If the United States's balance of trade does not improve, the country could eventually find itself in a "debt trap," the author says. The aim of this paper, the second in a series offering Godley's strategic analysis, is to display what seems reasonably likely to happen if world output recovers...

In 1998 the volume of U.S. private spending rose by almost twice the increase in disposable income. The impact of this excess private spending financed by increased net borrowing has been profound; without it, the economy would have stagnated. Can this pattern of demand growth continue? The...