The states most likely to weather the current economic storm are -- in spite of all their troubles -- those developed states that have truly balanced economies and a powerful middle class. The underlying fundamentals of the American economy are still very strong; and while America has moved to a service-oriented economy, it still is a major producer of raw materials, as well as industrial goods. And it has a national market of 300 million, the overwhelming majority of whom are, by all international standards, middle class.

One caveat, however -- one major loser in the economic crisis has been the EU. Its major members have been more inclined to go their own way. Even if several large EU members do work together (France and Germany) they are not really driving the EU. After 52 years (if you begin counting from the Treaty of Rome) he organization may well have reached the limits of its integrative capability.

In addition, it is certainly possible for misguided policies to wreck (think Argentina) or at least hobble (think Japan) a healthy economy, and in that regard the wild deficit spending of the current Administration is a cause for serious concern. Similar policy missteps have exacerbated the flaws in Russia's economy, or for that matter, Iceland's.

One economy that, if it's current policies are maintained, should do well is that of Brazil. It is perhaps the most important "Southern" economy to watch: balanced, with huge oil reserves, and a growing and powerful middle class. It is already a major international power, and is likely to grow even more influential, unless it chooses to look inward, as it has in the past. India, with a huge middle class, and an increasingly diversified economy, likewise may emerge healthier once the crisis is over.

China has thus far managed to cope with crisis, but its massive dollar holdings mean that it is at least to some degree a hostage to American policy decisions, while its fear or unemployment (which is already significant) and the instability that unemployment, as well as regional economic disparities, could lead to retrenchment on the part of the ruling elites. In that regard, China, and indeed Russia, are a source of worry not because of their growing strength, but because of their potential weakness.

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The pressing need for national security reform must not be lost as America grapples with the global economic crisis.

It may be easy for some to uncouple the challenges of a sweeping economic downturn that is still revealing itself and the requirement that we confront the need to recast our national security system. But that would be a profoundly shortsighted and dangerous strategy.

The reality is that as we focus on the financial markets, the failure of iconic companies, high unemployment and the collapse of the domestic housing market, we need to understand that issues of national security are integrated into this process.

As the economic crisis spreads around the globe, the potential for political unrest and regional humanitarian emergencies expands. At the same time, the stakes are raised for terrorists and criminal enterprises to make lethal mischief with weapons and toxic materials.

Recently the nonpartisan Project on National Security Reform (PNSR) released a two-year study of the U.S. national security system; a study mandated by Congress and designed to respond to a global security environment that is evolving at a startling rate.

The study, entitled Forging a New Shield, makes the case thatthe national security system established after World War II is no longer adequate to the needs of the new century.

That reality existed before the economic collapse, before the new Administration, indeed before many of the benchmarks that are often used for keeping score in Washington.

The demands for a new way of thinking about national security, for developing a truly modern, strategic approach with clear goals must not be lost as we move forward with economic reforms.

The world in which the current, entrenched national security system was created more than 60 years ago no longer exists. We are confronted with a globalized, unpredictable world with multidimensional threats, a reality that is evident to us every day on the front pages of the newspapers.

The PNSR report lays out a course that is comprehensive but requires a change in mindset and execution that will be difficult to reach, particularly in these troubled economic times.

Going forward, it is imperative that we:

• Better understand the changing nature of contemporary security challenges.
• Discard processes, practices and institution that, while once useful, are inadequate to meet the current global security dynamic.
• Mobilize all the tools of national power to construct a comprehensive and agile national security strategy.
• Ensure the accountability of both decision-makers and policy implementers.
• Develop an approach that enjoys the support of the American people and provides hope for the rest of the world.

As the PNSR report concluded, “…if we fail to keep pace with the opportunities afforded by change as well as the challenges posed by an unpredictable world, we will ultimately be unable to preserve and strive to perfect our way of life at home.”

That is the reality. We cannot afford to let national security reform become a casualty of the global economic crisis.

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Thanks to everyone for their responses. This is indeed proving to be an intriguing exercise, just as we hoped. What is striking in the first instance is the sheer range of answers to the question—and more suggestions are of course welcome. A winner might be “nonpolarity,” a kind of geopolitical chaos, Hillary Mann Leverett says—in which case “no set of players” assumes responsibility for global order. Or a resilient China: “There is likely to be a quantum jump in China’s prestige and influence,”  Michael Brenner writes. Or other non-OECD countries that so far are holding up well, like Brazil and India.

Losers? “The biggest “losers” from the crisis have been and will continue to be those nations that depended upon oil-wealth for the consolidation of power, and this is true from Russia, to Venezuela, to the Middle East,” Kellie Meiman suggests. America, too, is a likely loser, a number of bloggers, though not all of them, predict. “We are going to be poorer.” Col. W. Patrick Lang says.

