An interesting article was published in the Financial Times on May 5th. Titled If China Loses Faith the Dollar will Collapse, written by Mr. Andy Xie, an economist in Shanghai, the article clearly points to the next phase of the global financial crisis.

In many ways the US and China are the main actors in the developing financial crunch. The US, through its trade and budget deficits, has pumped huge amounts of dollars into the global system.

According to the current Wall Street consensus, the recession is over. The stock market is rallying, bank profits are up, confidence has returned and renewed growth is just around the corner.

The real economy, however, is lagging behind. Again, the consensus here is that the economic contraction is bottoming out and that the next quarter will be positive.

Keynesian economic theory states that, in case of recession, the government must jack up spending to compensate for the weakness of the economy. Under that assumption, any and all government spending makes a positive contribution and constitutes an economic stimulus.

In fact, such interventions fall into several categories, each of which has different effects.