Once the run on the dollar started, predicts Fallows, a former Jimmy Carter speech writer and prominent journalist, everything seemed to happen at once. There was the lesson of the United Kingdom in 1992, of Mexico in '94, of emerging Asia in '97, of Russia in '98, of Brazil in '98, "and of the U.S. in 2009."
In "Chronicle of a decline foretold," prominent economic historian Niall Ferguson, writing in the Financial Times, said though this was "the worst economic crisis in 70 years, many people remained in deep denial about it." Despite President-elect Barack Obama's soaring rhetoric, the markets sank lower, and "the contagion spread inexorably from subprime to prime mortgages, to commercial real estate, to corporate bonds and back to the financial sector."
Obama's new New Deal won't produce a miracle, Ferguson predicts, "but the federal takeover of the big banks and the conversion of all private mortgage debt into new 50-year Obamabonds signaled an impressive boldness" and the beginning of the end of the "Great Repression," which substituted for "Depression."
"Clinching the recovery is Obama's decision to fly to Tehran in June, like Nixon's visit to China in 1972, symbolized (Obama's) readiness to rethink the very fundamentals of American grand strategy." Al-Qaida's bungled attempt to assassinate Obama "only served to discredit radical Islamism and to reinforce Obama's public image as 'The One.'" And America's world leadership is back in business.
Venezuela's Hugo Chavez following Fidel Castro's death at 82 triggers the debacle, seen by Fallows. "A rightwing militia of disgruntled Venezuelans, emboldened by the news Castro was gone, attempted a coup in early 2009. Chavez captured the ringleaders, worked them over and then broadcast their possibly false 'confession' that they had been sponsored by the CIA.
"That led to Chavez's 'declaration of economic war' against the United States," which in practice meant closing the gigantic Amuay refinery, which produces one-eighth of all the gasoline used on U.S. roads, and reopening it two months later with a pledge to send no more products to American ports.
That kicked off the world's fourth -- and worst -- oil shock. But neither Obama nor Vice President Joe Biden had any idea what to do, according to Fallows' annus horribilis, when the spot price of oil rose 40 percent in the week after Chavez's declaration -- "and then everything went wrong."
Chavez strikes a notorious secret deal with Beijing for preferential future contracts for Venezuelan oil. In return, China refuses to go along with a U.S.-sponsored Bretton Woods 2, a new world monetary deal. At the annual Davos World Economic Forum, a ranking Chinese official declares the dollar is no longer seen as a stable currency. The dollar then plummets 25 percent against the yen and the yuan. Two weeks later it's down 50 percent. The dollar buys 2.5 Chinese yuan, down from eight a year earlier.
The United States sticks to the dollar, but the rest of the world no longer wants it. Wealthy Americans and foreigners no longer want to hold shares in U.S. companies. The fall of the dollar wipes out any conceivable market gains. Ditto dollar-based bonds, including U.S. Treasury debt.
"The T-note selloff," forecasts Fallows, "forces interest rates up … stock prices further down, and the race to the bottom is on." Credit card rates become onerous, and consumers retreat. Higher fixed costs, from imported components to higher interest rates to lower revenues and a shrinking customer base, squeeze all kinds of businesses.
In 2010 the CEOs of the three remaining airlines defy antitrust laws and form a single new airline, the AmFly Corp. Half as many flights to 150 fewer cities, with a third as many jobs (all non-union). In 2012 Toyota acquires GM and Ford. For 10 years the two U.S. companies had lost money on every car sold. "With gas at $6, the prime interest rate at 15 percent, stock and housing markets in the toilet … a weak dollar … made the companies a bargain for Toyota."
Fallows walks his readers through a White House Security-in-Shelter Summit; the federal purchase of 1 million RVs and mobile homes, built at idle auto and truck plants; the "poisoned chalice" of the Democratic nomination in 2012; the bankruptcies of state and local governments; legalized prostitution in 31 states; California closes 63 of its 110 community colleges; the Chinese Education Ministry takes over the funding of the UC Berkeley physics, computer science and biology labs and the UC San Francisco genomics lab, all in return for a 51-percent share of all resulting patents.
The United States, understandably, is in the mood for tough-love leadership. "When the 'Desert Eagle' scores his astonishing coup in the Saudi desert just before Christmas 2011," Fallows writes, "America knows who its next leader (will) be. For a four-star general to join his enlisted men in a nighttime HALO special-operations assault was against all established practice. The Eagle's determination to go ahead reveals him to be essentially a MacAthuresque ham. But the element of surprise is total, and the unit surrounded, captured, and gagged Osama bin Laden before he was fully awake."
The general's news conference the next day is the largest live audience in history, "breaking the record set a few months earlier by the coronation of England's King William V. The new American hero is like nothing seen since Charles Lindbergh landed in Paris in 1927. He is, of course, strong on defense; urgent about 'fighting smart against our economic enemies'; and broadly appealing on 'values' -- a devout Catholic who had brought the first openly gay commandos into a front-line combat unit."
The United States has its first across-the-board electoral sweep. The national hero, predictably, doesn't make anything better. The two-party system, in trouble for decades, collapses after eight years of failures -- to the benefit of the "neglected vast center."
It is now glaringly obvious the United States no longer controls "its economic fundamentals." Compared with the past, "America has become stagnant, classbound, and brutally unfair." Compared "with the rest of the world, it's on the way down. We think we are a great power -- and our military is still ahead of China's. Everyone else thinks that over the past 20 years, we finally pushed our luck too far."
China's "Twenty Harvards" brand name, as Fallows' peers over the horizon, produces the "Chinese mission to Mars, with astronauts from Pakistan, Germany and Korea"; and Beijing and Mumbai campuses compete for top honors in the World Ingenuity Test.
The American disease is "the sense of sunset, decline, hopelessness." Half the country's households live on less than $50,000 a year, he writes, "but a year in private college now costs $83,000, a day in a hospital $1,350, a year in a nursing home $150,000. … Eighty percent of the public is priced out of a chance for future opportunity."
Fallows' message is a wake-up call -- and a roadmap for Barack Obama's New Deal.
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