Does the financial crisis mark the end of American hegemony in the world system
The geopolitical hegemony of the United States for over a century in the world can be attributed to its economic mighty which has outclassed any other economy in the world through the years that no other nationhas arisen to challenge theeconomic dominance of the United States. This economic might has been used by the United States to advance the cause of international multilateral agreements such as those of the World Trade Organisation. The hegemony of the US currency is another factor that has contributed to its dominance of the world. There has been a policy by many governments in the world to stage andmaintain the dollar asthe key currency in the world (Layne, 2009). This has made the United States to be flexible in funding their foreign and international policies due to lesser foreign exchangeand fiscal limitationsit encounters in trade than any other nation in the world. The hegemony has also been attributed to the way the government has existed over half of the century as an almost uniform alliance of states and other factors such as the influence of the American popular culture and the strength of the media. These have all been factors that havebeen used to project the power of the United States to the world. There is a notion among many analytics of politics that the global dominance and thehegemony of theUnited States are under decline due to thecurrent financial crisis and the economic status of the nation.
For over half a century, the United States has not encountered a challenge to its hegemony in the world stage even with the expansion and growth of the economies o other countries in European Union and the Asianeconomies like china, India and Russia. Hegemony of the United States in the world just began to be thrown into question with the start of the global financial crisis that affected theeconomy of the Unites States adversely and the world as awhole which made doubts to be cast about the continued domination of the world by the United States. The crisis has adversely affected the hegemony of the United Statesto cease (Dorman, 2009). The crisis which originated from the reckless lending practices by the US banks and mortgagefirms and the losses due to sub prime lending all led to thenear collapse of the real estate, a fall in property prices in the United States and the fall of loss of commercial banks which resulted into the government initiating massive government assistance to the troubledbank and mortgages amounting to billion dollars (Philippon, Ariell, 2008). This global recession in the United States, the housing crisis and the government plans for assistance was against the policies of the US governmentwhich allowed free markets to thrive and was seen as a policy of adopting socialist measures which threw the doubts about the continued hegemony of the United States. The financial crisis hascreateda downturn in the financial crisis and a fall in capital investments in the United States which has resulted in a fall in domestic demand. The crisis also led to fall in trade and industrial production, rising in unemployment numbers as well asa fall in small business lending in the United States which is a risk to small businesses.
The global financial crisis has made Americans to lose substantial part of their net worth. Theloses that have been incurred as a total are estimated to be about eight trillion dollars with thereal estate banking andmortgagee sectors being themost adversely affected sectors. The global financial crisis promoted theUnitedStates government to enact legislation that heightened the regulation of the financial sector and this will impact on the financial sectors. This will have an effect on the raeganism in the sector which has been identified by lower taxes deregulation. The regulation will have an impact on the reign of free markets in the United States which have made them to lead inthe world (Obstfeld, Kenneth, 2009). The effects of the global financial crisis on the finance sector and the downturn in the economy will greatly affect the global hegemony of the United statesbecause the financial crisis struck at time when there were other forces that were affecting the reputation of the United States as a global leader such as thewar in the Afghanistan and Iraq
The shrinking of the United States economy will give a chance for other economies such as China and India to rise andovertake or grow to equal that of the US. Even before the beginning of the global crisis in 2008, many projections by economist were indicating that other economies such as those of China, India and Russia were experiencing phenomenal growth and were to surpass that of the United Statein the future. The effects of the crisiswill impact on the speed at which these economies will surpass that of the United States because they were not adversely affected by the crisis as the United States and this will makethese economies to rise and operate in the same platform as that of theUnited States (Watson, 2010). The decision by the Federal Reserve to bail out the banks at the heart of the crisis amounting to7 billion dollarshas caused a major deficit in trade and budget which have been deemed to be unsustainable. The United States government will have to meet deficits through higher taxes in order to cover the deficit. The possibility of rise in taxes is a major political consequences and predictions indicate that the country will default which will cause a depreciation in the currency of the United States .The depreciation of the dollar will have an impact on its continued use as a foreign exchange reserve currency. The diminishing use of the dollar as the ultimate foreign exchange currency will end the hegemony of the US currency across the world (Reinhart, Kenneth, 2008).
Many countries of the world have become aware of therisk of the depreciation of the United States dollar and have started to use other currencies such as the euro as the ultimate foreign exchange reserve currency. The risk of the dollarceasing both be the ultimateworld reserve currency will continue to impact the deficits and thetrade ties with other countries which will impact on the US economy adversely.
