Niall Ferguson: US Is Not Completely Down the Toilet

Popular historian Niall Ferguson thinks the financial situation is disastrous for the US. On the bright side, it's worse for other countries.

Emerging markets, too, have been hammered harder by the crisis than the "decoupling” thesis promised. In the year to the end of October 2008, the U.S. stock market declined by 34 percent. But Brazil’s was down 54 percent, China’s 58 percent, India’s 64 percent and Russia’s 66 percent. When Goldman Sachs christened these four countries the BRICs, they little realized that their equity markets would one day be dropping like bricks. These figures are scarcely good advertisements for the more regulated, state-led economic models favored in Beijing and Moscow.

The financial crisis is especially bad news for energy exporters: not only belligerent Russia, whose leaders yearn for a reconstituted Soviet empire, but also those other thorns in the side of the United States, Iran and Venezuela. Any oil price below $94 a barrel is bad news for Venezuela’s fragile finances; any price below $55 spells trouble for Iran.

In any case, is even the fastest growing of America’s rivals really a credible alternative to the United States? Rapidly though it is growing, China is bedeviled by three serious ailments: demographic imbalance, environmental degradation and political corruption. China’s military is not remotely ready to mount a serious challenge to American dominance in the Pacific. And, crucially, it is far from clear that China is ready to wean its manufacturing sector completely off the U.S. export market. After three years of very mild renminbi appreciation, the People’s Bank of China seems to be contemplating renewed intervention to keep the currency weak relative to the dollar. That means China will continue to sell renminbi for dollars, further enlarging its already large portfolio of U.S. bonds.

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