America's century: is the sun setting on an epoch? (long)

In the same week that the US Treasury Secretary sank to one knee to implore a congressional leader to vote for the $US700 billion ($890 billion) package to save the American economy, Colonel Zhai Zhigang became the first Chinese astronaut to walk in space. It was a striking juxtaposition of American vulnerability with Chinese success, of US crisis with Middle Kingdom might. It was heavy with the symbolism of an empire in decline in contrast with one on the rise.

In Washington, George Bush and his top economic officer had spent hours in the White House persuading and cajoling the congressional leaders of both American political parties to endorse his rescue plan. With the burning smell of some of the biggest financial institutions in the world still fresh in their nostrils as their ruins smouldered in New York, Bush grew increasingly frustrated.

"If money isn't loosened up, this sucker could go down," he said of the US economy, marshalling the inimitable eloquence of the President who has given rise to a minor industry of books and wall calendars featuring the manglings known as Bushisms. All efforts failed.

"In the Roosevelt Room after the session, the Treasury Secretary, Henry M. Paulson Jr, literally bent down on one knee as he pleaded with Nancy Pelosi, the House Speaker, not to blow it up by withdrawing her party's support for the package," The New York Times reported.

Pelosi leads the Democrats in the House of Representatives. Bush and Paulson are Republicans. Pelosi jibed: "I didn't know you were Catholic." And then, on the business at hand: "It's not me blowing this up; it's the Republicans." It was Bush's own party blocking the plan. Paulson reportedly sighed, "I know, I know."

It was on the same day, September 25, that China launched the Shenzhou 7 space mission, sending aloft three astronauts or, as the Chinese call them, taikonauts. Two days later, Colonel Zhai floated out of his module and "walked" in space for 20 minutes.

Zhai radioed back to his President and the chairman of the Chinese Communist Party, Hu Jintao: "The space-walk mission has been accomplished smoothly. Please set your mind at ease, Chairman Hu and the people of China. In the vastness of space, I felt proud of our motherland."

Hours after the Chinese module returned to Earth safely, the US House of Representatives rejected the Bush Administration's rescue plan to allow the Treasury to buy distressed debt so that US credit markets could start to function again. US stocks fell by 7 per cent and more than $US1 trillion in value was destroyed as investors despaired. It was one of the biggest one-day falls on Wall Street.

Does this moment of Paulson's distress and Hu's elation symbolise the transfer of global leadership from a shattered superpower to a rising one?

The British political philosopher John Gray thinks so: "Ever since the end of the Cold War, successive American administrations have lectured other countries on the necessity of sound finance," he wrote this week. "China in particular was hectored relentlessly on the weakness of its banking system. But China's success has been based on its contempt for Western advice and it is not Chinese banks that are currently going bust."

He identified it as a profound moment: "The era of American global leadership, reaching back to the Second World War, is over."

The conservative American commentator, one-time adviser to Ronald Reagan and former presidential candidate Pat Buchanan agreed. Comparing the crisis to a devastating hurricane, he said it was "a Katrina-like failure of government, of our political class, and of democracy itself. The party's over. What we are witnessing today is how empires end."

For anyone who cared to look, the historical resonances were powerful. China became the first Asian power, and only the third nation, to conduct a manned space mission. The other members of the club? The US and the Soviet Union, both superpowers.

And the room where Paulson knelt was named after the US president Theodore Roosevelt, the leader remembered for his "Big Stick" foreign policy. He was the first American president to think of the US as a truly global power and the first to travel outside the US while in office.

He was also the president who built the Great White Fleet, the 16 battleships that sailed around the world in 1907-09 in a demonstration of America's emergence as a global military power and launched a century of American supremacy. Does the humiliation in the Roosevelt room mark its end?

Some respected US scholars and commentators argued that the American era was already drawing to a close even before the latest round of financial collapses and political mishandlings. Fareed Zakaria, the editor of Newsweek International and an expert on US foreign policy, this year published a book, The Post-American World . He identified three "tectonic power shifts" in the past 500 years. First was the rise of the West. Next came the rise of the US. And we are now living through the third: "It could be called the rise of the rest." He points out that economic growth in the past five years has been more widely shared among the nations of the world than at any time in history. In 2006 and 2007, 124 countries grew by more than 4 per cent.

"Look around," Zakaria writes. The world's tallest building is in Taipei, the richest man is a Mexican, and the biggest listed corporation is Chinese. The world's biggest casino no longer is in Las Vegas but Macau, and the biggest movie industry is no longer Hollywood but Bollywood. Even shopping, America's greatest sporting activity, has gone global - of the top 10 malls in the world, only one is in the US; the world's biggest is in Beijing."