For Andrew Bacevich, “the ongoing economic crisis will not itself determine the winners and losers of international politics. Its significance lies in helping us appreciate the larger forces at work that are in fact propelling some nations on an upward trajectory while others are in decline.” At this point, it is evident that the X factor in the global economic crisis, as in so some many fluid and complex events with a multiplicity of causes, is the element of contingency.  We don’t know the outcome because the outcome is not pre-set: “The impact of this crisis depends on how we and others react to it,” Daniel Serwer observes, adding, “There is a sweet spot out there.  It is Obama's job to find it.”

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What if “nonpolarity” wins? Foreign Policy ran this excellent answer, co-authored by Flynt Leverett (full disclosure, the love of my life), entitled, “The Age of Disorganization”:

As states large and small struggle to cope with and find a way out of the current economic crisis, it is not too early to begin thinking about how the "Great Recession" will alter the world's politics. Countries that have the economic fundamentals and resilience to emerge relatively early from the crisis -- China, some Gulf states, Brazil, and India -- are also likely to emerge stronger politically.

But will the rise of new power centers result in genuine multipolarity, in which a more diverse set of countries works with the United States to make decisions about the global economic and political order? Or will the decline of U.S. hegemony result in a condition of "nonpolarity," in which no set of players assumes effective responsibility for the system as a whole?

This is a critical question, for the powers that we foresee coming out of the Great Recession in a stronger position are not likely, on their own, to embrace the full range of strategic responsibilities traditionally associated with "superpower" status. Thus, the United States and other established powers must incorporate rising states into the structures and processes of global economic governance. This way, the Great Recession will catalyze a strong and accountable international economic order, rather than a "beggar thy neighbor" world begetting, as in the 1930s, ever greater international disorder.

China: Of the major states likely to prove most resilient, China tops the list. Since the crisis hit, Beijing has launched massive stimulus initiatives -- and unlike many other countries, it clearly has the resources to do more. For this reason, China will recover before the United States, and certainly before Europe or Japan. Importantly, when the recession lifts, China will still have a massive supply of low-cost labor and unparalleled capacity in innovative, value-added manufacturing. Before the recession, the country started to include greater economic emphasis on domestic consumption. This will make China less vulnerable to any downturns in Western markets.

China's political machine reinforces its economic resilience. Three decades of double-digit growth have earned the Communist Party leadership considerable stores of domestic political capital. To be sure, severe chronic problems persist: the social turmoil provoked by growing gaps between rich and poor, severe environmental damage, and endemic local-level corruption, just to name a few. Yet millions more Chinese citizens are freer and wealthier today than ever. Thus, the party has fostered, and been a major beneficiary of, a tidal wave of national pride.

Gulf states: The next set of early reemerging markets is likely to be found in the Persian Gulf. Saudi Arabia, the United Arab Emirates (thanks to Abu Dhabi, not Dubai), and Qatar are managing today's economic challenges -- including the sharp drop in energy prices -- well. For the most part, Gulf banks avoided the structured financial products that so badly damaged their American and European counterparts, leaving the region's financial sector in relatively good shape. And, in contrast with previous oil booms, fiscal planners in Gulf Arab governments had made fairly conservative assumptions about oil and gas prices.

As rising energy prices transferred unprecedented wealth from the West to the Gulf, these countries built up ample foreign exchange reserves to cushion any short-term decline in government revenue. Therefore, these states, particularly Saudi Arabia, see the crisis as an opportunity to consolidate their standing as vital creditor nations. When global demand returns and energy prices start to rise again, the influence these governments wield in financial and monetary matters will grow still further, boosting in turn their geopolitical standing.

Brazil: Brazil entered the financial crisis with emerging-market dynamism, and will emerge with that dynamism intact. The country's increasingly world-class agricultural, manufacturing, and service sectors make a difference. Its recent offshore oil discovery has made its abundant natural resource base even more impressive. Most importantly, President Luiz Inácio Lula da Silva has helped implement responsible macroeconomic policies. His enviable approval ratings suggest that his government will ride out the crisis with its market-friendly reputation intact.

India: India has also proven a resilient engine of growth, notwithstanding the effects of the slowdown on its domestic economy and the horse-trading nature of its election-year political dynamics. The decentralization of power in the world's largest democracy ensures that, though reform often proves a (very) slow process, New Delhi's enormous state bureaucracy can no longer easily obstruct the entrepreneurial talents and energies that have transformed India over the past two decades.

What will these countries' economic ascension mean for global politics?

