View Full Version : End of an Era?

Chris Ostlind
09-30-2008, 09:43 AM
Came across this just this morning. Yeah, it's two days ago and may already be up here.... Comments?


A shattering moment in America's fall from power
The global financial crisis will see the US falter in the same way the Soviet Union did when the Berlin Wall came down. The era of American dominance is over

o John Gray
o The Observer,
o Sunday September 28 2008

Our gaze might be on the markets melting down, but the upheaval we are
experiencing is more than a financial crisis, however large. Here is a
historic geopolitical shift, in which the balance of power in the
world is being altered irrevocably. The era of American global leadership,
reaching back to the Second World War, is over.

You can see it in the way America's dominion has slipped away in its own
backyard, with Venezuelan President Hugo Chávez taunting and ridiculing
the superpower with impunity. Yet the setback of America's standing
at the global level is even more striking. With the nationalisation of crucial
parts of the financial system, the American free-market creed has
self-destructed while countries that retained overall control of markets
have been vindicated. In a change as far-reaching in its implications as
the fall of the Soviet Union, an entire model of government and the
economy has collapsed.

Ever since the end of the Cold War, successive American administrations
have lectured other countries on the necessity of sound finance.
Indonesia, Thailand, Argentina and several African states endured severe
cuts in spending and deep recessions as the price of aid from the
International Monetary Fund, which enforced the American orthodoxy.
China in particular was hectored relentlessly on the weakness of its banking
system. But China's success has been based on its consistent contempt
for Western advice and it is not Chinese banks that are currently going
bust. How symbolic yesterday that Chinese astronauts take a spacewalk while
the US Treasury Secretary is on his knees.

Despite incessantly urging other countries to adopt its way of doing
business, America has always had one economic policy for itself and
another for the rest of the world. Throughout the years in which the US
was punishing countries that departed from fiscal prudence, it was
borrowing on a colossal scale to finance tax cuts and fund its
over-stretched military commitments. Now, with federal finances
critically dependent on continuing large inflows of foreign capital, it will be the
countries that spurned the American model of capitalism that will shape
America's economic future.

Which version of the bail out of American financial institutions cobbled
up by Treasury Secretary Hank Paulson and Federal Reserve chairman Ben
Bernanke is finally adopted is less important than what the bail out
means for America's position in the world. The populist rant about greedy
banks that is being loudly ventilated in Congress is a distraction from the
true causes of the crisis. The dire condition of America's financial
markets is the result of American banks operating in a free-for-all environment
that these same American legislators created. It is America's political class
that, by embracing the dangerously simplistic ideology of deregulation,
has responsibility for the present mess.

In present circumstances, an unprecedented expansion of government is
the only means of averting a market catastrophe. The consequence, however,
will be that America will be even more starkly dependent on the world's
new rising powers. The federal government is racking up even larger
borrowings, which its creditors may rightly fear will never be
repaid. It may well be tempted to inflate these debts away in a surge of inflation
that would leave foreign investors with hefty losses. In these
circumstances, will the governments of countries that buy large
quantities of American bonds, China, the Gulf States and Russia, for example, be
ready to continue supporting the dollar's role as the world's reserve
currency? Or will these countries see this as an opportunity to tilt the
balance of economic power further in their favour? Either way, the
control of events is no longer in American hands.

The fate of empires is very often sealed by the interaction of war and
debt. That was true of the British Empire, whose finances deteriorated
from the First World War onwards, and of the Soviet Union. Defeat in
Afghanistan and the economic burden of trying to respond to Reagan's
technically flawed but politically extremely effective Star Wars
programme were vital factors in triggering the Soviet collapse. Despite its
insistent exceptionalism, America is no different. The Iraq War and the
credit bubble have fatally undermined America's economic primacy. The US
will continue to be the world's largest economy for a while longer,
but it will be the new rising powers that, once the crisis is over, buy up what
remains intact in the wreckage of America's financial system.

There has been a good deal of talk in recent weeks about imminent
economic armageddon. In fact, this is far from being the end of capitalism. The
frantic scrambling that is going on in Washington marks the passing of
only one type of capitalism - the peculiar and highly unstable variety
that has existed in America over the last 20 years. This experiment in
financial laissez-faire has imploded.While the impact of the collapse
will be felt everywhere, the market economies that resisted American-style
deregulation will best weather the storm. Britain, which has turned
itself into a gigantic hedge fund, but of a kind that lacks the ability to
profit from a downturn, is likely to be especially badly hit.

The irony of the post-Cold War period is that the fall of communism was
followed by the rise of another utopian ideology. In American and
Britain, and to a lesser extent other Western countries, a type of market
fundamentalism became the guiding philosophy. The collapse of American
power that is underway is the predictable upshot. Like the Soviet
collapse, it will have large geopolitical repercussions. An enfeebled
economy cannot support America's over-extended military commitments for
much longer. Retrenchment is inevitable and it is unlikely to be gradual
or well planned.

Meltdowns on the scale we are seeing are not slow-motion events. They
are swift and chaotic, with rapidly spreading side-effects. Consider
Iraq. The success of the surge, which has been achieved by bribing the Sunnis,
while acquiescing in ongoing ethnic cleansing, has produced a condition of
relative peace in parts of the country. How long will this last, given
that America's current level of expenditure on the war can no longer be

An American retreat from Iraq will leave Iran the regional victor. How
will Saudi Arabia respond? Will military action to forestall Iran
acquiring nuclear weapons be less or more likely? China's rulers have so
far been silent during the unfolding crisis. Will America's weakness
embolden them to assert China's power or will China continue its
cautious policy of 'peaceful rise'? At present, none of these questions can be
answered with any confidence. What is evident is that power is leaking
from the US at an accelerating rate. Georgia showed Russia redrawing the
geopolitical map, with America an impotent spectator.

