The Americans, meanwhile, have met the enemy, and it is them. America has coasted on a quarter-century wave of power and prosperity since president Reagan won the Cold War and restarted the economy. America in the 1980s was the only model to be emulated, and a magnet for global capital flows. So compelling were American capital markets that by the late 1990s, almost all the free savings of the world sought an American home. In 2007 a trillion dollars of overseas capital poured into American markets.
Americans no longer had to save; the rest of the world saved for them and lent them money at the lowest interest rates in half a century. Americans no longer had to study; engineers from India to Argentina programmed their computers. And Americans no longer had to face a strategic challenge; after the death of the Soviet Union, so Washington believed, America need only export its self-image. Of all the great illusions of the post-Cold War era, this has turned out to be the most pernicious.
This is damn fine writing, I must say. However, the opinion is even more important, and it is showing up in a lot of places these days. My former prof Francis Fukuyama may have talked about the end of history when discussing the end of the Cold War, but now a wide range of commentators are seriously talking about the imminent downfall of the unipolar world order. Didn't take too long for that to happen, did it?
The U.S. has coasted since the 1940s and has enjoyed a lot of built-in advantages, including being the issuer of the world's reserve currency. Is it all coming to an end? Some would say that the downward trend started in 1973, and we are just now noticing, or accepting, the inevitable.
The long-term perspective also lets one see the last 15 years of the U.S. economy as a series of artificial events that have masked this decline in economic strength. You see a lot of articles, for example, about how the post-Asian Financial Crisis forex accumulations in Asia helped to float the U.S. economy, and U.S. spending habits. Again, let's turn back to Spengler:
Like emerging Asia in the mid-1990s, Americans used cheap foreign capital to make real-estate speculation into a national pastime. And like Asia in 1997, there is no remedy but to let the sickening slide of asset prices take its course, until the grasshoppers learn to work and save like ants.
The American economy emulated Samuel Beckett's absurdist play Waiting for Godot, in which nothing happens, twice. The first occasion in which nothing happened was the tech-stock bubble of 1997-2000. Americans engaged in a collective delusion according to which infinite wealth would be created on the Internet through shopping and salacious entertainment. Perhaps if someone had perfected virtual-reality sex, the stock price bubble might have continued, but the disappointment attendant on the end of the illusion cut the value of American equities by half.
The second occasion on which nothing happened was, of course, the present subprime disaster. The world learned that it was dangerous to buy risky American assets and chose instead to buy safe ones. The trouble was that as a whole, the American public was engaged in extremely risky behavior, that is, bidding up home prices with cheap credit. The banks and credit rating agencies declared that a basket of very risky assets could be turned into a very safe asset, by selling off the part of the risk to speculators. This exercise turned out to fall somewhere between the delusional and the fraudulent, as subprime securities rated AA, the next-to-highest credit grade, now trade at only 40 cents on the dollar.
Nothing ground-breaking here, but extremely well presented. We are going to see a whole lot of opinion pieces this year that talk about the U.S. position in the world, particularly in light of a rising China. These two topics somehow have been linked together in the minds of most journalists, which is fine with this blogger since it gives me the excuse to write about U.S. foreign policy. Doesn't make the conclusions any more palatable, however.