In recent years, senior Chinese officials have regularly described China as a "peacefully rising power." In the past year, references to China's "shared responsibility" for international leadership have become more frequent. The practical effect of this shift became evident in the run-up to the recent G-20 summit, when China made clear that its willingness to help expand the International Monetary Fund's capitalization was contingent on its ultimately receiving greater voting power within the fund.

Beijing's growing prominence in global economic management will lead to competition, and perhaps conflict, with Washington; the already established trend toward greater Chinese assertiveness will accelerate. Beijing is unlikely to challenge U.S. primacy directly, but it will be more willing to resist when Washington proposes economic and foreign policies it doesn't like. To the extent it seeks to exercise broader political influence, China will seek to reduce focus on democratization as a corollary to economic liberalization and increase focus on national sovereignty, narrowly defined, and on multilateral decision-making as a necessary constraint on U.S. unilateralism.

At the same time, China's gravitational pull on other countries -- both in its regional orbit and beyond -- will grow. Gulf states, already building ties to Beijing as a hedge against a perceived decline in Washington's competence, will embrace China as an economic and financial ballast against the United States. Together, China and the Gulf energy-producers will gain influence as dollar hegemony slowly but inexorably erodes. Brazil and India -- both robust democracies, but also strong defenders of developing countries' sovereign prerogatives -- are likely to join China in seeking a bigger share of global political power for emerging economies.

At this point, the old G-7 countries, the political power centers, will face a choice. They could embrace rising powers, making international economic and political institutions more reflective of the true global balance of power. The expansion of the G-7 into the G-20 is an important first step in this direction. Rising states must embrace higher standards regarding the rule of law, corporate governance, domestic regulation, and -- in China's case, especially -- currency openness. Then, the global economy would survive a historic shift in the global balance of power, a truly epochal achievement.

But the old G-7 countries might decide their relative standing is more valuable than effective global economic governance, shutting out smaller countries and cementing their power. Such an approach would prove shortsighted come the next systemic economic emergency -- whether it is an emerging-markets financial crisis or a currency crisis due to the strained dollar-based monetary regime. Likewise, rising powers might fail to create open, legal markets; without broadened international oversight organizations, individual states may start manipulating international markets.

Such a chaotic world would be one seriously deleterious effect of the Great Recession. It is up to international bodies like the G-20 and wealthy countries such as the United States to ensure a multipolar and accountable future for all.

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The impact of this crisis depends on how we and others react to it.  "Bust" is a product not just of market forces but of government and public reaction to them.  Protectionism, overregulation and excessive government intervention in markets and firms are the obvious dangers, but there are also risks associated with underregulation, systemic financial system failure and deflation.  Steering among the shoals is not going to be easy.  

There are also enormous opportunities in this crisis.  A number of our antagonists--especially oil-producing ones--have been seriously hurt as the price of oil dropped below $45/barrel.  As the recover begins, we need to get off the path that leads directly back to $140/barrel oil and resumption of the transfer of hundreds of billions to the likes of Russia, Venezuela, Saudi Arabia and Iran.  The only serious way to do this is to raise oil product prices (yes, including gasoline) deliberately and steadily to around the $4/gallon level that we now know (because we saw it happen last year) will cause massive shifting to more fuel efficient cars, public transport and serious household conservation.  This will also put the money into American pockets rather than Middle Eastern sovereign wealth funds.

Politically this is more than difficult.  With Chrysler going to Fiat, GM on the ropes and Ford barely scraping by, who wants to risk lowering demand for cars, especially the behemoths most Americans adore?  Nor will raising gasoline and fuel oil prices help the housing market.  But it has to be done, or next time they meet Chavez will be tweaking Obama's nose rather than shaking his hand.   Combined with an effort to lower taxes for those who bear the brunt during a second Obama term, our democracy may just barely be able to meet the challenge.  

There are other opportunities as well:  why not let Chinese demand lead this recovery?  The US should focus on saving and investment.  America has become more a consumerist society than a capitalist one.  Not only its banks are undercapitalized.  Shifting the balance even a little would help a lot.  At least some of the Administration's plans point in that direction, but they need to keep at it, encouraging not only government investment in infrastructure, health and education but also private investment.  

A lot of what is happening was going to happen no matter what:  China is a growing economic and military power and the US a declining one in relative terms.  Chinese economic growth was far above US growth before the crisis and it will be afterwards.  Anyone who thinks a power in relative decline with a high savings rate can't enjoy life should talk with a European friend.  Bemoaning our fate will do little to change it.  What we need to avoid is reacting to the crisis by making matters worse--stalling the US economy into a more prolonged recession, or putting it into an inflationary spiral that will require the Fed to put on the brakes.  

There is a sweet spot out there.  It is Obama's job to find it.

