* CAN WASHINGTON EMBRACE FRUGALITY?
As consumers have cut back, government spending has taken its place. The White House expects the budget deficit for this fiscal year to reach 11.2 percent of gross domestic product. Next year's deficit is expected to decline only modestly, to 10.4 percent of GDP.
The United States is pressing its G20 partners to agree to a "framework" to try to bring about better balance between economies around the globe
The first of the Baby Boom generation born after World War Two reaches retirement age of 65 in 2011, and that will add to the budget burden as they collect entitlement benefits.
That means Washington will likely need to consider increasing revenues or cutting spending -- neither of which will be politically popular.
President Barack Obama sees health care reform as key to tackling the fiscal problem, but Congress is locked in a fiercely partisan battle over how to proceed and it is unclear whether the legislation they may eventually produce will really rein in exploding health care costs.
The next tough decision comes in 2010, when Congress must decide whether to extend tax cuts enacted under former President George W. Bush. Obama has said he intends to let them expire for wealthier Americans.
Obama has pledged not to raise taxes on those families earning less than $250,000 per year, and he will be loath to break that promise. However, many observers warn that he may have little choice.
Other options that may be on the table if the fiscal outlook worsens could include raising taxes on dividends, putting a value-added tax on purchases of goods and services, or perhaps even curbing a popular policy that allows homeowners to deduct mortgage interest payments.
OTHER KEY QUESTIONS
* HOW EFFECT CAN THE IMF BE AS REBALANCING REFEREE?
Under the U.S. proposal, the International Monetary Fund would serve as a rebalancing referee, consulting with countries about whether they are living up to their obligations.
But the Fund has limited enforcement powers for countries that do not borrow from it, so there is some question about whether it would have much influence over the United States and China. Its relationship with the United States is particularly fraught because Washington not only hosts the IMF's headquarters but is also a major benefactor.
China and other emerging economies have been pushing for a greater say at the IMF to reflect their growing economic clout. The United States has backed transferring 5 percent of the voting power from rich countries to certain emerging economies, although Europe has not completely signed on.
The hope is that by giving China and other fast-growing countries more influence at the IMF, they may be more willing to play a more active role in rebalancing the global economy.
* WHAT ABOUT CURRENCIES?
The White House -- at least publicly -- has shied away from putting pressure on China to allow its yuan currency to appreciate more rapidly. There was little said about currency at a recent U.S.-China Strategic and Economic Dialogue in Washington.
But clearly it will play a role. If the United States is to export more, a weaker dollar would certainly help although it would put China in an uncomfortable position.
China's foreign exchange reserves reached the equivalent of $2.13 trillion at the end of June, so a weaker dollar would be a serious financial blow.
Some economists argue that those vast reserves in China and other surplus countries contributed to the financial crisis, and ignoring them means risking a repeat of the boom and bust cycle that Obama has said he wants to break. Sources: JPMorgan Asset Management, McKinsey Global Institute, Indicus Analytics, Eswar Prasad, NBER. (Editing by James Dalgleish)