Early this year, the US government printed an extra trillion dollars. This operation is called quantitative easing. Similar to the stimulus program, it pumped money into the society in hope for coaxing the economy to bounce back. The side effects are well-understood: inflation and currency depreciation — the very thing the US accused of China doing.
Dr. Paul Krugman argued that the US has the right to do it, but China not. In fact, the US just started the second round, called QE2, for $600 billions more. QE1 and QE2 pushed interest rate to virtually zero and rendered Obama’s G20 trip fruitless. No one knows if it will actually stimulate the economy.
What the US economy needs is productivity boost. Stimulus monies simply flow out to other countries, mainly China, and make the problem worse. Look at the productivity: how much does it cost to make an airplane, car, MP3 player, shirt, shoes, software, computer, movie, potato, wine, soy bean, whatever? How about service productivity: accounting, legal, marketing, advertising, business consultation, or simply foods?
Whatever it is, Americans need to do it better, cheaper, or both. Otherwise, its economy will continue to weaken until it becomes a colonial society that relies only on its natural resources. Since 2008, the US did $700 billions of stimulus money and $1.6 trillions of QEs. That’s $2.1 trillions in total. It is sad that so little has gone into projects that will fundamentally improve Americans’ productivity, such as infra-structure, education, or streamlining governmental services.
In late 1800s, China was the biggest economy in the world but a weak one in term of productivity. Western countries came and devoured China and set the country back for 150 years. This happened many times in the history, just that most civilizations never recovered.