The Economist advocates Let the dollar drop. Sure, no problem, but what to do about asian economies who, not having learned the proper lessons from the Asian currency crisis, are repeating their mistakes by propping up the dollar and lowering their currencies' relative value?
To my mind, this evokes the idiocy the Japanese perpetrated on themselves by purchasing inflated US assets in the 1980s. Buying up Rockefeller Center looked like a great move back then but six years later they sold it to locals at half the price. So, this time they prop up our currency, give us lots of free stuff in exchange for over-priced debt at record-low yields. And when the bubble breaks and they are holding paper that's lost a great deal of value and the US quickly gets its fiscal house in order, what then? The problem with the bubble wasn't the bubble, per se. We had our own problems with the savings and loan bad debt crisis in the '80s. The problem was essentially a cultural one, an unwillingness to face the shame of failure and just get rid of the consequences of past foolishness. In Japan and the rest of east Asia there are still leftovers of their bubbles. The US has long since moved beyond the S&L failure as debts were settled at a loss and assets liquidated and moved to hands that could turn a profit on them.
But other than making sure that the US economy is supple and can recover from the inevitable snapping of artificial trends what, exactly, is the US supposed to be doing? Its currency is manipulated up, its free trade ideology and international obligations block it from restricting imports. Without increased stimulus, the US economy would today be in a deflationary cycle. And what alternate stimulus is currently available besides deficit spending? We're pretty maxed out on tax cuts. Interest rates are at record lows and inflation is barely 1%. What policy option is left except spending like a drunken sailor and preparing for the downstream consequences as best we can?