There are two possible interpretations of U.S. Treasury Secretary Henry Paulson's recent comments about the US economy. Neither of them are reassuring. Either Paulson is crapping himself with fear but trying to hide it or he is just plain complacent.

On a visit to Lima, Peru, Paulson said that he is comfortable with the level of foreign holdings of U.S. Treasury securities, including China's sizeable holdings. Paulson added that China's total holdings represented "less than one-day's trading volume in U.S. Treasury securities." However, Paulson is comparing apples with oranges. Trading volumes is a flow, whereas China's holdings of securities is a stock.

Paulson also touched on the macroeconomic outlook for the U.S. He felt the U.S. economy was going to successfully transition from an unsustainable rate of growth to a sustainable level. Ever the optimist, Paulson believes that "we have a healthy economy in the U.S."

Back here in America, the subprime market doesn't look too healthy, nor does massive current account deficit. Inflation shows little sign of abating, while the growth appears to be slowing.

Complacency or fear? Paulson knows what is going on and he is afraid.