Most of the readers of this blog are doubtless aware that a tectonic shift in global economic relations has been taking place, with the inexorable rise of Asian economies and a resurgent Russian economy coupled with the anemic and problematic performance of the US economy. And for those of us who know our history, we know that major changes in relationships are usually precipated by some sort of crisis or major event. Thus the growing weakness of Britain vis-a-vis Germany and the USA needed WW1 to throw it into bold relief. It might be argued, I suppose, that the present financial crisis is also an indicator and precipitator of tectonic shifts. I found a good article at rense.com this morning, written from a realpolitik perspective, which in large part mirrors my own outlook:
But there is more to the story. The sub-prime crisis grew in the context of real and portentous developments across global trade, financial and economic systems. The Fed, Treasury and Wall Street, distracted by their own crisis, probably have had little time to focus on the tectonic plate shifts in the global system that probably mean they cannot go home again. The epicenters of international trade and finance simply are shifting. In essence, a good part of the wealth that might be needed to finance a recovery is in the wrong places or pockets, mostly in Asia, and when the dust settles, the global configuration will be different.
Whatever the approaches, the system is unlikely ever to be the same again, because the facts underlying global developments are profound. For starters, the solutions do not lie merely with changes in liquidity. They lie with recognition and adjustments around real changes in global economic structures including the scale and distribution of productivity and wealth. The sub-prime crisis simply adds to the adjustments already made necessary by those global changes.
However, as other economies have grown, diversified and prospered the dollar has faced rising competition from the Japanese Yen, then the Euro and, most recently, from the Chinese
Renmembi or Yuan and the Brazilian Real. These new challenges reflect both the growing
global strength of other economies and accumulating flaws in the strength of the American economy, notably continuing Federal deficits, rising international debt and growing import dependence. Those developments weakened the Dollar by exposing it to the competition of other currencies, reduced its traditional role as a stabilizing international trade benchmark, and sent its value plunging as resource prices rose in response to increasing global demand for oil and
To the degree that the United States is able to reduce its debt, curb its appetites for imported goods, adjust its affluent lifestyles, extricate itself from absurd levels of military expenditure, and restrain inflation, in short, put its economic house in order, declines in the value of the Dollar can be mitigated. However, the declining role of the Dollar in the world economy appears persistent.
In terms of GDP stated at purchasing power parity, the United States is now not only behind the European Union, it is being rapidly overtaken by Asian economies. World Bank estimates show that the Asian combination of China, Japan and India exceeds the United States and is breathing down the neck of the European Community for global first place. With the numbers for smaller Asian economies such as Malaysia, Asia is already globally in the lead.
The containment strategy that ultimately dominated the US Cold War posture actually provided an umbrella for potentially pre- emptive military moves that positioned the US virtually everywhere any economic resource of importance could be had.
When the Project for the New American Century (PNAC) surfaced in the early Bill Clinton presidency with plans to invade Iraq and with a global military power agenda, the altruistic side of American foreign policy had pretty well atrophied. The game had become power maintenance by military dominance. The PNAC designers appeared to have no clear-cut economic agenda, but their military scheme, if it succeeded, would have provided more than adequate cover for a
self-centered and pre-emptive resource acquisition strategy. As perceived by other advanced and advancing nations, this scheme drove 21^st century global resource acquisition strategies toward a nineteenth century capitalist model. One only has to look at Darfur, the Congo, Zimbabwe, and much of Central Asia as well as the Middle East to see how neo-colonial present day resource acquisition has become.
In the end, the sub-prime mess is likely to accelerate the transition of the US economy to a new position in the global system. Unless several major world economies-Japan, European Union, China, India, Brazil, and others-suddenly contract instead of continuing to grow at faster than US rates, the US weight in the global system will continue to decline; the Dollar will continue to play a reduced role in the global trade and payments system.
A military power strategy won't cut it. We are already going deeply into debt to sustain the present military posture. Other countries are not enamored of a US trying to run the world at the real or implied point of a gun. The system now needs truly global leadership. The United
States can lead in that direction, helping to create and strengthen the institutions that will provide global leadership in the common interest. It is not leading now; it is forcing or trying to force global conformity to a self-centered US model, and that strategy eventually will fail. Such failures as the sub-prime fiasco only hasten the time when the present US model must be
I apologise profusely for such copious pasting (even though I've tried to be selective) and insist that this is not my wont but seldom do I come across such careful and perceptive analysis. The fortunes of the US will continue to decline and in a sense the present crisis is a harbinger of more bad news to come over the next few years. It will be interesting to see how US policy makers try to use the one undoubted edge they still have -- US military superiority -- to bully or cajole other nations into complying with US demands.