Meanwhile, Osama bin Laden seems to be achieving his publicly avowed goal of provoking the United States into overextending itself and draining its economy.
Nobel laureate Joseph Stiglitz, a former World Bank economist, notes that President Bush took a nation with a budget surplus upon assuming office and turned it into a global debtor, and he has underinvested in education and alternative energy. "The United States had not experienced a turnaround of this magnitude since the global crisis of World War II," Stiglitz writes.
If the passing of American hegemony happens, it will occur very slowly--death by a thousand cuts of credit.
While China and other big dollar-holding countries such as Singapore, Russia and the Persian Gulf states are very worried about the erosion in value of their dollar-denominated holdings and inflationary pressure, they also know that an abrupt move to cut their pegs to the dollar or to sell off in large amounts would force a run on the currency. That would leave them even poorer. Instead these countries are pursuing careful reallocations of their investment holdings, shifting slowly to the euro or a "basket" of currencies that will allow them to hedge against the dollar's decline. The effect will be more like a slow-acting poison: drip, drip, drip.