US companies are awash with cash. It is because of lack of actual investment, not lack of funds for investment, that the US economy has not recovered. This is a text book example of what Keynes referred to as a "liquidity trap" – huge funds are available but are not being used productively.

The answer to this situation is clear. If private companies are not investing, then the state should. Funding for investment programs can come directly from companies, if they are directly involved in them, from selling government bonds, from taxation or by other means.

The policy required is exemplified by the success of China's stimulus package.

The growth of China's GDP over the period 2007 to the end of 2009, from the beginning of the financial crisis to the latest detailed figures available, is shown in Figure 2, China's GDP rose by 7.9 trillion yuan ($1.2 trillion). Household consumption rose by 2.6 trillion, and fixed investment by 5.3 trillion.

These figures for the U.S. and China cannot be compared in exact detail as the U.S. publishes constant price figures which are not available for China. But the pattern is so clear it leaves no doubt as to what was occurring. For the overall outcome for the two economies, detailed comparisons can be made. In the three years to the third quarter of 2010 the US economy shrank, while China's economy grew by 30 percent.

The US economy experienced a crisis due to a fall in investment that the US government took no direct steps to reverse because of its rejection of direct state investment. China, on the other hand, experienced rapid economic growth due to the state-led investment of its stimulus package.

It is because the US government clings to its anti-state ideology that it is now attempting to reverse the situation through quantitative easing – that is massive printing of money. The hope is that large scale buying of US bonds by the Federal Reserve will cause their price to rise and US interest rates fall – technically an increase in the price of a bond lowers its interest rate. It is hoped this will, in turn, stimulate both consumption and investment.