This line from TIME Magazine just made me laugh out loud because it paints the picture in the US so well.

Quote :

"People say to me, 'I don't like the Democrats because I don't know what they stand for .... I tell them, 'I hate the Republicans because I know exactly what they stand for.' "

Jokes aside, TIME Magazine also featured an interview with Wen Jia Bao this week.

Reading the preamble and the interview contents, two things came to mind.

1) Nobody wants to admit that possibly this time round, fiscal and monetary policy may not get us anywhere, and that the US is in for a long deep and painful period. The furore over whether to extend tax cuts, how to bring the deficit under control and how to get China to appreciate its currency seems to be about creating that smoke and dust to obscure the above notion. There's good reason for not wanting to admit it. We want to avoid self-fulfilling prophecies and further depressing the economy.

But it seems that a big problem of the US economy is structural. Bernard et al. find that very few US firms export (about 4% of 5.5 million firms) and that most manufacturing firms in the US are domestically oriented. Given the shortfall in US consumer demand (and its likelihood to stay that way with the weakness in the housing market and poor household balance sheets) , its no wonder that the recovery is tepid if the US can't really rely on other sources of demand (read exports) to prop up its failing economy.

2) Getting China to appreciate its currency is no panacea. I'm not arguing that China's currency isn't undervalued, but this is related to my earlier point of the US not being able to rely on export demand to prop up its economy. Exporting involves some amount of fixed cost. You need to develop contractual relationships with suppliers, markets overseas in order to be able to export your product. Being so domestically oriented suggests that many US firms may not have the same contractual relationships or market access needed to sell their goods abroad. If market access is due to the closed nature of some countries to foreign firms, then by all means please pursue a policy to open up those barriers. the currency revaluation isn't going to do that.

Then again, I have my own slant on things since this is somewhat related to the area in which I hope to focus my research in. But it does seem that fragility in the US economy is here to stay for some time longer. Even if no one really wants it.