Rough Week, But America's Era Goes On

If the main fiscal consequence of the credit crunch is a huge increase in the liabilities of the federal government -- already substantially increased by the nationalization of Fannie Mae and Freddie Mac -- the United States could find itself in a similar situation. The dollar could follow the pound into the category of former reserve currencies. And the United States would lose the convenient facility of being able to borrow from foreigners at low interest rates in its own currency.

With China decoupled from the United States -- relying less on exports to America, caring less about the yuan's peg to the dollar -- the end of Chimerica seems nigh. And with the end of Chimerica, the balance of global power is bound to shift. No longer so committed to the Sino-American friendship established back in 1972, China can explore other spheres of global influence, from the Shanghai Cooperation Organization that groups together China, Russia and four Central Asian nations to China's own nascent empire in commodity-rich Africa.

But commentators should always hesitate before they prophesy the decline and fall of the United States. America has come through disastrous financial crises before -- not just the Great Depression but also the Great Stagflation of the 1970s -- and emerged with its geopolitical position enhanced. Such crises, bad as they are at home, always have worse effects on America's rivals.

The same is proving to be true today. According to the Morgan Stanley Capital International index, the U.S. stock market is down around 18 percent to date this year. The equivalent figure for China is 48 percent, and for Russia -- the worst affected of the world's emerging markets -- it is 55 percent. These figures are not very good advertisements for the more regulated, state-led economic models favored in Beijing and Moscow.

Moreover, because investors continue to regard the U.S. government's debt as a "safe haven" in uncertain times, the latest phase of the financial crisis has seen the dollar rally, rather than sag further.

Of course, this could yet prove to be the safe haven's last gasp, especially if U.S. authorities are unable to avert a fresh wave of bank failures in the days ahead. Nevertheless, the caveat is clear. The hubris of recent years has certainly been followed by a terrible financial nemesis. But it is much too early to conclude that the American century is over. Like so much else made in the United States, this nemesis is proving an all-too-successful export.

nfergus@fas.harvard.edu

Niall Ferguson is a professor of history at Harvard University. His latest book, "The Ascent of Money: A Financial History of the World," will be published in November.