President Barack Obama and Chinese President Hu Jintao speak during a joint press conference held at the Great Hall of the People in Beijing, China, Nov 17, 2009. Questions from journalists were forbidden.

Dr. Peter Morici: Bigger than the budget deficit, America has a leadership gap.

China undervalues its currency to boost its U.S. sales, domestic employment and growth. Its economic miracle is engineered by Beijing buying hundreds of billions of U.S. dollars, with freshly printed yuan, to keep its currency undervalued and Chinese products inexpensive in U.S stores. Then China uses those dollars to buy U.S. Treasury securities.

President Obama, afraid China won’t buy U.S. debt, won’t challenge China on currency and trade. That demonstrates how little Obama and Treasury Secretary Geithner understand about money and trade.

If China doesn’t buy our bonds, all those dollars Beijing purchases to keep its yuan cheap will get stashed in the vaults of the Peoples Bank of China and go out of circulation.

The Federal Reserve simply could print new dollars to purchase the bonds China now buys and U.S. money supply would be restored. The net effect: the Fed gets the interest on the bonds instead of Beijing. That works for me.

The TARP (Troubled Asset Relief Program- - a program of the United States government to purchase assets and equity from financial institutions)  was intended to create an undated version of the Savings and Loan Crisis Resolution Trust, which purchased bad loans and mortgages from banks and ultimately made a profit on properties it acquired as the economy recovered. Wall Street Bankers objected—they wanted to offload their problem loans but keep the profits on properties down the road.

Presidents Bush and Obama gave in to Wall Street, and abused the TARP to bail out General Motors and Chrysler. The Federal Reserve bailed out Wall Street banks with trillions in cheap credit they used to make trades, not new loans, to earn big profits to cover losses on their failed mortgages.

Main Street banks were left to fester, and now more than 120 regional banks have failed.

Small businesses lack customers and won’t hire, because subsidized Chinese products still stuff the shelves at Wal-Mart, and community banks lack funds to lend to worthy enterprises.

Americans spend too much on health care—19 percent of GDP in contrast to 12 percent in Western Europe. High administrative costs, drug prices and malpractice insurance are the principle villains.

Republicans offer little more than torts reform.

Legislation offered by Senate and House Democrats skirt malpractice and drug costs, and would spend another $200 billion annually, funded by higher taxes and health insurance premiums. Spending more is not the hallmark of a program that lowers costs.

Now the Democrats, fearful that unemployment, stagnant wages and their fiscal follies will result in big electoral losses in 2010 are cooking up another stimulus package. They will call it by another name, perhaps a “jobs initiative.” After both the Bush and Obama stimulus packages failed, it has few prospects of creating lasting new jobs.

All this is remindful of bread and circuses in a declining Roman Empire. Those kept the crowds happy while the state was failing.

Like Rome, just before the barbarians, America needs smarter and braver leaders.