In the politico-military realm, Zakaria claims, the world remains a single-superpower place. "But in every other dimension - industrial, financial, educational, social, cultural - the distribution of power is shifting, moving away from American dominance."

Another prominent commentator believes that American politico-military dominance, too, is in question, even though the Pentagon's budget is as big as that of the defence budgets of the other nations of the world combined. Andrew Bacevich, professor of international relations at Boston University and a retired colonel in the US Army, argues that the US has developed what he calls "the new militarism", a normalisation of a permanent state of war and an over-reliance on armed force.

One of the problems with this, he argues in The Limits of Power: The End of American Exceptionalism , is that US presidents set missions for the US military that it is not capable of performing. Bacevich takes issue with the claim by the prominent military commentator Max Boot that America was successfully prosecuting "the Doctrine of the Big Enchilada".

Which is what, exactly? That the US enjoys a military excellence "that far surpasses the capabilities of such previous would-be hegemons as Rome, Britain, and Napoleonic France" and "unparalleled strength in every facet of warfare" so that allies had become a burden: "We just don't need anyone's help very much."

Bacevich points out that seven years after the invasion of Afghanistan and five years after the invasion of Iraq, the American military is still struggling to achieve its missions. "To anyone with eyes to see, the events of the last seven years have demolished the Doctrine of the Big Enchilada." He has paid a personal price in the course of this discovery. His son, a US soldier, died on duty in Iraq.

Bacevich cites the historian Corelli Barnett: "War is the great auditor of institutions." And Bacevich concludes: "Since [September 11, 2001], the US has undergone such an audit and been found wanting … Between what President Bush called upon America's soldiers to do and what they were capable of doing loomed a huge gap that defines the military crisis besetting the US today. For a nation accustomed to seeing military power as its trump card, the implications of that gap are monumental."

But this week's escalation in the US financial crisis has drawn fresh attention to the financial footing of the US Government itself. It has dramatically expanded its responsibilities. Its loan of $US85 billion to the insurance giant AIG pales by comparison to its decision to assume explicit liability for two enormous lending institutions, Freddie Mac and Fannie Mae, with a staggering $US6.5 trillion in obligations.

And Uncle Sam was not in tip-top shape to begin with. The Federal Government deficit, this year projected to be $US407 billion, is a big number but modest as a 2.1 per cent share of the total economy. The full picture, however, is much more troubling. And for the past 11 years, the nonpartisan US Government Accountability Office has refused to accept the Government's explanation of the full picture: it has declined to sign off on the accounts of the Federal Government.

So Jim Grant, publisher of Grant's Interest Rate Monitor and a perpetual pessimist on the US economy, performs this function for his clients. "No goose was ever so golden as the US economy, but that doesn't mean it's immortal," he says. "Generations of politicians have had their knives out for it."

He points out that while the nominal US economy has been growing at a compound annual rate of 5 per cent for seven years, the liabilities of the US Government have been expanding at a compound rate of 13 per cent.

Grant wrote to clients: "In 2000, the Government was on the hook for $US29 trillion of guarantees, insurance obligations and projected future payments to Medicare and Social Security recipients. Seven years later, the grand total of such projected future obligations and payments was $US67 trillion." Even in America, this is big money, equivalent to about five times the nation's total economic output.

Grant continues: "Insofar as the promises continue to pile up faster than the domestic resources with which to redeem them, the Treasury's creditors must be at some elevated level of risk. Needing money it can't easily get through taxation, the Government must borrow it. Who will lend it, and at what cost?"

This question, casually set aside in sunnier times, is suddenly in very sharp focus. The long-term creditworthiness of Uncle Sam has been coming under daily scrutiny in recent weeks, and the risk, as priced in financial markets, has risen to record levels. The cost of insuring against the risk that the US might fail to repay holders of its 10-year Treasury bonds has risen to 20, 30, and now 37 basis points in recent days. Thirty-seven basis points is 0.37 of a per cent. The comparable cost on French government debt is 20; on German it is 13.

The perceived riskiness of lending money to Uncle Sam has been heightened by the behaviour of its legislators. The congressional vote to defeat the rescue plan shocked many. The Congress is now having a second crack at it.

The US Senate has passed a revised version of the plan, which is set to go before the House of Representatives today. In a disgraceful reflection on the Congress, the bill had to be loaded with $US150 billion in inducements to win the support of the Senate. This included tax credits that the pharmaceutical industry and the high-tech sector had been demanding.

