Crisis Economics (Roubini/Mihm)

This is an excerpt from the 2010 book
Crisis Economics: A Crash Course in the Future of Finance
by Noriel Roubini and Stephen Mihm.
The emphasis is added.

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Chapter 10
Fault Lines

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Section 10.4
Dangers and Dilemmas

[10.4.11]
As of 2010,
China and the United States remain locked in
what economist Lawrence Summers has described as
a “balance of financial terror.”
Neither side can make a move without upsetting that balance.
China can’t stop buying U.S. debt
or its biggest market will collapse.
Conversely,
the United States can’t throw up protectionist barriers,
or China will stop financing its profligate ways.

[The solution:
Throw up protectionist barriers and restore the American budget to fiscal rectitude!]

[10.4.12]
To get out of this bind,
both countries need to take simultaneous steps
to bring their current accounts into some semblance of equilibrium.
The United States must tackle its twin savings deficits:
its ballooning federal budget deficit and its low level of private savings.
As its first step on its path to redemption,
it will have to repeal the misguided tax cuts
that the Bush administration pushed through earlier in the decade.
If Americans think they can enjoy European-style social spending—
universal health care, for example—
while maintaining low tax rates, they are wrong.
It won’t work, and betting that the Chinese will forever foot the bill
is wishful thinking.

[Actually, it seems to me to make more sense
to repeal those Bush tax cuts
as part of a deal which also produces
fiscally equivalent savings in entitlements.
To restore fiscal balance and sanity,
both the income side and the spending side must be adjusted.
Besides, that’s fairer.]