Over the past decade, Chinese trade revenues, savings and purchases of US debt increased. Low interest rates encouraged US consumers to spend and housing prices soared. But such imbalances could not be sustained and financial instruments containing mortgages for homes that have lost their value, have proven toxic for the world. Economists and central bankers are still struggling to find a way out of the subprime mortgage crisis. If Japan’s lost decade offers lessons, then deflation must be averted at all costs if there is to be hope for a recovery.. But for the long-run, one magical phrase emerges from experts and that’s “stricter regulations for the banking industry.” Once governments succeed in restoring consumer and investor confidence, they should focus on designing regulations that encourage responsibility and a long-term outlook. Furthermore, policymakers have to recognize the need for global oversight of the banking industry, either by strengthening existing institutions or by creating new international authorities. The timing of the rescue is uncertain, and the certainty of its efficacy remains in question. To put the matter in historical perspective, there is still no consensus on whether government spending policies of Franklin D. Roosevelt or increased demand for goods created by Second World War pulled the United States out of the Great Depression. One certainty for this crisis: there are no localized solutions for a problem that extends throughout the world.

Summit Rhetoric Soars While Economy Sinks

Why leaders should stay home from regional summits – and truly address the world's economic ills
Jeffrey E. Garten
November 3, 2005

US and China: Grappling Over Economic Rescue – Part II

The two nations must first coordinate stimulus plans, then engage in currency diplomacy
Edward Gresser
February 2, 2009

US and China: Grappling Over Economic Rescue – Part I

China’s coupon schemes, aimed at boosting domestic consumer spending, ignite heated debate
Xu Sitao
January 30, 2009

US and China Must Tame Imbalances Together

The two nations must coordinate fiscal and monetary policy to control the crisis they helped create
Michael Pettis
January 6, 2009