In other words, it was not enough for senators to vote for a bill that would save the US economy from what an industry newsletter, the Bank Credit Analyst , calls "a black hole". They had to be able to satisfy the special demands of lobbyists and donors.

This lack of national interest, and the assertion of sheer venality, has raised the risk of lending to the US because these legislators are the same people who make the spending and taxing decisions that will determine the national fiscal future.

Still, the wise analyst would hesitate before declaring the end of the American era. Certainly, its relative power has peaked. Immediately after World War II the US accounted for fully half the world economy; today it's about a quarter.

But that still makes it three times the size of Japan's, the next biggest economy, and five times the size of China's. And even though it is in the throes of a very serious crisis, the Harvard historian Niall Ferguson pointed out recently that the US has been through disastrous financial trauma before and emerged in an even better relative position.

"Such crises," said Ferguson, "bad as they are at home, always have worse effects on America's rivals." We know from experience that the US can survive major financial crises. Can China? In its post-Mao history, it has yet to be racked by one, yet one day it must be.

And the Chinese space walk may demonstrate China's progress, but also its technological lag. The US conducted its first space walk in 1965. That dates China's technology as being 43 years behind America's.

Moreover, the blunders that have put the US into diabolical difficulty are not predestined by history. They are the result of political and policy error. That means they can be solved by political and policy wisdom. America is being tested, and we will see the wisdom of its choices. The Congress has its next opportunity today. And the American people will have theirs soon enough - election day, November 4.

There's some good points such as, "In a disgraceful reflection on the Congress, the bill had to be loaded with $US150 billion in inducements to win the support of the Senate," which should be shouted from the rooftops along with this: " it was not enough for senators to vote for a bill that would save the US economy from... "a black hole". They had to be able to satisfy the special demands of lobbyists and donors."

"This lack of national interest, and the assertion of sheer venality, has raised the risk of lending to the US because these legislators are the same people who make the spending and taxing decisions that will determine the national fiscal future."

These are the sorts of things which our "free press" should have front-and-center in this run up to the election. Instead they're so self-interested in their preferred outcome of an Obama-Pelosi-Reid government, they turn a blind eye.

I expect that the impending era of economic distress and cost cutting will prompt the decline of both weak and seemingly strong institutions: numerous daily newspapers will become every other day publications; many magazines will cease publication, consolidate, or reduce their issues; public education will have to justify its absurd cost structure and class size will increase; there will be a general trend toward discipline and restraint; unions will both become more militant and face more resistance; tourism will decline; job skills certification and practical work experience will matter while bare educational credentials will be treated more skeptically; the political system will become less predictable; and resource and trade wars will increase.

This is interesting and thoughtful, but it goes a long way on a little fuel, namely:

He identified it as a profound moment: "The era of American global leadership, reaching back to the Second World War, is over."

SO many in Europe and elsewhere are so eager to make this statement that they forget that you can't label such events until the dust has settled.

If this is statement is true, we sure can't say so NOW. And the lust for so many to WANT it to be true can't be denied.

The greatness of a nation is most noticed when it is in trouble--how does it respond? China has a man in space long after we put one there--they're catching up in one sense, but possibly stepping forward in space where we dropped the ball because our citizens didn't see the point, the reason, the bottom line.

We have erred in our current financial situation not because we haven't taken the advice about sound banking, but because we've tried to do things CHINA'S way--with government influence on housing on a grand scale. (Not about providing low-income housing but passing laws which are ANTI-capitalist. It's a problem not of capitalism but lack of faith in capitalism.)

Take these two things and you have a picture. The quote above is from someone reacting to a still photo. But history is a moving picture.

We have to do things differently. I don't see either presidential candidate doing that. But it's not like we have a year or even four to change.

"Does this moment of Paulson's distress and Hu's elation symbolise the transfer of global leadership from a shattered superpower to a rising one? "

Does the proximity of these Northern Aussies give them some paranoia of the ChiComs? Or do some of them just wish their own country was a lot more like their ideological comrades?

yitbos

“It was heavy with the symbolism of an empire in decline in contrast with one on the rise.”

I hardly think so. Need I remind anyone that it has been forty-five years since the first American walked in space, so the Middle Kingdom has a way to go before they show us up in that arena. China’s entire GDP would barely equal the losses we have sustained in the current financial fiasco, but we have many times that much left.

