The American problem this time has more in common, at least qualitatively, with the Japanese post-bubble problem, where the issue was not reassuring foreigners but maintaining sufficient domestic demand forward to push the economy.
Generating sufficient economic demand is somewhat problematic if the U.S. is going to be a less leveraged economy, even though Bernanke has said that he would like to see people get back to spending by using the take-out from refinanced mortgages -- and current low interest rates should help that along. Isn't this how the whole mess got started? If the personal saving rate goes back to zero once job growth returns then policy has saved the day but not the economy.
Say what you want about Summers, and many have, but he is not stupid and so he goes on to outline the economy to emerge -
This new American economy, Summers hopes, will be “more export-oriented” and “less consumption-oriented”; “more environmentally oriented” and “less energy-production-oriented”; “more bio- and software- and civil-engineering-oriented and less financial-engineering-oriented”; and, finally, “more middle-class-oriented” and “less oriented to income growth that is disproportionate towards a very small share of the population”. Unlike many other economists, Summers does not believe that lower growth is the inevitable price of this economic paradigm shift.
How do you suppose all this is going to happen? Summers then says so --
As Summers puts it, “The global imbalances have to add up to zero and so, if the US is going to be less the consumer importer of last resort, then other countries are going to need to be in different positions as well.” On this possibility, Summers is bullish. “The very great enthusiasm for accumulating reserves that one saw globally is likely to be a smaller factor over the next decade than it has been in recent years,” he predicts.Putting 2 and 2 together he is saying that China, Japan, and the like will not run their export machines by flooding the world with their currencies in order to keep the dollar up so American consumers will buy their productive overcapacity. That game is over. Obama likely told that to the Chinese in his private meeting with the premier in London earlier this year and now he is telling us. The dollar will weaken against our trade deficit partners to the betterment of creating a more balance growth path in the U.S. This isn't about national pride in the currency, this is about leveling the playing field -- at last.