You know we’ve got problems when Barbra Streisand and Herbie Hancock understand the global economy better than John Boehner and Harry Reid.

Singer Streisand and jazz great Hancock were on hand for the Chinese president’s White House dinner last week, while House Speaker Boehner, Majority Leader Reid and Senate Republican leader Mitch McConnell wimped out and stayed away.

Lawmakers are right to object to China’s human-rights record, undervalued currency, disregard for intellectual-property laws and coddling of North Korea and Sudan. But blowing off a state dinner to placate the Tea Party crowd? That’s a little too high school for comfort and very short-sighted.

Like it or not, China is booming. It grew 10.3 percent in 2010, while U.S. unemployment spent the year uncomfortably close to 10 percent. China’s currency reserves rocketed to $2.8 trillion, which is greater than France’s annual gross domestic product.

Yet China isn’t becoming less dependent on exports. Its reserves buildup shows the yuan remains undervalued, fanning inflation risks. Americans are still flooding the world with dollars and consuming more than they produce. Markets wonder how debt-laden European nations can cope with a currency beyond their control.

Rather than fix these festering imbalances, leaders are playing a game of global musical chairs. They are tiptoeing around a shrinking number of seats, hoping to find one when the music stops. There won’t be enough to go around. Will the U.S. bond market be left standing and in turmoil? Or bonds in Japan, which has the largest debt among industrialized nations? What about Europe, where hedge funds are placing bets on which economy will crash next? Whither Chinese inflation?

Almost all solutions to what ails the world run through Washington and Beijing. The financial tug of war between the U.S. and China is a key reason why the euro and yen are stronger than officials would like. The U.S. and China are critical to progress on everything from climate change to Iran’s nuclear ambitions.

Blaming China is good domestic politics, but bad economics. It won’t create U.S. jobs. Only bold efforts to make the U.S. more vibrant will do that.

It’s hard to miss how U.S. lawmakers are choosing willful ignorance of a rapid shift in the world economic order. Obama’s economic stimulus, along with predecessor George W. Bush’s bank bailout, saved capitalism. Now, China is taking things a big step further by becoming the global economy’s sugar daddy. The implications of that are only now coming into focus.

The future is one in which cash-rich authoritarian governments ― be they in China or Gulf states ― have huge leverage over free-market democracies. Increasingly, the size of their bond holdings will work their way into geopolitics.

One gets all nostalgic for a time when bond gurus like Bill Gross of Pacific Investment Management Co. mattered. That was before China amassed its foreign currency arsenal. China’s reserves will hit $3 trillion before long and are on the way to $4 trillion. China’s economy may well crash in the years ahead, as many emerging ones do. Yet if money is power, that’s a whole lot of influence.

It scarcely matters whether Pimco, which runs the world’s biggest bond fund, is a buyer of sovereign debt issued by Greece, Ireland or Portugal. Not when China’s deep pockets are on the case. China’s plans, for example, to buy billions of dollars of Spanish debt calmed nerves all around the euro zone.

China wants to buy some time for Europe, a vital export market. Yet further Chinese debt purchases have consequences. What if China saw its massive sway over bond yields as a way to blunt America’s support for Taiwan? What if China saw debt as a means of prodding the European Union to end arms-sales embargoes?

If this sounds like a reach, consider Hillary Clinton’s maiden trip to Beijing as Secretary of State in February 2009. She shelved human-rights issues in favor of talking up debt. The longer we avoid addressing these imbalances, the bigger they will get. The more the U.S. ups spending or cuts taxes the more money it owes China. That means more leverage for China.

Lawmakers can skip dinner with China’s leader, yet they can’t shirk their responsibility to put the world on a more sustainable path. That means dealing with Asia’s fast-emerging superpower. If entertainers can see that, why can’t Congress?

By William Pesek

William Pesek is a Bloomberg News columnist. The opinions expressed are his own. ― Ed.

(Bloomberg)