The Financial Crisis: The Dilemma of US Leadership
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Published on: October 11th 2008 15:05:40
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| In previous weeks, we have sought to highlight the impact of increasingly globalized financial networks on US policy-making options. A dilemma is under active discussion in Washington: at the very time when US economic weakness is raising concerns over US global leadership, all eyes are fixed on Washington to devise solutions to the problem, possibly at the upcoming October 10th-11th G-7 finance meeting to include coordinated market rates cuts or currency intervention. As a senior White House economic advisor told us: “We are both the cause of the problem and the solution. The world still expects US leadership.” One key variable is the dollar’s value which, to date, has remained relatively strong. Some analysts fear the potential for a mass exodus of foreign capital leading to a full-bore financial meltdown. The political ramifications for Washington are clear. As a former advisor to China’s Central Bank has argued, “if you want China to keep calm, you must assure China that its assets are safe”. However, the dismayed global reaction to the difficulties in securing Congressional approval of the economic rescue package underscores the growing realization in Europe and Asia that the contagion is not simply an artifact of US financial weakness, but signifies deeper imbalances in the global economy. Rather than a financial power shift, the international community is facing a more even distribution of dependency: export-led growth strategies in emerging economies depend on the availability of cheap credit in the West. |
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