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It is clear that this is no ordinary recession....
While an emphasis on reviving banks and an injection of public spending are both important, the trouble is that neither one directly addresses the main source of global deflation, which is that global imbalances are no longer being recycled effectively. Because US households and banks are now bankrupt, the United States has lost much of its capacity to absorb and recycle foreign trade surpluses. That, in a nutshell, is the driving force behind the global deflationary trend.
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... this would involve figuring out a way to draw a wedge between the global dollars accumulated in foreign reserves and the domestic dollars that the US will be creating at a much faster clip. That way, the world economy can reinflate at the same time, since everyone would be able to devalue in relation to a stable monetary standard....
The real question is whether there will be the political will to carry out these proposals. Will the United States have the wisdom to decouple the world economy from the dollar?
