If the world is to have a decent economic recovery, an upturn will depend on America getting off its back and continuing to fulfill its role as global importer of last resort. No other country is capable of picking up the slack if America's economy remains soft. There is some optimism about Japan getting on its feet again, but over the past, vastly disappointing, decade, too many pseudo-recoveries have been glimpsed in Japan to justify such hopes.
Europe also seems likely to disappoint. Projections of European growth continue to decline, yet the outlook for government policy is for reduced spending and increased taxes as the fiscal stability and growth pact bites. Moreover, the European Central Bank appears helpless because it is bound by the self-imposed fetters of its inflation target. Nor are emerging markets yet large enough to play a meaningful role in the balance of total global demand.
So America remains the world economy's last best hope. But this is worrisome for two reasons. First, America cannot run enormous (and growing!) current-account deficits forever: at some point the desire of foreign investors to hold ever-increasing shares of their wealth in America must wane and then reverse. When that happens, the dollar will fall and the stimulus provided to the world by America's demand for imports will come to an end.