Only weeks after the US elections and the Chinese Communist party’s Congress, America is regaining its former primacy in the world economy. Why? Because the US has tackled the imbalances that lie beneath the 2007-08 crisis, whereas China’s exit from recession has reinforced them, internalising its excessive savings rate.
America’s two big imbalances at the start of the crisis in 2007 were unaffordable household debt and a persistently excessive real exchange rate. When the first of these precipitated the crisis, and China’s downward manipulation of its currency prevented a proper cure for the second, the halting US recovery required a third imbalance: huge government deficits that ensured a soaring ratio of public debt to gross domestic product. China will suffer for not tackling imbalances – FT.com.