Our people, our natural resources, and the spirit embodied in our unique history are the real sources of our power. The United States was in far worse shape in 1933, yet it came back barely a decade later to lead the successful fight against the monstrously powerful fascist empires of Germany and Japan.

Let the effete Eurabians and their Australian sycophants have their jealous little fantasies of schadenfreude. I left Europe in 1969 and threw in my lot with the Americans. I have never regretted it for one minute. The gloaters and prophets of disaster truly do not what they are talking about.

Enough of this defeatist nonsense.

Stars and Stripes forever.

YES! As I read through today's posts and I think about the possible corrupt nature of this “bailout” including the possibility that this was deliberately designed from the handbook of Saul Alinsky for the purpose of looting the American economy so that “government” could grab all resources for the purpose of redistributing America's wealth to those who support the powers that be and therefore, to usher in socialism, I cannot contain my feeling of sadness for our people. Add to this the extreme coarsening nature of our media and entertainment culture and then to reflect on Revolutions throughout history, especially the French Revolution and one could get mighty depressed. It is no accident that on the eve of this election, two very destructive movies will have been released with the purpose of destroying President Bush ( “W” by the anti-American producer, Oliver Stone) and the other “Religulous,” with that despicable guy, Bill Maher, which grossly mocks Christianity, the values of which were the very foundation of this 200+ years of freedom where “all men were endowed by their Creator to life, liberty and the pursuit of happiness.” If the current steamroller of Stalinist ambitions succeed, all that is over. Then, two classes will emerge..The ruling class who will hold all of the wealth and resources in their hands and the servant class who will be forced to work and live by their rules, regardless of how inhuman or cruel. Unbridled human nature without God is a very frightening prospect..History is filled with examples..I am scared, folks. In previous posts I have referred to a friend who was a great historian who told me back in the 70s that America was on a down slide pattern and that the final part of that slide would take place at a dizzying pace, like falling off a cliff. We can only pray that God will intervene before it is too late.

The first American to perform a space walk was Ed White in June 1965.

I wouldn't be so quick to dismiss the argument. Think about it this way. Could the U.S. go to the moon today? Or Mars? Not in a technological sense, but in a political/fiscal sense. Or have too many special privileges and entitlements been promised to too many special pleaders for there to be any chance of that?

If your answer is "Yes," what does that suggest to you?

What are China’s banking regulations regarding reserve on hand to conduct normal business transactions? What is the relationship between the Chinese finance idustry and the Chinese government? What are the Chinese laws regarding leverage and overseas development? This writer doesn’t answer these questions, and they are important.

The chinese banks also bought a lot of these derivatives, I would suspect they were not much less effected by the problems as everyone else. The Chinese government could have kept their banks going and not mentioned it out loud to save face. The Chinese have not gotten to where they are by ignoring western economic system, they started to grow economically precisely when they jettisoned the central planning system for what is now a fascist system with some semblances of capitalism. Further, the Chinese are not one ethnic group and as groups oppressed by the Mandarins grow in economic strength, they will likely seek a louder voice in their own governance. It is likely that China is going to experience an interesting time very soon.

Given the choice, despite our current difficulties, are there many who does not want to invest in the US long term? It is not to say we are without problems. We need science and engineering majors at college instead cranking out Business and Law degrees, and our laws should be changed to encourage that.

Admittedly not knowing ALL the information at the President's disposal, it certainly appears he did a perfectly abysmal job of handling this crisis. He should have worked with Paulson and brought in top economists to formulate a comprehensive plan that would have addressed the root cause of the problems. THEN he should have summoned both candidates, and the minority/majority leaders of both houses and laid it on the line right then and there. He did not need to panic the public, but rather work behind the scenes to have a meaningful plan to present to both houses to work with. After explaining no pork/earmarks/politics (and threatening them with exposing what really went down), it could have appeared to the public as just another bill and much of this drama (Reid saying they had no idea what to do, Reid spooking the insurance industry, etc.) could have been avoided.

The Chinese are very familiar with the joys and benefits of socialism, so every year, every month, they go more free, and free market.

The US has spent its wealth and like a once wealthy person has taken out loans on what wealth it has, and is spending the money. When the US (really the US government, because let's be real folks, that is the alpha/omega, the be all of the economy. We're just along for the ride, like sucker fish on a whale.) gets into trouble, it ratchets up more rules, more regulation, more debt and spending.

That is why this latest hail Mary into receivership isn't going to ‘work’.

It was just Congressional masturbation. It's all they know and it makes them fell good.

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