The international order that emerged after World War II has rightly been termed the Pax Americana; it's a Washington-led arrangement that has maintained political stability and promoted an open global economic system. Today, however, the Pax Americana is withering, thanks to what the National Intelligence Council in a recent report described as a "global shift in relative wealth and economic power without precedent in modern history" -- a shift that has accelerated enormously as a result of the economic crisis of 2007-2009.
At the heart of this geopolitical sea change is China's robust economic growth. Not because Beijing will necessarily threaten American interests but because a newly powerful China by necessity means a relative decline in American power, the very foundation of the postwar international order. These developments remind us that changes in the global balance of power can be sudden and discontinuous rather than gradual and evolutionary.
The Great Recession isn't the cause of Washington's ebbing relative power. But it has quickened trends that already had been eating away at the edifice of U.S. economic supremacy. Looking ahead, the health of the U.S. economy is threatened by a gathering fiscal storm: exploding federal deficits that could ignite runaway inflation and undermine the dollar. To avoid these perils, the U.S. will face wrenching choices.
The Obama administration and the Federal Reserve have adopted policies that have dramatically increased boththe supply of dollars circulating in the U.S. economy and the federal budget deficit, which both the Brookings Institution and the Congressional Budget Office estimate will exceed $1 trillion every year for at least the next decade. In the short run, these policies were no doubt necessary; nevertheless, in the long term, they will almost certainly boomerang. Add that to the persistent U.S. current account deficit, the enormous unfunded liabilities for entitlement programs and the cost of two ongoing wars, and you can see that America's long-term fiscal stability is in jeopardy. As the CBO says: "Even if the recovery occurs as projected and stimulus bill is allowed to expire, the country will face the highest debt/GDP ratio in 50 years and an increasingly unsustainable and urgent fiscal problem." This spells trouble ahead for the dollar.
http://www.latimes.com/news/opinion/commentary/la-oe-schwarz29-2009sep29,0,4375015.story
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