Balancing unbalances: is expanding public expenditure the answer to the slowdown and the financial crisis?

It is a major consensus among economists -along all the political spectrum- that bubbles are caused by an excess in supply of available funds for lending. Maybe it is time to look closer into those causes of the latter. One natural place to look at is China's current account surplus. Let's not forget that this implies that China must allocate great amounts of savings. Let us assume that Chinese savings are use to buy US Treasuries, the latter makes US bond's prices go up and the benchmark interest rate go down.

Thus, we have a recipe for a bubble. Going deeper, it is a pervasive cycle, though a plausible one, to conclude that increases of the US' borrowings caused evermore borrowing. It is now clear to everyone that the latter is unsustainable.

Let us look now into the proposed solutions to the current economic slowdown and financial crisis. They're founded in either tax rebates or debt increases... both policies imply a further increase of US' borrowings. It is troublesome to argue that in the long run, expanding public spending is a key element to go back to a sustained growth path.

However, there is a great difficulty to find an alternative to the latter. It is clear that the existing unbalance of US' borrowings will only grow further and that there still exists a great amount of resources available for lending, particularly in the BRIC's economies. US citicens will have to honor their debt, although the Treasury department can go along with the FED printing money, they should start thinking how to balance the capital account deficit.