed its export base made it "too big to fail." It has not worked out that way.

Douglas A. McIntyre is an editor at 24/7 Wall St.

President-elect Barack Obama and the new U.S. Congress, correctly, have to focus on getting the U.S. economy moving again, but the Democrats can not lose sight of another key policy area in 2009: energy policy.

Simply, the United States must finally end its dependence on foreign oil, and, in time, on oil itself, and the new administration must take giant steps toward this goal beginning in 2009.

Oil shocks devastate U.S. economy

Three oil shocks (1973-74, 1979-80, and 2008) have been major factors in three U.S. recessions, the U.S. transfers $200-$550 billion in wealth overseas annually - - depending on oil's price - - just to pay for oil imports, and imported oil has complicated U.S. foreign policy, to say the least.

Economist Richard Dawson estimates that if what Americans paid for foreign oil were retained in the United States economy, U.S. GDP would increase by 0.3-0.5 percentage points annually, "creating hundreds of thousands of domestic jobs and keeping that wealth and income working where should be working, in local economies."

What's one key to the global economy's recovery, and by extension, the U.S. economy's recovery?

Well, it's not likely to be an engine of growth of the past, namely, the U.S. consumer. Several regional growth engines are needed.

To be sure, the U.S. consumer will play a role: a $14 trillion economy -- still, the world's largest -- remains an influential contestant in the GDP arena, but if the global economy hopes to achieve a balanced, sustainable growth track, consumption by consumers in the world's other major economies have to play a larger role, so says economist Peter Dawson.

Dawson's analysis assumes that the U.S. consumer will return -- not to home equity loan-driven, frenzied, unsustainable consumption of this decade, but to a moderate growth track, after real median incomes start to rise after the U.S. economy starts to recover. The above is mentioned as a backdrop because some economic models assume severely-challenged U.S. consumption for several years; Dawson's model is not one.

Still, even a moderate-growth U.S. consumer spending model does not invalidate the need for structural changes in the global economy.

It's another data point indicating both the comprehensiveness and seriousness of the global economic slowdown: China's exports fell in November for the first time in seven years, the General Administration of Customs announced Wednesday in Beijing, as demand decreased in key customer countries in recession, including the United States.

Another global slowdown sign

China's November exports declined 2.2% compared to a year ago to $114.99 billion. It was the first decline in monthly exports since June, 2001. Exports increased 19.2% in October. Meanwhile, November imports also fell, declining 17.9% to $74.9 billion -- that category's first decline since February 2005.

Economist David H. Wang told BloggingStocks Wednesday that the export decline is further evidence of the weakest global economy since 2002. "We have a very serious global condition. Slowing exports will lead to further manufacturing cutbacks in China, which will decrease demand for commodities even more," Wang said. "This will really hit mining companies and commodity producers and I would not be surprised to see five-year lows hit oil, copper, and coal in Q1 2009."

Wang added that the export decline underscores the need for both China and the west [U.S., E.U.] to take steps to create demand.

Do you remember 'decoupling' -- the notion that emerging market economies China, India, and Brazil / Latin America, among others, could grow independently without needing U.S. consumption?

Well, decoupling is on pace to to go down in history with Hitler's notion that the former Soviet Union, now Russia, could be invaded / conquered in six weeks (and that the Russian winter was irrelevant in warfare) as one of the most misguided macro beliefs in the modern era.

Wanted: Foreign consumers

"The global economy's choir is becoming more diverse, but it's still singing an American tune," economist Richard Felson said. "What we've learned in the initial decade of globalization is that new centers of economic activity are forming in Asia, Latin America, Central/Eastern Europe, and the Middle East, but these centers are not nearly mature enough to be considered self-contained, self-reliant zones. Until that occurs, a U.S. recession will slow these regions dramatically, which is what we've seen during this economic downturn."

Few economists deny that the global economic order that dawns following the financial crisis will be different from the pre-crisis order.

And a key difference is likely to be consumption patterns -- namely the development and expansion of middle classes in younger economies as a source of demand.

The export economy's downside

Emerging market economies have learned/are learning an all-too-painful lesson regarding the vulnerabilities -- or the downside -- of an export-based economy: if for some reason that foreign demand wanes or dries up, your economy has a problem. A big problem.