The Nation That Fell To Earth

Did the U.S. overreact to Sept. 11? Niall Ferguson, one of the world's leading historians, speculates on how future generations will judge the war on terrorism--and on what it will take for America to win it


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    Greenspan's successor at the Fed, the academic economist Ben Bernanke, was in a quandary. Should he worry about growth or inflation? Inflation was creeping up, and yet the combination of higher interest rates and higher fuel prices threatened to depress consumption. Bernanke's apparent indecision unnerved the financial markets. By the time the slide in real estate prices signaled the onset of a full-blown recession, the Fed was badly behind the curve.

    That the U.S. economy should slow was perhaps inevitable. In 2005 there were just 10.7 million Americans age 80 and older. By 2030 there were nearly 18 million--1 out of every 20 people. Continued advances in medical science meant that more and more people were living as long as a century--good news for the likes of media mogul Rupert Murdoch, who celebrated his 100th birthday in 2031. But the rising proportion of the population in retirement imposed an ever higher tax burden on those still working. It also placed a sustained strain on the U.S. balance of payments, as the country consistently imported more than it exported, financing the difference by selling securities to foreigners.

    In the first decade of the 21st century, that arrangement worked well. The booming Chinese economy seemed ready to absorb any amount of U.S. debt, provided that America kept its market open to China's exports. High savings rates and low wages in China complemented the high indebtedness and high living standards enjoyed by Florida's elderly.

    However, that Sino-American interdependence left the U.S. vulnerable to a crisis in China. When it came, the Chinese stock-market crash sent a shock wave through the entire Asian economy. Some blamed the powerful new Middle Eastern Shari'a-law banks, which had terminated their zero-interest-rate facilities for Shanghai hedge funds. Others saw the sinister hand of the Russian-controlled OGEC (Organization of Gas Exporting Countries), which had stunned energy importers in Asia by trebling natural gas prices. Either way, the impact was disastrous. Output collapsed. Unemployment soared. The Chinese banking system, which had never been entirely free of corruption, imploded.

    A few hard-nosed foreign policy realists insisted that China's collapse was to the U.S.'s advantage. Some veteran cold warriors looked forward to the demise of the last communist regime in the world. To most Chinese, however, free elections were just a way for the party to pass the buck for its economic failure. To most Americans, the China crisis was just an addition to their existing economic woes, as Chinese investors frantically unloaded their U.S. assets.


    In 1941 the publisher of this magazine called on readers to help make the postwar era "the first great American Century." There had certainly been an American Half-Century, culminating in the collapse of the Soviet Union in 1991. But the post--cold war phase of hyperpower could not last forever. In the years after 9/11, the U.S.--though still the world's dominant nation--faced multiple and growing challenges.

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