However, if the credit rating of the government plunges and interest rates have to be raised to fund further debt financed fiscal expansion, the banks will be sitting on top of less valuable bonds, along with all those non performing assets. There may still may be a desperate need to recapitalize Japanese banks in the future, and this will trigger off the sale of US T bills and other instruments. The US ability to serve as countercyclical source of demand will be threatend, but there won't be a resort to deficit financing after the 1990s experience which seems to show (at least to Brad deLong) that investment and growth are best generated by fiscal conservatism. The 90s have sure reinvigorated the Treasury View.
All odds are still on for a global depression, triggered by Japanese banking crisis or US destruction of international money or shortage of exploitable labor as expansion into China fails. Or something. All these problems are recognized by the authors of Dow 36,000/40,000/100,000. It really does not depend on what a ultra leftist wants.
Yours, Rakesh