Meanwhile, the profitable core of finance -- investment banking -- is shrinking. Burdensome regulations are a problem, but many clients ranging from municipalities to wealth managers to foreign governments burnt by Wall Street schemes and securities are now less interested in what the likes of Goldman Sachs ( GS) and J.P. Morgan Chase ( JPM) have to sell.

To save European governments, several trillion dollars in sovereign debt must be written down. Beyond lacking a plan to equitably distribute the loss, Germany and other stronger states have not come to terms with the fact that market reforms are not enough. They cannot continue to pursue export-oriented growth strategies and trade surpluses if southern Europe is to create jobs and grow without running up trillions in new debt.

China holds the West and its own future hostage. Export-driven growth runs to ground when customers can no longer finance their purchases and trade deficits. Borrowing and printing money in the United States and Europe on the scale necessary to keep the Middle Kingdom producing and exporting is no longer possible.

China must slow down because it is too late to reorient its economy toward domestic consumption without wrenching dislocations.

When the United States entered the recent crisis, its budget deficit was $161 billion. Now it is $1.3 trillion and the Federal Reserve is already maintaining rock-bottom interest rates.

Even if Congress and President Obama manage to extend the Bush tax cuts, any hiccup in Europe or China could easily throw the U.S. economy into a recession, and the world's biggest economy could hit the skids on its own.

Capital markets simply won't be able to absorb a $2.5 trillion to $3 trillion federal deficit to further stimulate the U.S. economy, without sucking badly needed capital out of struggling European and developing country economies. The Fed could only print money to finance it and set off hyperinflation, but it can't really lower interest rates much further.

Having failed to adequately address what caused the Great Recession -- China's trade surplus and the imbalance in demand between the Middle Kingdom and the United States, the cowboy culture on Wall Street and the plight of underwater homeowners -- not much can be done, having squandered the grace created by stimulus spending and easy money.

Get ready for a bad ride.

www.twitter.com/pmorici1

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.

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