Outside the US, most people have long accepted that the development
of new economies that goes with globalisation will undermine America's central
position in the world. They imagined that this would be a change in
America's comparative standing, taking place incrementally over several
decades or generations. Today, that looks an increasingly unrealistic

Having created the conditions that produced history's biggest bubble,
America's political leaders appear unable to grasp the magnitude of the
dangers the country now faces. Mired in their rancorous culture wars and
squabbling among themselves, they seem oblivious to the fact that
global leadership is fast ebbing away. A new world is coming into being
almost unnoticed, where America is only one of several great powers,
facing an uncertain future it can no longer shape.

• John Gray is the author of Black Mass: Apocalyptic Religion and the
Death of Utopia (Allen Lane)

09-30-2008, 10:16 AM
I posted on another thread that most worldwide see us as a lost cause. I think though many outside still believe in the dream but are counting on us to take back what has been stolen and shine the light once more. Sad really and to many are only worried of covering their arses instead of making the sacrifice to set things right.

09-30-2008, 04:02 PM
Our dazed best are ahead of us.

Bob Cleek
09-30-2008, 04:19 PM
Well, when you consider the status of our balance of trade and what we owe the Chinese and Russians for our national debt, I sort of wonder why THEY aren't bailing US out. What happens if we just tell them, "Sorry, no more dollars." What happens if we simply reissue a new $100 bill and refuse the honor the old ones turned into banks unless US citizens bring them in and can show they were fairly earned? Between stiffing China and Russia and wiping out all the billions floating around in the black markets of the world, we ought to be okay. No?

09-30-2008, 04:23 PM
Between stiffing China and Russia and wiping out all the billions floating around in the black markets of the world, we ought to be okay. No?



09-30-2008, 04:36 PM
Here's a view of that:

China's dilemma: rescue or run?

To explain what is happening in China in light of today’s US crisis, I actually want to start with the Middle East where we see the same forces at work. Last night I was dining with a major investor in the Middle East and he told me that the atmosphere over there had changed dramatically. A short while ago everyone had been optimistic. Now they were really scared. They had invested much of their money in US dollar securities and European banks and were worried about both. They had also put their money into property in Dubai and were now taking it out (Dubai's capital exodus (http://www.businessspectator.com.au/bs.nsf/Article/Dubais-vision-blurs-JRV33?OpenDocument), September 24). They are also watching their revenues drop as a result of the sharp decline in the oil price – partly because the hedge funds that have been boosting the price are now being forced out. Oil demand will fall, which will require further production cuts and even less revenue.

Now lets swing to China. You may remember that last month I wrote that the greatest fear in China, according to a very senior figure with close ties to the Beijing leadership, was that the Americans would not understand the gravity of the banking crisis (Fear and loathing in Beijing (http://www.businessspectator.com.au/bs.nsf/Article/Fear-and-loathing-in-Beijing-HLRLS?OpenDocument), August 18).

That fear was realised last night when it became clear that Americans have elected financially ignorant people to be their leaders. The rejection of the bailout plan was a disaster, but it is also true that the benefits of the original Paulson Plan had been eroded by the compromises (Plan weakened by politics (http://www.businessspectator.com.au/bs.nsf/Article/Best-laid-plans-JX9XG?OpenDocument), September 29).

America is now going to need even more money to bail out its banks than was the case with the original rescue package because the lack of confidence created by the politicians will send many more US banks to the wall than was necessary.

Who is going to fund the bailouts? The only people who have the cash are in China, Japan, the Middle East and other parts of Asia. Russia also has money. If the Chinese say "enough is enough and we will stop lending" then the American dollar will crash and among the biggest losers will be China which has invested a big chunk of their relatively new wealth in American dollars. So they look to be locked into continuing to throw money at the US crisis.

But internally in China, Shanghai looks a little like Dubai. In the days of unlimited credit there was unbridled Shanghai property development, but life will now be tougher and China’s banks will come under much more pressure. A property setback in Shanghai would force China to look inwards and bail out its own banks.

Given that exports will be down, the building of infrastructure and cities to boost western China will take on even greater importance. Looking at last night’s commodity markets I see that aluminium is down 4 per cent, copper 5.2 per cent, lead 7 per cent, zinc 4.5 per cent, nickel b 3.6 per cent and of course oil by 9.8 per cent. Those falls are in anticipation of a big decline in global demand for goods which will lower commodity demand. In the case of oil there will also be hedge fund selling.

On the one hand, China as a major importer will be delighted at the fall in mineral prices, but on the other side manufacturing areas like the Pearl River Delta are gong to be hit very hard. So the Chinese face a dilemma. Do they use their money to maintain the value of their existing US dollar investments or do they let the American dollar fall and concentrate their money maintaining their own momentum? If they invest at home at the expense of the US it will help mineral demand.

Japan will go through a similar decision making process, although in Japan’s case they will almost certainly support the US. In the Middle East the fall in the oil price and the exodus of money from Dubai will make them very nervous about throwing good money after bad.

09-30-2008, 04:37 PM
Well, when you consider the status of our balance of trade and what we owe the Chinese and Russians for our national debt, I sort of wonder why THEY aren't bailing US out. What happens if we just tell them, "Sorry, no more dollars." What happens if we simply reissue a new $100 bill and refuse the honor the old ones turned into banks unless US citizens bring them in and can show they were fairly earned? Between stiffing China and Russia and wiping out all the billions floating around in the black markets of the world, we ought to be okay. No?
There's going to be a new hundred-dollar bill all right, and it will probably cost three or four of the ones you have now to buy it…
It will look just the same.