This paper argues that the subprime financial crisis reflects weak-ness in the real economy of the US from its start. Our comparison with prior US recessions indicates that the epicenters of most of the reces-sions were in the financial sector and that recessionary pressure was present in the last quarter of 2007 in the US economy. The high level of nation's debts combined with a high rate of inflation show a difficult situation US policy makers face. At an international scene, there would be trade-off between protectionist policy measures and the US's role as a global sheriff. Effects of US policy measures, either monetary or fiscal, would be short-living, while more fundamental changes to create pro-ductivity gains would be the right policy for recovery of the US econ-omy. (The rest is omitted.)

Executive Summary

I. Introduction

II. Origin of Subprime Crisis: Weakness in Real Economy

III. A Historical Perspective

IV. US Policy Choices

V. How Would the US Respond to Policy Shocks?

VI. Concluding Remarks

References