Despite that face that the US is in a demand-side crisis there is little effort to implement a demand-side solution.
QE depends on trickle-down. It puts trillions of dollars of cash in the hands of the same people who already have trillions of dollars and are not investing it. It doesn't trickle down which is why it has no effect on unemployment or growth.
Where did the Fed get the ida that QE was anything more than another supply-side solution failed because there is no trickle-down?
Dr. Summers is expressing the fear that failure to achieve trade balance in the midst of international competition will destabilize the national economy and lead to international political instability.
Larry's statement that,"Virtually the only proposition on which international economists agree is that the sum of all trade balances must equal zero" is the ultimate sarcasm (since it cannot mathematically be other).
The US grew at 2% in 2012 and corporate profits were 12% - a disparity that put Americans another 10% of their GDP into debt.
Wishful thinking and more meetings with officials with other countries will not resolve the national dilemma.
Gordon only missed one point - that for inert money to invest itself in growth requires the prospect of profit with reasonable risk - and the only place that exists is Asia.
How will the West encourage trillions of dollars on the sidelines to invest in Western growth? Western governments can no longer afford to subsidize profits in the West. The US experienced 2% growth in 2012 with a profit rate of 12% - which means that 10% of corporate profit was subsidized by US Government and US consumer debt. The accumulated debt prohibits further government subsidization of profits.
Is Prime Minister Gordon suggesting something other than capitalist profit maximization as the cure for world financial ills?
Debt due to debt leveraging is performed to increase corporate profits at the expense of lowering the profit margin (ROI). The macro effect if all corporations do this is that it is the gross reduction in profit margin.
The short term effect of debt leveraging is that it increases profits for those that get in on the beginning of the trend but the long term effect is that it drives up the risk to reward ratio of investment.
Eventually, the risk of investment drives up the cost of capital, which drives down ROI that is already marginal, and the capitalist system collapses.
We must precisely distinguish between debt due to debt leveraging by productive businesses and consumer debt. The cause of consumer debt is that wages are too low to buy the results of production, creating a situation in which [excess] profits beyond what businesses reinvest to increase production (which creates growth) are necessarily lent to consumers to so they may buy the total results of production.
Such consumer loans, though they are funded by what businesses call profits, are really nothing more than funds held back from wages then loaned to consumers to buy excess production to maintain the condition wherein supply equals demand.
The huge accumulation of consumer debt means that excess profits have been accumulating in large amounts, and been lent to consumers over a very long time to buy excess production beyond what their wages can afford.
Keynesian redistribution can solve this problem after the fact, but we can now see the political crisis it creates. The spats over redistribution of wealth have now created a political crisis in Europe and America.
Better yet would that the watchman had cried out long before the accumulation of excess profits lent out as consumer debt got so large that we incur a political crisis necessating huge redistributions of wealth that make Keynesian policies appear radical.