What Chimerica has wrought
From the American Interest, an interesting opinion piece on the intricate relationship between China’s Rise and America’s spending, and the collapse of one may have profound effects on the other’s ability to continue rising the same way as before. If it still comes down to the ‘Rise of the Rest’ dependent on US consumer’s ability to consume, that system is now weakened, though not gone for good. And if it comes to that there is no other world consumer able or willing to replace the US consumer, what is the source of future growth? One can’t export one’s way out of this. The entire article can be read online here.
What “Chimerica” Hath Wrought
The U.S. financial system has been as much a part of American power over the past thirty years as the Sixth Fleet. Yet Wall Street’s illustrious investment banks have been either bankrupted, swallowed up or transformed into regular banks in the space of less than a year. So close did the U.S. financial system come to complete meltdown in September that Treasury Secretary Henry Paulson was driven to request emergency powers worthy of wartime: carte blanche to spend around $700 billion on the mother of all bailouts. This is in fact less than half the sum the Federal Reserve has already spent through its various “facilities” to banks….
….But the most important reason why the United States bounces back from even the worst financial crises is that these crises, bad as they seem at home, always have worse effects on America’s rivals.…The American credit crunch is already having much worse economic effects abroad than at home. It will be no surprise if it is also more politically disruptive to America’s rivals…
Nonetheless, it is much too early to conclude that in geopolitical terms the American century is over, or that China solo is about to take over from Chimerica. Power is always relative, and a crisis that hits the periphery of the global economy harder than the core must logically increase the power of the core….