Published: December 15 2008 19:19 | Last updated: December 15 2008 19:19
The economic crisis in the US signals the end of American global hegemony. Or does it? Pundits from different camps, some with fear and others with glee, contemplate a future where the US will have a much diminished weight in global affairs. But if the US plays its hand well, things will turn out to be just the opposite.
It is useful to remember that power is a relative, not an absolute concept. True, the US has been hurt by the current turmoil but so have many others. The Dow Jones is down by almost 40 per cent so far this year but this makes it pretty much the best performing stock market in the world.
More importantly, as far as power is concerned, unfriendly states such as Russia, Iran and Venezuela are suffering from a dual collapse in the price of their oil exports and the value of their sovereign bonds.
Remember the dangerous scenario this past summer with Russia intervening in Georgia and threatening Europe with the energy card?
Now, Russian policymakers perform daily prayers just to be able to open the stock market for regular business.
More broadly, the financial meltdown has translated into a sudden stop in capital flows to emerging and developing countries, which threatens to destabilise their growth, their financial systems and their government accounts.
Contrary to popular opinion, the current crisis has very little to do with the Armageddon that Nouriel Roubini, professor of economics at New York University, predicted over the past few years. In his mind, the widening US current account deficit would eventually top the willingness of the rest of the world to fund it, causing the US dollar to crash while long term interest rates on US Treasury bonds would soar.