By MARK LANDLER
WASHINGTON


IN MARCH 2005, a Princeton University economist who had become a Federal Reserve governor came up with a novel theory to explain the growing tendency of Americans to borrow from foreigners, particularly the Chinese, to finance their heavy spending.

The problem, he said, was not that Americans spend too much, but that foreigners save too much. The Chinese have piled up so much excess savings that they lend money to the United States at low rates, underwriting American consumption.

This colossal credit cycle could not last forever, he said. But in a global economy, the transfer of Chinese money to America was a market phenomenon that would take years, even a decade, to work itself out. For now, he said,“we probably have little choice except to be patient.”Today, the dependence of the United States on Chinese money looks less benign. And the economist who proposed the theory, Ben S.Bernanke, is dealing with the consequences, having been promoted to chairman of the Federal Reserve in 2006, as these cross-border money flows were reaching stratospheric levels.

In the past decade, China invested upward of $1 trillion, mostly earnings from manufacturing exports, into American government bonds and governmentbacked mortgage debt. That lowered interest rates and helped fuel a historic consumption binge and housing bubble in the United States.

“This was a blinking red light,”said Kenneth S.Rogoff, a professor of economics at Harvard University and a former chief economist at the International Monetary Fund.“We should have reacted to it.”

In hindsight, many economists say, the United States should have recognized that borrowing from abroad for consumption and deficit spending at home was not a formula for economic success. Even as that weakness is becoming more widely recognized, however, the United States is likely to be more addicted than ever to foreign creditors to finance record government spending to revive the broken economy.

Today, with the wreckage around him, Mr.Bernanke said he regretted that more was not done to regulate financial institutions and mortgage providers, which might have prevented the flood of investment, including that from China, from being so badly used.

“Achieving a better balance of international capital flows early on could have significantly reduced the risks to the financial system,” Mr.Bernanke said in an interview in his office overlooking the Washington Mall.

“However,”he continued,“this could only have been done through international cooperation, not by the United States alone.”

By itself, money from China is not a bad thing. As American officials like to note, it speaks to the attractiveness of the United States as a destination for foreign investment. In the 19th century, the United States built its railroads with capital borrowed from the British.

In the past decade, China arguably enabled an American boom. But Americans did not use the lower-cost money afforded by Chinese investment to build a 21st-century equivalent of the railroads. Instead, the government engaged in a costly war in Iraq, and consumers used loose credit to buy sport utility vehicles and larger homes.

Banks and investors, eagerly seeking higher interest rates in this easy-money environment, created risky new securities like collateralized debt obligations.

“Nobody wanted to get off this drug,”said Senator Lindsey Graham, the South Carolina Republican who pushed legislation to punish China by imposing stiff tariffs.“Their drug was an endless line of customers for made-in-China products. Our drug was the Chinese products and cash.”