Rene — A Shattering Moment in America's Fall From Power
Topic(s): US Analysis | Comments Off on Rene — A Shattering Moment in America's Fall From PowerA 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
by John Gray
Published on Sunday, September 28, 2008 by The Guardian/UK
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=2
0burden 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 sustained?
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 spec
tator.
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 assumption.
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
American 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.