The geopolitical influence of the United States over time willcontinue to decline due to the rise of other economic powers in the world such as China and India, the increased integration in the European Union and the rebirth of Russia. The rapid rise of these major economic powers will impact on thegeopoliticaladvantage of the United Statesand in future, the United States will be playing in the globaleconomy filled among a team of equal countries that will have the same hegemony and influence in the world as it. The effects of the global financial crisis have indicated that the United States has been making poor financialdecisions which have led to the double deficits in the budget and the trade (Hutton, 2009). These poor economic decisions are attributed to thefact that the United States acts largely as a recipient of international investment rather than an investor. This makes its current accountto gain surpluses. The financiers of these trade deficits are the countries that are considered to be rivals to the United States such as Russia, China and the Gulf States such as Saudi Arabia. Thesecountriesalso control most of the imports into the United States which makes them to interfere with the balanceof trade because they control the imports and finance the budget deficits in the United States. This process is known as vendor financing and it puts the United States at risk in case ofpulling out of these investments which can affect the United States economy significantly and can lead to the collapse of the economy (The Bullet, 2009).
Recently, there has been a clash between the United States and theChina over devaluation of the Yuan currency by China in order to maintain a competitive edge in global trade. This highlights the vulnerability of the United States over its policy of allowing its rivals to finance its trade deficits. For over 10 years, the trade deficits in the United States have been financed by foreigners and this puts thethe country in the risk of the use of finance as a bludgeon through the disposing off the assets in the United States or cutting the rate of financing to the United States (Feldman, 2009). The global financial crisis has revealed the flaws in the economic policies and structures in the United States. The over reliance of the United States in foreign investments to fund trade deficits will have indiscriminate effects in the short term on the trade deficits but the continued imbalance will eventually lead to situation in future where the United States government will have to cut and tighten its monetary policies on other priority areas such as thespending in military andinternational developments projects which willlead to reduction in its hegemony and the dominationininternational matters (Ye, 2009).
The rise of other economic powers in the world like China, India, Japan and Russia does not impact on thehegemony of the US in economic terms only. The rise of these superpowers is also threatening the domination of theUnited States in other sectors as well such as technology, education, innovation, infrastructure and development. The lead in the United States in these sectors have been lessened by the rise of other world class training and research centers in Asia and the European union and which have education institutions that equal those of the United States. There have been problems in the education system in the United States due to the rise of the number of uneducated youthwhile other nations in Asia and the European Union areachieving better numbers than the United States (Cohen, Bradford, 2010). The education systems of the United Statues have become outdated and have problems in their funding. In terms ofmilitary clout, the United States has beena global leader. The Septembereleventh attackshighlighted that America is still vulnerable even with the solid army. The military response to the attacks in Afghanistan and the Iraq have all highlighted that hegemony in the united states as a guard of human rights is declining due to their failures in thefield and the human rights record of the military (Ferguson, 2003).
Asa general rule, it has been observed that most hegemonic powersonly thrive in periods of rapid economic growth but all wither away when growth ceasesas was evidenced in the collapse of the Greta Britainhegemony in the 19th century. Focusing on the problems the United States is experiencing as a result off the financial crisis such as trade deficits, unemployment and problems in education andtechnology, it is likely that the hegemony will follow the same route. Although all indications point towards the decline in thehegemony of the United States in the global stage, the United States economy may show elasticity and might withstand the problems both of the financial crisis (Haldane, Piergiorpio, 2009). The economy still enjoys theresources and the political will to tackle the financial crisis since it is well endowed to wither away the storm of the financial crisis. The US currency in the near future will still continue to be the foreign exchange currency of choice since the currency of other countries such as theEuro are not yet adaptable to play the role of a global reserve in foreign currency.
In the immediate future, the United States shall continue to dominate the world economic and monetary affairs. Nevertheless, the rise of other economic powers such as Russia, India, Japan and the European Union and the effects of the credit crisis will make the United States to lose itshegemony in the world affairs. In future, the United States will be operating in the world affairs among other equal players.This shows that in the future, the governance of the world will be in a multilateral approach where the economic political and military power will be more fluid and not very effective and there will be no clearly defined leaders of the world stage (Baker, Eva, 2009). The factors that are fuelling the trend of decrease in the hegemony of the United States all relate to the over reliance on foreign investment and spendthrift spending by America which does not equal its power.
The disparity in the level of international investment and trade were putting a stress in the financial system which became apparent in the financial crisis in 2008 which necessitated the US to initiate economic measures such as the stimulus package and the bail out of the banks that were affected by the crisis. These measures prompted the deficits in the budget levels as well as increasing the pressure on the exchange rates and currency which will limit the access of foreign capital to the United States This will impact on its key institution that characterizes its hegemony its economic clout and the effects will spill over to other areas of hegemony as well such as military (Caraley, 2009). Decline in financial capability of the US will lead to the United States becoming less affluent, volatile and unstable in the world stage which will lead to the rise of other superpowers in the world. However, even with a recovery from the financial crisis by the United States, in the long run, all projections indicate that in future, the rise of other economies such as India and china will eventuality overtake that of the United States which will greatly reduce the impact of the hegemony of the US in the global standing.