The Crisis Gives the US New Financial Power

The global financial crisis has reduced savings of the world’s wealthiest nations, but that does not necessarily reduce their power, suggests Ricardo Hausmann, director of Harvard’s Center for International Development, in an essay for the Financial Times. Nations can retain power, depending on how they borrow or spend. “The financial meltdown has translated into a sudden stop in capital flows to emerging and developing countries, which threatens to destabilise their growth, their financial systems and their government accounts,” explains Hausmann. In continuing to borrow and spend, the US should consider extending its rescue lines beyond domestic targets, notes Hausmann. By extending capital assistance to responsible nations the US could boost global trade, prevent a wave of protectionism, earn interest for US taxpayers and stabilize the dollar. Hausmann notes, “Countries would have to decide whether they want to play ball with market democracy and benefit from access to the financial resources that the US and others can mobilise, or try to form a separate camp with Russia, Iran or Venezuela just as the rug has been pulled from under them.” – YaleGlobal