The world economy is in turmoil. If recession and depression are caused mainly by one of the following factors, that is ①redundancy of goods (over-production or lack of consumption, ②redundancy of money or ③hollowing-out of industry with a loss of jobs, the turmoil now was triggered by the redundancy of money, but its deep background is the hollowing-out of industry (in the U.S. inter alia).

After the Great Depression in 1929, which was largely caused by the low interest rate policy at that time, the World War Ⅱ brought the U.S. economy to the top of the world. In late 1960s, however, industrial production moved to Japan en masse, turning the latter to the second largest economy in the world and hollowing out the U.S. economy. Jobs were lost. What is more, the Vietnamese War exacerbated the U.S. trade deficit, and thus the dollar was finally devalued in 1971. And this gave birth to the notorious "stagflation", recession and inflation simultaneously. The recession was caused by the hollowing-out of the industry and the inflation was probably generated by the constantly expanding monetary base and the constantly decreasing dollar's value, which became apparent after Nixon disconnected the dollar from the value of the gold in 1971.

Many attempts were made to get out of this trap: trade negotiations with Japan, Carter's appeal to Japan and Germany to boost their economy and the Reaganomics (corporate-tax reduction and increased public spending). The most successful was the Plaza agreement in 1985, which realized depreciation of the dollar by half vis-à-vis the Japanese yen. The sum of the U.S. export skyrocketed, almost doubling in the following five years. With a large influx of immigrants in early 1990s this gave a significant push to the GDP growth during Clinton's administration.

But the 1990s were also the time when the volume of money became excessive. The development of techniques in securitization of bank credits made it possible for them to lend money in a far larger amount. The partial repeal of the Glass-Steagall Act in 1999 (banks were allowed to invest their huge assets in risky financial instruments) brought about periodical financial bubbles and their bursts. The interval between cycles has become shorter and shorter, as if it were the death pang of the capitalism: 2001, 2007~ 2008 and 2011.

After the global financial crisis in 2008 people may have finally realized (I only hope) that money cannot be and should not be created from money. But the underlying factor, the stagflation, which was long hidden by the semblance of prosperity largely based on money transaction, again came to the fore.

Therefore, probably it is now the time to address the core of the question: how to overcome the stagflation by healthy (I mean money-making on money is not healthy and does not correspond to the founding spirit of the U.S.) measures. The U.S. economy still keeps its vigor; demand and consumption are strong (in Japan the dwindling population does not warrant it), technology and working ethic is at a high level and the financial system to feed the business is more than developed.

So, the recipe is rather simple (politically, though, very difficult).
First, excessive speculation should be held in check. The volume of money should be more firmly tied to the volume of commodities and (non-speculative) services.

Second, bring back some of manufacturing industries to the United States. The wage level in China has grown so much that production in the U.S. will pay off, if the labor union restrain itself. Modern automated production facility may not create many jobs, but a new factory gives stimulus to local business and generates tax revenue to local governments. Indeed, Volkswagen of Germany lately drastically enlarged its production in Chattanooga Tennessee, and Japanese Kobelco steel company, Honda Automobiles (this time small jet airplane) Amada(machine tool) and many others are poised to build new factories in the U.S. American firms may well call back (part of) their production from abroad.

Third, a bit of consumption stimulus package may be useful. The huge disparity of incomes in the U.S. is one of the reasons of the shortage of consumption. The savings of the rich (0.1% of the population possess about 10% of GDP) should be pumped into sound production and construction and not to speculation. A Keynesian policy coupled with re-industrialization will work. A simple reduction of the government expenditure will only bring contraction of the economy and further loss of jobs. The deficit problem can be solved by an economic growth in a way which serves interest of all.

In a word what is needed is a steady economic development based upon real demand and production. Moderateness is needed on the part of the financial sector.

The American values take roots in the industry--industriousness. Modest diligence and professional skills are the reasons why we abroad respect the U.S. and welcome its presence.