ABSTRACT
The economic crisis and its negative consequences clearly indicate a declining trend for the most advanced economies in the world and a declining hegemony for the US. This chapter shows that the recovery from the crisis requires a new policy paradigm and new global governance. It argues that, contrary to the recent austerity policies in the EU and the US, a new level of government involvement is required in order to stabilize aggregate demand and create full employment, with a transparent financial sector, serving the real economy and encouraging productive investments. Today, there is a growing consensus around the idea that the financial crisis of 2007–08 is strongly connected to the global imbalances and the saving glut issues. In 2010, the US economy was affected by three separate $9 trillion debts: the national debt, the corporate debt, and the private mortgage debt. China's share of the US non-oil goods trade deficit has tripled since 2000.