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When asked about the impact of the French Revolution, Chinese Premier Chou Enlai replied:  "It is too soon to tell."  The same might be said of the great recession of 2008-09. 

One hopes that it will be a wake up call for Americans to repair the defects of their own economic house, but I am reminded that the horror and resolve of 9/11 passed within a few years in the United States and within a few months in Europe.  We are the people of plenty and the people of the moment.   The shelf life of any societal "lesson" is quite brief.  Right now, we are awash in governmental interference (i.e., management) in the economy, but the post-Obama wave, or perhaps  the second Obama wave, may well be less bridled capitalism.  The era of "free range" capitalism is over, but only for now. 

One of the most interesting aspects of this crisis has been that, while it originated in America, it appears as if we have suffered less than many other countries.  Such are the perils of globalization and the danger of domination by the advanced industrial and post-industrial societies.  Moreover, while many predicted the end of the dollar as a reserve currency, there has been no systemic flight from the dollar.  Perhaps I should add "yet."  We are likely to emerge better regulated with stronger banking and auto industries, downsized and rationalized for a new era. 

We should shudder at the size of the Obama-planned deficits.  To his ambitious plan for healthcare and the environment, President Obama has had to add a  huge, deficit producing stimulus package.  But politics adjusts, even if after the fact and ever so slowly.  My guess--- and that it is all that it is--- is that the Obama plans for healthcare and the greening of America will be another case of 10 pounds of aspirations and only 5 pounds of resources.  Once the tax burden and the deficit become sufficiently onerous to choke the economy, the clever politicians will know what to do:  retreat!

This crisis does remind us of the perils of mismanagement and overextension.  It does remind us that our hegemony will ultimately fade, but despite our serious problems we remain on top, even if it is faute de mieux.  God help the world:  the nation that brought on this global economic crisis is destined to remain its leader for yet another generation.

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Professional economists would, of course, be critical to the formulation of a more richly textured picture of the likely impact of the ongoing global financial crisis, but certain fundamentals fall well within the portfolios of various observers of international affairs with more general or primarily political and social expertise.  Throwing my proverbial two cents into this discussion, I remain skeptical that in the near-term there will be any real winners in terms of not having to make some rather painful adjustments.  In the end, the greatest strategic advantage probably will pass to China, but even Beijing has experienced some notable internal difficulties, both financial and social, since late last year that are likely to persist for some time--even worsen.  And India, so dependent on export trade, will certainly not be seeing great benefit in the coming months either.  The sad fact is that until the current crisis clarifies somewhat more, practically every major party concerned will be a "loser" or will be compelled to address the political, social and economic consequences of certain of its own domestic losers.

Because the damage will be so widespread in the increasingly global order that has emerged, while economists must focus on financial and economic remedies, political analysts must assess carefully the emerging challenges posed by resultant instability:  the object of a pointed warning in a recent US Intelligence Community product.   There are societies already slipping into crisis for which dislocation associated with the more recent, ongoing, and broader global crisis will inflict additional pain.  Pakistan comes readily to mind in this context.  To some degree, the dramatic fall in world oil prices should bring relief to Pakistan in a macroeconomic sense, but the increased incorporation of large numbers of Pakistanis into the export side of the world economy will bring painful dislocation in various sectors that easily could magnify mounting internal social and political stresses.  As a result, for the time being, all strategic calculations aside concerning "winners" and "losers," it might be prudent to assume that all societies will remain losers for one reason or another, at least for some time, in order to best assess looming security risks that may well become the most significant consequence of this global economic crisis in a number of important cases around the globe.  Indeed, even as some countries begin emerging from crisis, we must anticipate internal stresses associated with widespread perceptions of inequity in some quarters related to how various governments address those left at considerable disadvantage as a result of significant economic adjustments. 

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We are going to be poorer.  We are going to have a lower standard of living, one that corresponds more closely to the true size of the economy.  That seems evident.  Maximum leveraging as a way of life and business became accepted wisdom for the clever.   Classy saloons were filled with smartly dressed young people who owned little or nothing but debt.  They felt good about that.  They felt superior to people who saved money and paid off mortgages.  Giant corporations were guided by much the same principle.  The economy may well begin to recover this year, but it has been revealed that much of the "wealth" that was so thoroughly enjoyed did not really exist except as a convenient fiction.  We are going to live in a world that knows that.  This will change everything, for a while.

As someone with a couple of degrees in economics, I suppose I should comment on this one.  Well, let's try a couple of truisms before I bloviate.  Of course, having degrees in economics makes me suspect to begin with on any commentary.  (NB:  "Maestro  Dr. Greenspan.)

