"The most important source of American growth has been a Federal Reserve policy of low interest rates and easy credit; this has fostered an enormous expansion of borrowing by households and by state and local governments for capital projects. This has proved successful so far, particularly when compared to stagnation in Europe. But we now fear for the sustainability of a boom built on these grounds. Consumer debt is now more than 20 percent above its previous peak as a share of disposable income. The U.S. trade deficit has soared. And the U.S. stock market has risen to price-earnings ratios that are more than twice their historic average. No one can say how or when these trends may be reversed, but they are clearly dangerous, and they suggest that further American growth may well require a stronger, not weaker, presence of government in the U.S. economy."
Maybe I don't get the point because I'm not a professional economist.
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mbs: Maybe I can translate. The point of the graph above is that U.S. economic growth cannot continue to rely on consumer spending, since there are imminent limits to household borrowing to finance consumption. A reference here is Wynne Godley's "Seven Unsustainable Processes", from the Levy Institute. An alternative to household consumption spending is public deficit spending. As things stand in the U.S., there is ample room for such a switch, in light of projected Federal budget surpluses. Such a switch is less feasible in some countries than in others, depending on their debt and deficit profiles, among other factors.
HK:
But if the conclusion of the statement ("positive features of U.S. policy")
is wrong, then perhaps the underlying analysis of both the economy and the
economic policy is not sufficient - neither for the U.S. nor for Germany.
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However you evaluate current U.S. policy (IMO, it stinks), the prescription of fiscal and monetary expansion for the EU seems pretty safe, as far as it goes.
To some extent this emphasis by some people in the U.S. is prompted by a perceived attraction of some lefts in Europe for Blairism/Clintonism. EPI, at least, has done its best to expose the reality of U.S. labor markets, once you get past the unemployment rates. You are quite right, in my view, that there is little to emulate in U.S. policy for the past 15 years, with an important exception. U.S. monetary policy has served U.S. workers better, RELATIVELY SPEAKING, than has European policy served European workers. I would not explain this by claiming U.S. monetary policy is 'worker-friendly' by intention. To some extent it is prompted by fear of a bursting bubble. I don't claim any expertise in this subject, only some dim familiarity with the minds of those who wrote the statement.
mbs