http://www.foreignpolicy.com/articles/2011/10/11/napoleons_curse?print=yes&hidecomments=yes&page=full Napoleon's Curse The illusion of omnipotence has exhausted America and spoiled its allies.

BY IAN BURUMA | NOVEMBER 2011 Too much power is not good for a person, or for a nation. It leads to hubris, to the childish illusion of omnipotence, and, even when driven by good intentions, to abuse. In the case of the United States, the illusion of being exceptional, the idea that the "Greatest Nation in the History of the World" can do anything, is doubtless fed by the manner of the country's inception. France and the United States are the only Western democracies born from revolutions. Like France, the American republic likes to claim that it represents not only the hopes of humankind, but universal values. The American way is the global way, or it jolly well should be. What the French call la mission civilisatrice has also been a driving force for Americans. The national destiny is to civilize the benighted world. To believers in this mission -- who are not always in the mainstream of U.S. politics, but have enjoyed a remarkable resurgence in the decade since the 9/11 attacks -- it is not sufficient for the United States to be an example to the world. It is incumbent on the republic to export freedom and democracy, by force if necessary. This is the Napoleonic side of U.S. foreign policy. As was true of France, the Napoleonic urge is rooted in the Christian tradition. French and American democracies may be secular, but the missionary zeal and the claims of universality surely owe something to the countries' religious past. Still, the illusion of American omnipotence was held in check by other powers, notably by the British Empire, and later by the Soviet Union, for much of America's history. This is not to extol the virtues of the Soviet system, which were limited, to say the least. But Moscow at a minimum played the role of keeping things in perspective. After 1989, there was ostensibly nothing to stop the American dream of shaping the world to its liking. You might say it was America's Palmerstonian moment, when it acted like Victorian England's Lord Palmerston, who believed that Britain's duty was to use its might to reorder other nations, from Belgium to Afghanistan to China. Bush the Elder was still too cautious to fully embrace Palmerston's liberal interventionism. His son was not. It was 9/11 that released American hubris in full force. "We don't want to fight, but by Jingo if we do: We've got the ships, we've got the men, we've got the money too." These were the words of a popular music-hall ditty in London in the 1870s, but they might have been sung in the streets of Washington around 2003. But this American hubris, mixed with an atmosphere of paranoia, has brought disastrous results for others, and for the United States itself. Unnecessary wars, sometimes undertaken with true missionary zeal, are bleeding the country's treasury and costing countless lives. Not all the costs are direct. The gradual militarization of American society -- the ritual genuflections to "our men and women in uniform," the bloated military budgets, the fawning attitude to generals -- has resulted in something more often associated with tin-pot dictatorships in the developing world: crumbling bridges, potholed roads, rotten schools, and an overbearing military loaded with all the best and latest hardware. This is clearly not good for most Americans. But it isn't good for U.S. allies, either. Sick of waging wars, for excellent reasons, Europeans and the Japanese have become like spoiled adolescents, almost totally dependent for their security on the big American father. Too indolent, or scared, to take more responsibility for their own protection, they express the humiliation of their dependency in fits of anti-American pique. In East Asia, Pax Americana still rules, not only because the Japanese can't make up their minds about whether to change their (American-written) pacifist constitution, but also because China, too, has long preferred the status quo. The alternative to being ringed by U.S. bases, after all, is to see the Japanese take over.

There are some signs that Europeans are beginning to wean themselves from the American parent. Yet the form this takes seems to be flattery through imitation. Just a few years ago, British Prime Minister Tony Blair still believed that it was Britain's role to be an obedient, even zealous junior partner in the U.S. military mission to spread light unto the world. The latest venture in Libya, however, showed a more independent European spirit, led, unsurprisingly, by the French. It was as if President Nicolas Sarkozy, cheered on by some prominent French chauvinists, wanted to hitch the tricolor once more to its own mission civilisatrice. This time, the United States, exhausted by too many recent failures, took a back seat. Nonetheless, even this Franco-British mission could never have had any success without the wherewithal of U.S. power. There is much talk, none of it very new, of the decline of the West, and of the United States in particular. China, so people claim, and in the long run perhaps India too, will assume the mantle of world power, just as Washington once took over from London. Perhaps this will come to pass. All great powers come to an end. Yet neither China nor India, nor any other country, is likely to dominate the world soon in the way the United States has done. China's ambition does not stretch beyond its Asian periphery, and India is still too poor and too battered by domestic rebellions to control its own territory successfully, let alone anywhere beyond Kashmir. American decline might still be a lengthy process. Failures in some sectors of the economy are partly made up for by successes in others: For all the Detroit plant closures, there's a Google, a Microsoft, a Facebook. And whatever people might say to criticize America, many still wish to bask a bit longer in the security it claims to provide. But if history offers any indication, Napoleonic, or even Palmerstonian, politics always end up in mental and physical exhaustion. There is little doubt in my mind that the illusion of omnipotence, rather than lengthening the days of Pax Americana, has speeded up its eventual demise. Save big when you subscribe to FP. Javier Jaen

Dutch writer Ian Buruma, currently a Cullman Fellow at the New York Public Library, is author, most recently, of Taming the Gods: Religion and Democracy on Three Continents.

