As financial markets continue their roller-coaster ride it is US hegemony that is being left behind, writes Galal Nassar
Much has been said about the recent mortgage crisis in the US and the UK and its impact on the global economy. Over the past four weeks several US and UK financial institutions have teetered on the verge of bankruptcy, sending stock markets tumbling across the world. Some blamed the recent crisis on loans to homeowners who have been unable to keep up their mortgage repayments. But there is also a hint of a scam.
According to the CNN, the FBI is currently investigating four CEOs of major banks for potential corporate fraud. The four high-profile companies at the centre of the current financial crisis -- Fannie Mae, Freddie Mac, Lehman Brothers, and AIG -- are all believed to be part of the current investigations.
Declining to name the companies involved, FBI spokesman Richard Kolko confirmed that 26 companies were being investigated. FBI Director Robert Mueller earlier told Congress that 1,400 individuals and more than 20 companies were under investigation, adding that the figure may rise. The federal government, one source noted, could have been open to accusations of neglect had it not ordered the investigations.
Economists say the current crisis is an oddity in that it bears all the marks of a recession but coupled with inflation. One reason for this unusual phenomenon is that higher oil prices have fuelled inflation while depressing investment and consumer spending. In normal circumstances inflation is usually associated with boom, whereas recession is associated with lower prices.
Since WWII the economic cycle in the US has been linked to whether the Democrats or the Republicans led the administration. Higher taxes and spending on social services, associated with the Democrats, are generally believed to stimulate the creation of jobs, boost consumer confidence, and lead to higher interest rates. Conversely, lower taxation and small government, associated with Republican polices, lead to diminished social services and more unemployment, which can force down interest rates and real estate prices, and trigger recession.
Some accuse Republican policies of reducing inflation by depressing the living standards of the majority while boosting the profits of major corporations and subsidising the lifestyle of the super rich. If this were true, the American public would have little reason to vote Republican. But the matter is not that simple.
Usually, the economic consequences of Democratic policies are what make voters switch to the Republicans, and vice versa. Recession could push the Republicans out of office, while inflation may bring them back. The bottom line is that voters -- while wanting the government to spend more on health and education -- are not thrilled when inflation burns holes in their pockets.
The media has something to do with this merry-go- round of economic policies. And pressure groups, including churches, civil society groups and labour unions, tend to have their say in which way the economic cycle is going to turn.
The sudden rise in oil prices made things worse. Higher demand in Europe and Asian nations, coupled with concern over the situation in Iraq and a possible US strike against Iran, led to a surge in prices.
Looking at the global scene it is possible to detect a tipping point. This economic crisis, triggered by US domestic and foreign policies, marks the end of one style of globalisation and the beginning of another.
Under the old brand of globalisation many assumed that the world will be united under US hegemony, in an end-of-history kind of way. In other words, Western liberalism had won and was on the way to becoming the only measuring rod for success.
For a while it seemed that this version of reality was taking root. The US and the West tightened their grip on the world economy, creating the WTO as an international tool to entice member countries -- especially Third World nations -- to give up their economic independence. WTO members were obliged to bring down tariffs and other trade barriers that used to protect their national industry.
Furthermore, the World Bank and the IMF ensured that countries around the world managed their economies in a certain way, linking them with the West. Developing nations were thus encouraged to give up their state-run economies in favour of market forces that left them dependant on the West on several levels. In this scheme of things multinational corporations grew in power, reshaping economic life around the world.
As the US way of life infiltrated ways of thinking around the world, and as the media endorsed a uniform global identity, national concerns and cultural differences became blurred. And US military power was always at hand to intimidate any potential opponents.
But this pattern of globalisation is becoming outdated. As a multi-polar international order starts to take shape politics are likely to be more diverse, reflecting differences in cultures and ways of life.
What we see today is the end of a world dominated by US views and culture. With power more defused it is becoming a place where international relations are more fluid. They are no longer dictated from Washington.
After the industrial revolution Europe took the lead, first with Portugal and Spain, then with France and Britain. Since the end of the Cold War we've seen the US rise to a position of unrivalled supremacy. This is no longer the case. Other nations and older civilisations, China and India included, are reclaiming their place under the sun.
What we see today is the beginning of a trend that is likely to see not only the dominance of the US greatly diminished, but of the West in general.