History provides a handful of success stories when it comes to repairing severely damaged public finances. In the early 1990s, Belgium’s debt hit 137% of its GDP, and it faced the prospect of not qualifying for euro zone entry. It cut spending and raised taxes to hit its target. Canada faced a similarly daunting task in the 1990s, exacerbated by the Mexican peso crisis, which sent the Canadian dollar tumbling.
US policy makers have options for tackling longer-term fiscal issues without too much pain, such as raising the retirement age to 67 and they must invest more in research and higher education, said Sharyn O’Halloran, a professor at Columbia University.
“If you are not investing wisely in your infrastructure and your people you are undermining your ability to compete globally,” she said. “We still have the most creative computer technology. You still have Googles and Apples in the US rather than elsewhere.”
The best hope for Asia’s sustained growth lies within Asia itself. Household income is rising in emerging markets, creating a burgeoning middle class that can consume at least some of the goods the United States or Europe no longer want. Emerging Asia has only begun to tap its potential. China showed this off in 2008, when it quickly ramped up a large stimulus program to counter the global recession, said Pieter Bottelier, a professor of China studies at Johns Hopkins’ School of Advanced International Studies. Not only did its economy come roaring back, it was credited with helping to restore global growth.