Click on the title to this post and read Bill Poole's take on our twin deficits.
Rather optimistic in Econo-Girl's eyes. He cites 'sound' policy as a way for the US to get out of its Federal deficit and trade deficit. Limit inflation, he argues. Take a sensible approach to long-term solvency in the Federal budget.
To limit inflation, the Fed will raise interest rates. That will put a cap on consumer spending as the costs of paying off credit cards will go up. That in turn will limit the growth of our economy, since there is less money to spend. And that, my dear ducklings, is what is called a 'recession.'
Note to Poole: Are you saying that years of sensible policies will erase the damage from years of insensible ones?