First, economics is chronic -- rarely fatal.  It aggravates or pushes over the edge existing political problems and already moving geo-political trends.  Second, and more importantly, watching the news lately, there is nothing like a group of poli-sci majors with one required Econ 101 course taken twenty years talking about the global economy. But, I digress.

Ok, first things first.  Yes, I too believe the American Empire is declining -- relative to the other growing players in the world.  And isn't this what we have been trying for since World War II. Spreading capitalism around the world, making the Third World prosperous, etc. etc.

At 20 plus percent of the world's GDP, we'll be around for awhile and damned powerful economically and politically.  Not to mention our military and overseas investment and 300 million rather prosperous and industrious locals. However, relatively speaking, China, India etc will and are increasing their economic and, consequently their political power.  A natural outcome of the development we have pushed so hard to obtain. 

As for the debt we are currently stacking up, we have a long way to go to bankruptcy.  We stacked up a lot more at different times in our history and we are still here.  The debt will stimulate the economy and we'll pay it back or down relatively to our growing GDP.   

As for those who hold the debt,  pension funds and the UK outrank Beijing in USG debt holders.  And, kindly remember the words of the wise man -- if you owe a bank $1000 you have a problem.  If you owe them a $1 million you have a partner.  Beijing has nowhere else to go for its markets or to place its surplus funds.  They might swagger a bit, but they are not going to cut their own throats.

And, by the way, this ridiculous capitalism at all costs rhetoric business is now official dead.  We are all socialists now. Actually, we always were to some extent.  For all you "free market" types take a deep rumble, drive on our public roads and then go to your publicly zoned home and think with your public education about it while watching your regulated CNBC channel on the regulated cable channel.

In the last ten years world governments (especially us and the UK) allowed one sector (the financial) to spiral out of control.  Shame on us and shame on those only we viewed capitalism as unregulated.  If anyone bothered to stop quoting Adam Smith and actually read him, you would understand he did not trust the markets further than he could throw the proverbial brick elephant.  

The only true losers in all this are the people who think that either total regulation is the answer or total deregulation.  Sorry guys, we need to think about how to allow creation bounded -- and that is what good government is all about and what careful and considered international cooperation is about.

The final lesson of this current mess is no country is an island.  We need serious financial and trade regimes set up for a modern world.  We'll see if the current Administration is willing to take on that one.

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Drawing up a scorecard of winners and losers from the financial crisis and the resulting global economic downturn is relatively easy if we concentrate on straightforward economic effects, and if we think of them in the short term. Political ramifications, especially over the longer term, are more difficult to calculate. Some losers by both measures are readily identifiable, though. Oil exporting countries head the list: e.g. Russia, Iran, Iraq, the Gulf states, and Venezuela. All are suffering a sharp drop in revenues as oil prices have fallen precipitously from $160 a barrel last summer to around $45 today.

Russia, the world’s second largest oil exporter, has relied on oil revenues to fuel a decade of growth and stability beginning with the recovery from the last crisis in 1998. The resulting rise in living standards was the foundation of Vladimir Putin’s successful reconstitution of a strong Russian state. Popular at home and less dependent on the West for economic sustenance, he enjoyed the freedom to pursue a more assertive, self-interested foreign policy. Changing economic fortunes crimp his style, although it is unlikely that Moscow will revert from has been its historical vocation of activism in managing its external relations.

Iran, too, has highly dependent on oil revenues. Iranians have been cushioned from the full effects of the American led sanctions regime by the flow of petrodollars. Understandably, there is now much talk in Washington that a further tightening of the screws could force the leadership in Teheran to make major concessions on its contentious nuclear program. That is a dubious argument. The mullahs, and Mr. Ahmedinejad, have proven themselves resilient players in a high stakes game They will not forgo what they see as core national interests unless concessions are part of a comprehensive deal that accords them a prominent place in a new regional security system. Their mechanisms of social control can contain any domestic pressures.

Iraq’s fate is something to worry about. Whatever prospects exist for the evolution of a stable polity are jeopardized by the drying up of oil revenues. Mr. Maliki is using his treasury to win allies, to buy off possible enemies, and to keep already poverty stricken Iraqis from complete despair. He, or any successor whether democratically selected or an authoritarian figure, will find it impossible to consolidate their power unless they have oil money as the all purpose lubricant. Whatever exaggerated hopes the Obama administration has for a secure Iraq serving as a bulwark for American interests in the region now look even more fanciful. Iraq as an obvious loser from the economic crisis is also a strategic loss for the United States.

Saudi Arabia, Kuwait and the Gulf principalities are in far better shape. Small populations and prudent policies of building up large financial reserves are making it possible for them to ride out the storm. Economic pressure will not figure prominently in their strategic calculations.

