"Did America hang itself with Asian rope?" A Financial Times correspondent put the question to a Chinese official. "Quick as a flash, he responded: 'No. It drowned itself in Asian liquidity.'” "In one sense, this is a story of Asian prudence versus US recklessness. By accumulating vast savings – China and Japan alone boast 40 per cent of global central bank reserves – Asians have lived below their means so that Americans could live beyond theirs. Asia bankrolled US budget and trade deficits and provided the cash for banks and individuals to go on a spending spree and for Washington to fight wars in Afghanistan and Iraq." Nice party some people had, promising our childrens' future, individually and collectively, in exchange. But suddenly, there is no money in the United States. Where did it all go? And why now?
We are no longer our own masters, let alone the world's masters. The next President will have to beg for money and oil abroad, because neither Americans nor their federal, state and local governments can get by on why they take in, and Americans have locked themselves into a lifestyle that would be painful to change immediately. Our economy doesn't need a demand for repayment to be sunk. All it needs is for those elsewhere, those poorer, to stop sacrificing to lend us more so we can live the lifestyle to which we have become accustomed. And many of those funds are controlled by non-democratic governments.
I've heard a theory about the timing of when this has happened: the Chinese realized that our dysfunctional co-dependency was doomed, that the money they were lending could never be paid back. But they didn't want a crash to spoil their Olympics. So the cutback occured right after the Olympics ended, and the dominos started to fall.
After the Olympics, however, is also before the election. Osama Bin Laden has taken credit for George Bush's re-election in 2004 thanks to a well-timed tape. Kind of like the Allies deciding against trying to kill Hitler in WWII — keep the madman in charge, win the war. Well, the global credit crisis is not only soon enough to have the President leave with the reputation he deserves, but also late enough to make the federal election pretty much game over.
Unless some truth telling will get President Obama more respect than former President Carter received 30 years ago, he'd better get on good terms with our creditors, to try to make sure any future recession is not timed for 2012.
Long term "if the US can wean itself off what has been an unhealthy addiction, the shock could yet turn out to be to its long-term advantage. It has already started increasing exports and importing less…Chinese citizens, whose consumption accounts for a measly third of national output – against 70 per cent in the US – could certainly spend more. But Beijing, which has already taken steps to prick the housing bubble, appears in no hurry to encourage reckless spending." Because, said the official, borrowing and spending "is what bankrupted the US.”