The current discussion of “Secular Stagnation” has generally put disproportionate weight on discussing inadequate investment demand and fiscal stimulus. However, in these discussions two intellectually ungrounded assumptions, or articles of faith, box in mainstream economists:

I. Savings are always beneficial because they allow greater accumulation of capital.
II. Unrestricted international capital movement is always economically efficient and beneficial.

These strong prior beliefs are part of the mental models that may lead economists to reject the conclusions of their own formal models. Awareness of these issues is often implied, but they are rarely addressed directly and not often in policy discussions. Ending counterproductive policies that encourage saving and capital inflows yields better policy prescriptions.

This article explains the contemporary Chinese–American economic relationship as an ironic variant of the classical theory of capitalist imperialism. Communist China is the modern world’s great imperial power (exporter of surplus savings). China exports its savings by undervaluing its own currency and acquiring foreign exchange reserves. As the supplier of foreign exchange reserves, the United States is not merely the colony, but the crown jewel of China’s empire. It absorbs China’s savings and consumes the corresponding surplus Chinese goods. However, unlike the old imperialist system, this relationship can be ended without military rebellion. The US, by controlling access to its financial markets, owns the ‘off switch’ for the Chinese export machine.