Hugo Chavez’s Venezuelais too insignificant diplomatic player for its drop is export earnings to make much of a difference.

What of the United States- and China, the looming great power? On this key question, a few things are reasonably clear:

1. The American economy has been more severely hurt than has China’s.

2. The American economy will take longer to recover.

3. The American model built on doctrines of market fundamentalism has been badly discredited. China’s state managed capitalism looks to many to be a more attractive model.

4. Financial resources to pay for the United States’ enormous military budget and to underwrite its military enterprises across the Greater Middle East and Central Asia are under growing strain.

5. Consequently, there is likely to be a quantum jump in China’s prestige and influence relative to a cash strapped, seemingly feckless United States.

Some elaboration and particulars are in order.

· China’s rate of growth has slowed, yet is surpassing that of the US by an even greater margin today than before the crisis hit. All forecasts are that this gap will be maintained for the foreseeable future given the dim outlook for the American economy.

· China holds $2 trillion of hard currency reserves, roughly 70% in dollars. The United States depends on inflows of capital from China, Japan and the oil rich Gulf states to cover our yawning trade and budget deficits.

· China has enormous sovereign wealth resources that it is using to underwrite long term contracts with suppliers of natural resources around the world. They are doing so in Africa, Latin America and throughout Asia. To date, their influence buying is driven by economic needs. The overriding political consideration is that they stay on good terms with whatever government leadership they have managed to work with, e.g. Sudan.

· Senior Chinese officials recently have stated publicly that they are concerned by its large, continuing investments in US financial paper given: low interest rates, the US’ parlous financial state, and China’s vulnerability to a drop in the dollar’s exchange rate.

· The same officials have proposed a gradual move to wean the world’s economy off the dollar and to replace it with a world currency modeled on the IMF managed Special Drawing Rights (SDRs)

· The privileges that the United States has enjoyed from the dollar’s status as an international reserve and transaction currency are going to be progressively reduced. That means: domestic policy will have to more attentive to constraining international monetary conditions, i.e. higher interest rates, fiscal discipline, and a reduction in the money available to apply to foreign policy objectives – military and civilian.

IMPLICATIONS

1. The United States will lose influence in the IMF and, to a lesser extent, in the World Bank. As a greater share of their capital is provided by China and other Asian countries, Washington will lose its veto in the IMF as its relative share of contribution based voting rights goes down. Its indirect influence over decisions by both bodies with decline as the world’s dependence on the dollar and American financial oversight globally drops sharply. Hence, a tool of American foreign policy will be blunted.

2. International financial management will have to become truly multilateral as the United States, with some of its European partners in train, is no longer in a position to call the shots.

3. Working out the terms of that multilateral management, and making the requisite organizational adjustments, will be the prime test of whether the United States and China can work together to each other’s mutual benefit and in the interest of global economic stability.

4. Mutual economic dependency is the overriding reality – whatever the exact balance. China has it within its power to bring the American economy to its knees overnight by using its financial firepower on world markets. However, by doing so it would do grievous damage to its own economy It would be akin to Samson bringing down the temple on himself. In other worlds, a condition of Mutual Assured Destruction (MAD) exists with similar stabilizing consequences.

The imperative for the United States is to put its economic house in order. That entails: imposing strict regulatory controls financial institutions and the innovative practice that are the source of the current crisis; qualify the premise that the opening of financial markets in other countries on American terms serves the United nation’s national interest; take steps to reverse the hollowing out of the manufacturing sector; move toward a marked reduction of the trade deficit before global markets and foreign governments do so by forcing the adoption of austerity policies; curb bloated budget deficits and the attendant dependence on foreign purchase of Treasury debt.

Failure to do these things will mean a decline in both absolute and relative influence in the world – political as well as economic. Its logical consequence will be less control over those things that could threaten its national security interests.

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The world has undoubtedly changed irrevocably with the global economic crisis.  Never again will the assumption that “markets know best” be accepted in the absence of justification.  This dynamic challenges the United States to quickly restructure its own regulatory regimes both to avoid a future replay of the past year, as well as to regain global credibility of the market-based model.  It also means that the United States will have to work harder to build coalitions to drive forward global economic policies that we believe will deliver growth.  We see this need reflected in discussions at the G-20, and will continue to see it as we work to make more effective multilateral institutions like the IMF and World Bank.  Countries such as China, India and Brasil, who are emerging from the global crisis ahead of the game in relative terms, have an opportunity to extend their influence both globally and through international institutions, should they decide to take on the tough decisions demanded of global stakeholders, which many times can complicate domestic politics.  The biggest “losers” from the crisis have been and will continue to be those nations that depended upon oil-wealth for the consolidation of power, and this is true from Russia, to Venezuela, to the Middle East.

