"Seven Unsustainable Processes: Medium-Term Prospects and Policies for the United States and the World"

Abstract

The purpose of the paper is not to make short-term predictions about the life expectancy of the current economic expansion in the United States, but to determine if the present stance of fiscal and trade policy is appropriate looking to the medium turn. The expansion has been generated by economic processes that are unsustainable--processes in private saving, private borrowing, and asset prices that have fueled the growth of demand against a negative impetus both from fiscal policy and from net export demand. Given unchanged fiscal policy and the consensus forecast for growth in the rest of the world, continued expansion requires that private expenditure continue to expand relative to income on a record and growing scale, and it seems impossible that this source of growth can be forthcoming indefinitely, although it may well continue into next year. When private demand falters, it will be necessary to bring about a substantial relaxation of fiscal policy and to ensure that there is a structural improvement in the United States's balance of payments.