The failure of the bailout bill has set off all the usual recriminations, though as of this writing the market is regaining some of the ground it lost yesterday. The bill that went down to defeat yesterday was certainly rife with problems: as economist Nouriel Roubini (one of the few who saw the financial tsunami coming) points out, it lacked numerous safeguards and put far more of the public’s money at risk than is prudent. Nonetheless it seems virtually certain that some kind of bill will pass shortly.
But the underlying damage has already been done. Future historians are likely to mark 2000 as the apogee of the American Empire; the decline since then has been as swift as it was unnecessary. Wed to their belief in American exceptionalism, the country’s leaders ran up huge debts to support wars that (as enemies like Bin Laden anticipated) undermined the state’s finances. And the people showed even greater myopia, spending like there was no tomorrow even as they lapsed into endless blue state/red state culture strife. The world economy has depended for way too long on the ability of the U.S. consumer to place him/herself in ever greater debt. We’ve now reached the limits of that ability, and we’ve got a long way to fall. We may or may not be heading for a second great depression, but we are certainly heading for a multipolar world (at first financially, but ultimately politically). And the transition to it will be anything but pretty.