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Winners and Losers — How refreshingly American! Surely the deck is being reshuffled as we speak. Perhaps even the goal posts will be moved. 

Perhaps a gamesman’s or sport fan’s metaphors are a positive sign. They show a certain dispassion and detachment. The coming years will challenge whether analysts can keep their cool.

But there is a downside to great power gamesmanship. Sure it makes for easy fun, but it is also fleeting — Declaring a “victor” in the race risks missing the stakes themselves.

What do I mean? Let’s take two contrasting examples, one a winner and one a loser, both from global downturns past. Here winner and loser both — is Us.

Panics and Depression, 1893-96. Clinging to a gold standard with no gold, against raging US silver production, dollars hemorrhaging to European banks by the millions daily — the Republicans seemed finished when William Jennings Bryan took on his “cross of gold.” But JP Morgan reached out with his all-too-visible hand and in an historical instant recouped US Government gold reserves and America’s financial position. The economy recovered, and McKinley stormed to victory in November 1896, clinching 33 years of Republican domination.

Now place Morgan’s feat in global economic context. In 1896 the United States was far stronger than today. Think of it as “Mr. 40%” to our mere 20% today: 40% of world railroad mileage, 40% of world steel production in an industrial age. Even in exports we were 15% of the world total then compared to 10% today. If we seemed like a loser going into the depression of 1893 — a nation divided by precious metals headed for a financial bust — we came out transformed as a winner: “he doth stride the world like colossus.” The American Century had its announcement.

The Big Fall, 1931-32. We are not taught that there was an American world system before 1945. But out of the wreckage of Woodrow Wilson’s excellent adventure, four Republicans stepped up and created a “soft power” world system — run by us. Dawes, Kellogg, Hoover, and Hughes orchestrated a global order that had both economic and security dimensions.

The Washington Treaty system was the security pact, involving all the powers — except a quarantined fledgling Soviet state. The economic side focused on stabilizing an even more fledgling German democracy. Both worked remarkably well from 1922-1932. But the fall came fast, right after the crash of Austria’s Credit-Anstalt. What fell was not simply a Western liberal world system — What fell was America’s first world order. 
If in US-centric terms 2009 is hardly 1896: it is also not 1932. There are no restive, risk-embracing revisionist nation-states today like Japan, Germany, Italy, and the USSR. Russia today is at best “near-abroad” revisionist, a Georgian-Estonian bullyboy. China and India in contrast are happily stepping up to their prospective new big man station.

But the United States nonetheless faces a “born to lose” future. If American world order had its successful first audition from 1922-1932, it now faces losing not just the part but also the whole of the big Broadway production that opened in 1942. It has been a long-running show — 67 years and counting — but this economic crisis has the legal authority to shut it down and close its doors.

How could this happen? Let me show how blockbuster shows eventually close.

US economic crisis is the perfect storm (embracing all cable news clichés) for two essential elements of our American world order: military power and financial leverage.

The late-lamented GWOT did its job — not in “transforming the Middle East” or even in stabilizing Iraq or Afghanistan — but rather in wringing out the discretionary squeeze in American military power. Coming out of the 1990s the idea was to maximize surplus revenue to be able to deploy and exercise the Defense Tribal Confederacy in ways that leveraged US system leader authority. Hence the short war with Serbia, hence military “transformation,” hence “shock and awe.” The idea was to use the Tribal Confederacy actively but efficiently to manage restive world margins.

But instead we squandered trillions in the pursuit of shadows and ghosts in Iraq and Afghanistan. Our Tribal Confederacy in consequence is now in need of massive recapitalization — which will not be forthcoming. Nor have we yet extracted ourselves from these sinkholes of the American fisc — and sacred blood.

On the financial side we are now wholly at the mercy of China and Japan and Saudi Arabia dollar holdings. Our people are frightened and deeply in debt. We have collectively withdrawn $284 billion this year alone from aggregate global demand. Our pump priming and expectation of massive debt further leashes our freedom of action.

Perhaps another example from history — not from us — might help. After World War I Great Britain was massively in debt to the United States and financially finished. It could leverage its military power only because the Republican big four gave them a perfect “out” in the Washington Treaty. After World War II it was even worse. The grandest of world empires — one-sixth of the map colored Red, as they crowed — could not even aid Greece. Giving us Greece was their Cold War baton hand-off. Broke = Broke.

Also: Money=Military. Always, the twin pillars of world system power and authority rest on a sufficient and deployable military and the financial strength to uphold it. These both are almost gone now for the United States. We can keep forces in Iraq and Afghanistan, but our continuing presence there represents a corrosive and ever-wasting asset.

