The result, obviously, is an accelerating inflation we already have, and a Fed that is hopelessly behind the curve with respect to its mandate of price stability.
All that is now a perfect setup for soaring trade deficits. With the domestic demand picking up to an annual rate of 3 percent in the first quarter, from 2.1 percent a year earlier, and import demand growing 1.5 percent for every 1 percent increase in domestic spending, there is no way Washington can stop a very serious deterioration of U.S. external accounts in the months ahead.
America's worsening trade picture will inevitably lead to increasing political tensions and military standoffs with some of its main trade partners.
Trade negotiations with Mexico and Canada, which accounted for 11 percent of the U.S. total trade deficit in the first quarter of this year, are still going on, with conflicting statements regarding the prospects of a satisfactory agreement.
Trade issues with the European Union, another 19 percent of the U.S. trade gap, have been further complicated by Washington's exit from Iran's nuclear agreement, and threats that any foreign company doing business with Iran will be liable for U.S. sanctions.
The EU is now activating legal instruments to block America's extraterritorial reach that will inevitably lead to political and security clashes, and a serious damage to trans-Atlantic relations. On top of that, the EU Commission is filing complaints with the World Trade Organization to warn that it will retaliate against the U.S. import tariffs on steel and aluminum.
The worst trade problems are with China, which currently accounts for 45 percent of America's trade deficit. In the first quarter of this year, that deficit showed an annual increase of 15.3 percent.
A reported trade agreement reached last week in Washington was greeted with a terse statement by the Chinese government, essentially saying that a time bomb of the trade war has been deactivated, apparently for the time being, and that "the two sides will enhance their trade cooperation in such areas as energy, agriculture products, health care, high-tech products and finance."
But Beijing is warning that "it takes time to resolve the structural problems in the bilateral economic and trade ties." Read: No hype, China will do that in its own way and in its own time.
Emphasizing that "the Chinese market will be highly competitive," and that "China is ready to buy goods not only from the United States but also from around the world," Beijing is announcing the arrival next Thursday of the German Chancellor Angela Merkel. That will be her 11th visit to China to talk trade with a country to which German exports last year soared 13 percent, against an increase of only 4.4 percent to the U.S.