“Let’s not mince words: This looks an awful lot like the beginning of a second Great Depression,” writes the New York Times‘s Paul Krugman this morning.  “So will we ‘act swiftly and boldly’ enough to stop that from happening?”

Krugman is right.  We are already in another downturn rivaling the Great Depression of the 1930s.  Yet he is undoubtedly wrong when he assumes the Federal government has the ability on its own to prevent it.  Krugman correctly shows that Ben Bernanke’s supply of enormous amounts of liquidity has not stopped the fall of the economy but then argues fiscal spending is the answer.  The Times columnist, in short, takes it for granted that there is an answer that is solely within the power of our government.

The massive Federal spending Krugman proposes will ease the pain for a while, but, as the Washington Post‘s Robert Samuelson shows this morning, this solution may ultimately make things worse.  Spending will increase the Federal deficit, which will have to be funded by debt.  Interest rates could rise as the Treasury tries to sell the debt, and higher interest rates will slow–if not choke–the economy.  Excessive Federal spending could also cause a “panicky flight” from the dollar, which would be a catastrophe for just about everyone.

Is there anything that can be done to prevent another global depression?  Yes, there is.  As noted by many analysts, Americans spend too much and the Chinese save too much.  The obvious solution is for Americans to export to the Chinese, which would put an end to the world’s two most important economic imbalances: the American current account deficit and the Chinese current account surplus.

Unfortunately, Beijing, beginning late last July, decided to try to export its way out of the crisis that it saw coming.  The measures the Chinese then adopted, such as driving down the value of their currency, also had the effect of closing off their domestic market to imports.  Unless President Obama takes drastic steps to open up the Chinese market–the Bush administration’s patient approach was mostly ineffective–the global economy will continue to trend downward.

So Krugman, despite his Nobel Prize in economics, is wrong.  We don’t have to spend a dime to solve the global crisis.  Mr. Obama merely needs to pick up the phone and talk to Hu Jintao in terms the Chinese president understands.  It is as simple–or as difficult–as that.  If we do not change China’s mercantilist outlook in a hurry, we should prepare ourselves for the greatest depression the world has ever known.