So what can we do to keep our world system a going enterprise? All things being equal (another fabulous foreign policy cliché) we might recoup, regroup, and just keep going: our current plan. Contrarily, permit me to introduce (not from the inner-sanctum of Defense thought, but from actual reality) the dread three-step of “things to come.”

Humanity today faces the long-term prospect of global decompression. I addressed this in my 2 March 2009 post on the economic crisis. I suggested that a prudent analyst should look farther out — while also looking back — so as to see our world as a mature late-stage globalization epoch. By this I did not mean to imply that we were headed for an inevitable fall, but rather that we need to see our vulnerabilities instead of simply echoing official near-recovery rhetoric.

Take everything I have said about how this economic crisis hammers American global leadership. Then go and extend the crisis, as many are suggesting, to a prolonged period of economic stagnation and difficulty. We have our test case with Japan in the 1990s and beyond — a decade and more simply lost. What if we lose a decade?

The point here is that an American decade spent desperately staving-off human misery and political restiveness and even rebellion at home also means a decade postponing critical capital investment. The big investment we need is in alternative energy — as in alternatives to liquid carbon energy — meaning, oil.

But in an agonizingly long downturn the money will just not be there. If the United States today decreed that wind energy must supply 50% of our energy needs by 2030 — 1100-1200 Gigawatts — that would mean an increase of four orders of magnitude. Yet imagine in turn if a decade is lost. Then at last (finally!) we recover only to discover that oil is still stuck at 86 million barrels/day: and falling. But now we are desperately behind.

So on this prospective path the economic crisis not only undercuts American leadership on the gamesmanship surface — it also decisively defers the critical investment needed right now to keep North America going.

Yes, so this would be bad, but just consider where we are on the bad path: Now we are full into 2030. Our Defense Tribal Confederacy has been cut to the bone and all discretionary Government investment is being ruthlessly funneled into New Energy — And then big climate change kicks in.

It is fun to pooh-pooh Global Warming — as Peter O’Toole’s Anton Ego confessed at the end of Ratatouille. Certainly none of us can encompass global climate holistically. But remember: I am giving you the bad path. The bad path tells us that the climate change crisis kicks-in a generation hence.

So survey the wreckage from the US-standpoint. Overextended and broke after the 9-11 War, we descend into a long twilight while paying off or writing off crushing debt, all the while slowly slipping in our last shreds of world authority. Then the energy crunch hits. This takes another inward-turning decade to sort out, and it is a near-run thing. Emerging still intact in 2030, we face a world in the full throes of massive water shortages, agricultural collapse, and what easy-American commentators like to characterize as a blood red, “Hobbesian” struggle over energy, food, and water.

What now for the American Mission?

Yet we are not done. Look at how the West’s two former globalization epochs came apart  in the 600’s and the 1300s. Science now shows us how the shock of pandemic worked its ghoulish way. Archaeology is especially poignant as it paints — from ships to amphorae to achingly expressive human remains — world decompression at the end of Antiquity. For example we know that there was a global upsurge in Malaria — because Government was investing less and less in public health. We see this sort of decline over the past decade here in America.

Moreover there was also a widespread increase in leprosy — because health was declining so significantly. Surely we can begin to see how generations of billions living in our “planet of slums” are open to the very same sorts of mutations that helped doom the ancient world. Finally and worst there was the plague — tied to climate change — that truly helped bring down both Late Antiquity and the High Middle Ages.

So tell me: should this frightening path simply be dismissed? Should we stick to “winners” and “losers” like they were Hollywood Celebs on Paparazzi-call! Or should we (maybe) rethink the very nature of the world we live in, and also equally, the analytic frameworks that we consider worthy of our genius?

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The ongoing economic crisis will not itself determine the winners and losers of international politics. Its significance lies in helping us appreciate the larger forces at work that are in fact propelling some nations on an upward trajectory while others are in decline. It clears away the fog that accumulated in the wake of the Cold War when all the smart talk was about unipolarity, hyperpower, globalization, and benign global hegemony administered by the United States.

Events have now revealed all of this as so much blather -- a salutary development.

Connect the dots between the economic crisis and the Bush administration's disastrous post-9/11 foreign policies and the conclusion is obvious: the United States is overextended. The imperative of the moment is to restore some semblance of balance between our purposes and the resources available to pursue those purposes. That implies curbing our ambitions abroad -- forget about "transforming the Greater Middle East." It also implies getting our house in order at home so that we learn to live within our means.

This is not bad news. It's good news. If American political leaders muster the courage and imagination to seize the opportunity at hand -- reframing American statecraft, reordering our domestic priorities, and renewing core domestic institutions -- historians may one day enshrine this as the moment when the United States shed its illusions and finally grew up -- which might qualify as one definition of "winning."

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