There is no cost-free policy mix. Over-tightening and slowing down US growth can have just as bad effects if we don't know what we're doing. The Great Depression is possibly *the* real world example of that sort of error. I'm not fond of a nuclear proliferating remix of the 1930s and 40s.

There is no substitute for figuring out what is really going on and acting accordingly.

Re: Global Imbalances. Eichengreen claims that “only time” will tell which of the four views presented will prove correct, but it's clear his money is on the ol’ fashioned Standard Analysis, i.e., the US economy is headed towards a correction.

And he’s right. Odd, hard-to-explain things have indeed been happening in the US economy this decade and it makes sense economists would try to explain it away somehow, from New Paradigms to the three views covered here. Meanwhile, the 2001 recession wasn’t as hard as it should have been and thus didn’t allow for the economy to “cleanse” itself of bad investments; the economy shifted more than ever to consumption (87% of the economy to date) rather than production; savings are at all-time lows; personal debt at all-time highs. You simply cannot explain that away saying it's a brave new world.

But strict analysis of the numbers doesn’t take into account the reality of the shifting global trading blocs that historically held the US at its center but now have Asia gaining economic muscle, greater purchasing power and representing the true growth markets of the world (the U.S. as “growth stock” is a laughable concept: we are restricting immigration as Baby Boomers with little savings near retirement. No amount of “economic freedom” will make up for our imbalances).

Asia (I mean mostly China) is locking up natural resources with long term deals for copper in Chile, gas from Brazil and Iran, soy in Argentina, etc. With accumulated dollars they are looking to buy gold mines in Canada and oil companies in the US – unloading the greenback before letting it go to hell. That their success has been minimal in actually buying them to date doesn’t mean it isn’t a sound idea or that they’ll give up. Keep an eye out for more of it.

In the end, the US has painted itself into a corner for the sake of deferring pain and has made a series of bad decisions. We have each of us done the same as individuals at some time in our lives, so it isn’t such a crazy thought. But while the US economy is amazingly resilient and monstrously large, our margin for error is now too small for comfort: the main indicators are seriously off-balance, our foreign policy has left us with few friends and there is the wild card of another 911 on our soil. The US will emerge from the next recession again, but will find the terms are new and largely unfavorable to us.

"Never interrupt your enemy while he is making a mistake." Napoleon.

Do the chinese think of the USA as an enemy?

If so, it makes sense they'll give us time.

Let us dig our hole as deep as we can before they start shoveling the dirt down on us.

What is strange on the list of globalization is that there is not Germany, China, Japan, the respectively n°1, n°3, n°4 in World export.
But I know that there is other parameters.