[WSJ] The end of American dominance?

GanjaRocket · Jul 4, 2015

http://blogs.wsj.com/moneybeat/2015...power-and-other-lessons-of-18-years-horizons/ Michael J. Casey's final column at the WSJ. Leaving to work on a blockchain-related project

Let’s face it, people outside the navel-gazing world of economists, bond and currency traders, and financial journalists must shake their heads when, once a month, we obsess with the Bureau of Labor Statistics’ employment report on Twitter and other forums. What a bunch of geeks!

Even so, I was especially pleased that after almost 18 years at Dow Jones and The Wall Street Journal my last day on the job was spent covering that report for the MoneyBeat live blog. And it’s not just because of the geeky nostalgia I attach to this monthly routine or even the newsroom tradition of “payrolls pastries” started by my colleague Kathleen Madigan some years ago. It’s that the global markets’ obsession with the jobs number is a gauge of the continued, yet challenged, dominance of the U.S. in global markets.

The fact that everyone still “drops everything” to tune into the BLS report on what is usually the first Friday of the month – the July 4th holiday changed the timing this week –reflects how much U.S. economic and political hegemony remains in place. And as I look back on my soon-to-end career in financial journalism, it’s that dominance, as well as the now pervasive questions about how long it will last, that have shaped my views on global macro financial matters generally.

So, where do things stand? Well, undeniably, our geeky obsession is not (yet) misplaced. America’s economy is healthy again – at least in relative terms, which is what matters in global bragging rights. Simply contrast today’s news of solid jobs growth with the intractable crisis in Greece, which is exposing the deep flaws of the eurozone’s monetary experiment, and with the meltdown in Chinese equity markets, which is stirring fear about the excessive leverage and speculation in the world’s second-largest economy.

But make no mistake, the world is changing rapidly. And with that, America’s dominance and the relevance of its institutions are quietly waning. This is not a bad thing.

Consider the flap over the China-backed Asian Infrastructure Investment Bank. In a poorly handled diplomatic push, Washington’s argument that the bank would be a Chinese stalking horse that undermines “true” multilateral institutions such as the World Bank and its sister the Asian Development Bank fell on deaf ears among its allies. Dismissing such fear-mongering, the U.K, Germany and Australia have all now signed on as members, along with 53 other nations that attended a signing ceremony in Beijing on Monday.

The AIIB won’t undermine the World Bank in a hurry. But the enthusiasm for it reflects how the rest of the world no longer sees U.S. centrality in the international financial architecture as a given.

Congress hasn’t helped, of course. By holding back U.S. dues to the International Monetary Fund and the U.N., it has raised questions about America’s commitment to global policymaking and institutions.

But the change also reflects bigger forces in our global economy. Shifting demographics, stifling debt, and the simple math of comparative growth rates mean that America’s share of the global economy is falling. China’s slowdown is painful, but its economy is still growing at around 7% — at least twice the best-case scenario for the U.S. and far more than other developed countries.

Even if Chinese growth slows another percentage point or two – which it probably will – a large gap with the U.S. will remain. Compounding effects will almost certainly make China the largest economy in the world by the next decade. Meanwhile, India, Indonesia and other fast-growing, populous Asian economies are rapidly increasing their share of global GDP.

The other reason why U.S. hegemony is inexorably in decline stems from technology, which is decentralizing the world’s loci of power and economic influence. The highly digitalized, closely integrated and geography-neutral global economy of the future simply won’t have the same need for U.S. leadership – perhaps even for governments generally.

One area of critical importance is money. Digital currencies, mobile payments solutions and Big Data-driven tools for defining people’s identities will bring an estimated 5 billion hitherto excluded people into the global financial system in the years ahead. The effect of that will be even greater than the first, manufacturing-led waves of globalization in challenging the existing Western order.

Until now, the dollar’s dominance has been entrenched. A Chinese manufacturer selling a product to a Russian customer had to wait for the rubles to pass through dollars – via a bank in New York – before they were converted into yuan, simply because the global system of trade finance is built around the greenback. But new technologies will allow real-time settlement, primarily using the blockchain digital ledger technology on which cryptocurrencies such as bitcoin are built, and that will make that cumbersome, costly re-routing of money redundant. When Russians can send funds directly to Chinese suppliers, what happens to the dollar’s place in the world?

Right now, everyone still needs the dollar. The depth of U.S. capital markets and the faith that foreign investors place in the impartiality of American courts to protect their property rights create a self-fulfilling, positive feedback loop. It’s why the greenback still accounts for two thirds of global reserves, as it has done for decades.

But the monetary historian Barry Eichengreen of the University of California has demonstrated how quickly this perceived dominance can fall apart. Just look at what happened to the dollar’s predecessor, the British pound, between the wars, he says.

Actually, Britain’s experience is a good one to reflect on for any American who worries that the end of dominance signals an end to prosperity. Early into the 21st century, British citizens are hardly the paupers of the world. Ending the easy crutch of cheap financing that the dollar has facilitated might even be what’s needed to encourage a revival of that great American trait: its entrepreneurial creativity.

Officially, the U.S. worldview is that its interests are furthered if the world’s economies and financial markets are open. If the end of American dominance is the price to pay for that, if that’s the cost for creating a world in which more people from other countries get to share in the spoils, so be it.

This is what 18 years at the world’s best financial news organization has taught me: there’s a lot you can read in a monthly jobs report.
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Nook · Jul 4, 2015

GanjaRocket said: ↑

http://blogs.wsj.com/moneybeat/2015...power-and-other-lessons-of-18-years-horizons/ Michael J. Casey's final column at the WSJ. Leaving to work on a blockchain-related project
Click to expand...

Every 10 years or so there is a series of essays/articles about the demise of the West and the USA... Been happening for over 100 years about the USA and nothing comes of it. Change is inevitable but the USA is very healthy right now.

GanjaRocket · Jul 4, 2015

if you read the article it has nothing to do with a US demise

GanjaRocket · Jul 4, 2015

GanjaRocket said: ↑

if you read the article it has nothing to do with a US demise
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it also states the USA is very healthy.. like you said.

Space Ghost · Jul 5, 2015

Nook said: ↑

Every 10 years or so there is a series of essays/articles about the demise of the West and the USA... Been happening for over 100 years about the USA and nothing comes of it. Change is inevitable but the USA is very healthy right now.
Click to expand...

The west didnt become dominant until the 50s.

Mathloom · Jul 5, 2015

Space Ghost said: ↑

The west didnt become dominant until the 50s.
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This is absurd, the West was absolutely dominant before that it's just the U.S. wasn't dominant outside its borders until the 50's and didn't become 100% dominant internally till the 70's.

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