http://www.foreignpolicy.com/articles/2011/10/11/the_perils_of_loose_living The Perils of Loose Living For decades, Americans have looked to monetary policy as an engine of economic growth -- and suffered the dire consequences. BY HELEEN MEES | NOVEMBER 2011 Documentaries like Inside Job and books like Michael Lewis's The Big Short have spun a narrative of America's economic crisis that stars Wall Street bankers and credit-rating agencies as the ultimate villains. But despite popular belief, subprime mortgages with exotic features had little to do with the housing bubble and the current debt overload weighing down U.S. households. They accounted for a mere 5 percent of mortgages at the time. The story line is just wrong. Related What Ails America? Gluttony The Dollar Education The real culprit was the Federal Reserve. With its ultraloose monetary policy in the early 2000s, the Fed singlehandedly created the refinancing boom and ushered in the housing bubble. The record-low interest rates not only fed the boom that had to go bust, but also favored that sector of the U.S. economy that is predominantly financed with debt, i.e., the financial sector, at the expense of sectors that are more reliant on risk capital, such as manufacturing. That might explain why, by the mid-2000s, bank profits accounted for 30 percent of all profits reported by S&P 500 companies. In other words, Americans stopped making stuff and relied on paper earnings instead. Yet the only prescription being applied to the depressed U.S. economy today is basically what it was a decade ago: cutting interest rates in an attempt to inflate prices for assets like houses and stocks and boost consumption. Because the federal funds rate is already close to zero, the Fed has been buying up bonds with a longer maturity to drive down long-term interest rates. Although the latest bond-buying program -- nicknamed QE2 -- ended in June, its effect on interest rates will continue as long as the Fed holds onto the bonds. A third round of what economists call "quantitative easing" is imminent. But if consumption, the very hallmark of American culture, did not save the day in the 2000s, why would it do so today? It was China, not the United States, that prospered from Americans' spending binge as hundreds of millions of Chinese were lifted out of poverty. COMMENTS (0) SHARE: Twitter Reddit Buzz Bookmark and Share More... In this year's State of the Union address, President Barack Obama invoked the idea of a "Sputnik moment" for this generation, implying that the United States was besieged by China as it had been half a century before by the Soviet Union. According to Obama, the country needed historic new levels of research and development akin to the massive investment that fueled the space race with the Soviets in the 1960s. But instead of backing up his vision with money, as President John F. Kennedy had, Obama announced a spending freeze, boasting that it would bring discretionary spending down to levels not seen since President Dwight Eisenhower. It's hard to miss the irony here. And lower interest rates won't do the trick, as they won't bring down the cost of risk capital. For much of the 1980s and 1990s, any decrease in interest rates was mirrored by a similar drop in the cost of risk capital, spurring innovation. Since 2000, however, the cost of risk capital has gone up in spite of dramatically falling interest rates. The expected yield on risk capital is now more than three times the yield on 10-year Treasurys. The mechanism behind this is quite simple. U.S. consumption spurs economic growth and savings in China. But China's savings are mainly invested in risk-free assets, perhaps because the Chinese are culturally risk-averse, but also because the financial markets in China are still underdeveloped and not fully liberalized.

Whatever the reason, it's now clear that monetary policy is not an effective way to promote innovation. China and Germany both have a tradition of promoting new investment and innovation through state subsidies. The German government's subsidies for research, development, and innovation are four times as high as Britain's, and the Chinese government is luring investors with free land and other subsidies up to 40 percent of capital cost. It should not come as a surprise that the economies of China and Germany have been thriving. Economic growth in China this year has been close to 10 percent, and it might have been even higher were it not for the People's Bank of China's successful attempts to cool down the economy. And even though economic growth in Germany somewhat disappointed in this year's second quarter, the unemployment rate hit a historic low. No jobless recovery there. Thirty years ago, Chinese leaders realized that for China to become relevant, it had to look more like the United States. Now it's time for Americans to realize that to stay relevant, the United States will have to look more like China.

http://www.foreignpolicy.com/articles/2011/10/11/cashing_out PRINT | TEXT SIZE | EMAIL | SINGLE PAGE Cashing Out America's status as the world's banker has shielded it from harsh economic realities for more than half a century. Not anymore. BY FAN GANG | NOVEMBER 2011 The honor of printing the world's reserve currency did not come accidentally, or easily, to the United States; the dollar's post-World War II ascent to global primacy would not have happened had America not demonstrated the unrivaled economic, military, and technological power to back it up. But being the world's banker comes with benefits as well as obligations -- and first among them is that the whole world wants to make sure you don't default on your debt. If you are in a position to repay your obligations by just printing more money, you might never default. Related What Ails America? Gluttony The Fed Education What is a blessing in the short run, however, could turn out to be a curse in the long run. A country that controls the international currency runs less financial risk when it borrows, but is thus likely to be less alert to the risk of financial bubbles. Costs can be underestimated, and problems undiscovered, for a long time. The United States is now learning this lesson in a very big way. For many countries, such as Argentina and Vietnam, a budget deficit of more than 3 percent of GDP or a 5 percent current account deficit has been enough to plunge them into a financial crisis. The United States, by contrast, maintained about the same figures on its balance sheet for a decade while enjoying a period of economic expansion. The result was overconfidence and a flawed vision of limitless potential growth, as if Americans could keep spending without saving to no one's detriment. Some economists even claimed this was a result of the "superefficiency" of the U.S. economy. COMMENTS (0) SHARE: Twitter Reddit Buzz Bookmark and Share More... You can see the logical consequences of this illusion in today's overleveraged, debt-plagued U.S. economy, the major cause of both the 2008 global financial crisis and the current concerns over U.S. government debt. The lesson is clear: The United States may enjoy a greater line of credit than everyone else in exchange for providing the dollar, but even the most forgiving balance sheet in the world has its limits. America's long experiment with ballooning debt and an ever-expanding financial sector has left the country with other problems, too. Wall Street's disproportionate size in comparison with "real" sectors of the U.S. economy such as manufacturing has resulted in deteriorating industrial competitiveness, growing trade deficits, and unemployment. We cannot and should not attribute all of America's current problems to the dollar's special status and the illusions that come with it. But without it, we cannot explain why the United States did not make the hard economic choices that less-privileged countries would have had to make, and long ago. Today, even the world's banker can't put off the reckoning any longer.