Glen, I believe this crisis and soft or hard depression will pass the baton to China. China has enormous domestic potential that has been kept back by China’s “Global Power” strategic initiatives that have been in play for well over a decade.
Unlike Japan, who caved in to US pressure (Plaza Accord)(which then created the asian boom/bust of the 90’s and subsequent dollar pegging), China is planning to be #1 and is constantly juggling it’s policies to reach its objectives.

The commodity collapse supplies the energy for their domestic expansion.

Agreed, as long as we don’t forget to include the Fed and treasury in the financial sector!

“Third, and perhaps most important, we need to co-ordinate the policy response at global level, since this is a global crisis with many global spillovers.”

His most important policy suggestion is the most unrealistic. The three or four largest European economies can’t even agree and we are to believe that we can co-ordinate the policy response at a global level? This is the kind of hubris that got us into this crisis.

consumption will fall but let’s not forget that the current account hasd two sides importans and exports. You assume one will fall disproportionately to the other. Not a safe assumption. Also, by definition the current account deficit has to be offset by a capital account surplus. Your statement that the ROW has o where else to go is arrogant and shortsided. One only has to go back to early 20th century Britian to read similiar sentiments. While the GS designated BRICs are sure to dissapoint the lofty expectations – China is probably already in the low singles – the US has arguably the bigger challenge: to try and preserve a hollowed out economy at a totally unusustainable level. While Krugman andhis ilk belive that subsitution is the approach (and inflation) it papers over the reality that the US economy is realisticlly a shadow of itself. Count on it that the rest of the world has done the math and arrived at the same conclusion. Making relative arguments is the last bastion of the scoundrel. Ironic isn’t it: wall street jettisoned as insufficient relative arguments with the growth of absolute return alternative investing. Now the economic scoundrels drag out the discarded laundry to to bolster their flimsy arguments. I do not argue that the US is without options, but exercising those options will haveequally draconian ramifications. At this point, it is not beyond the realm of of possibilities that the governement is activily wishing and working toward a “market driven” devaluation. The outcome here ois fortold, it is just a question of how we get there.

I think China will evolve faster than many think. They have the benefit of a looking glass into the history of the Western/Eastern Markets and now are making real progress with Taiwan. Imagine those two healing old wounds and coming together, if only in economic partnership. Now plop Russia on top as they are in bad need of friends and China and them go way back.

Consumer spending is a dry lake and the Governments attempts at rain making will require clouds to form first, no cloud, no seeding it. All I see is people trying to survive or pay off large debit, before they spend on any thing but the necessity’s. Case in point. Just got back from Noosa Bch Qld for family holiday, out of the 20 people their. All lost 40% to 60% of their net worth/retirement portfolios, for half it was a large amount of money. All are down sizing by 3/4, selling hard assets and stocks except the blue chips. One who is in the mining equipment business is selling their historically listed massive house, located intercity (rarity/established long term value) and looking for a average home to live in.

So try as they may (Governments/Markets). I see no return to significant consumer spending till individual debit is paid off, not just down. This may take awhile as wages will go down and job losses mount.

skippy, the happy one.

The IMF said the current crisis will last for several more quarters and countries need to act aggressively to reduce the “perceived probability of another ‘Great Depression.’”

http://www.reuters.com/article/bondsNews/idUSN2931033320081229

Well isn’t that special the maria arm of the US government pleading for countries around the world to bailout the sad ass greedy bankers who caused the problem by saddling their citizens under a mountain of debt. Screw’em

The ROW has non better place to go. And even if it did, I still think that reducing by 400 BN the US current Account (by reducing consumption by 3 – 4 %) is much easier then being left with 10 – 15% of GDO of eccess production as in the case of Japan and Germany.