Since the beginning of the current business cycle in early 2001, family incomes in the United States have not risen, yet the costs for important consumer items such as housing, health care, transportation, energy, and food all climbed at often breathtaking speeds. To afford these necessities, families piled on record amounts of debt relative to their income—at a rate more than four times faster than that in the 1990s. Families, though, were not the only ones going deeper into debt. The federal government ran up large budget deficits due to massive tax cuts for the rich and a spending spree for an ill-designed Medicare prescription drug benefit and two wars in Afghanistan and Iraq. Since March 2001, foreign investors financed close to 80 percent of the federal budget deficit. More importantly, these large capital inflows financed a massive U.S. trade deficit that still remains at an unsustainable 5 percent of gross domestic product. To finance this deficit, the U.S. economy...