The argument for legislative action is tantalizingly simple the US merchandise trade deficit has averaged a record 4.4 of GDP since 2005, with China accounting for fully 35 of the shortfall, supposedly owing to its currency manipulation. The Chinese, insists a broad coalition of politicians, business leaders, and academic economists, must revalue or face sanctions.

Blanchard and his colleagues point out that banks might condition loans to firms on their purchase of recession insurance, which might help credit markets function better, addressing a serious problem underlying the current crisis. Tantalizingly, they say that doing this would create a market based view of future output and the likelihood of severe shocks, although they do not explain how this market would be structured.