The rise (and lesser fall) of the rest

I've recently finished reading Fareed Zakaria's latest book, the Post American World, and found myself pondering its' relevance given the upheaval and turmoil in the finance industry.

Zakaria's implicit thesis revolves around the "rise of the rest". Undoubtedly a broad topic, the book forces the reader to accept succinct and sometimes cursory treatments of different countries facing different problems, but the central tenet holds: that the future of the world, herein represented mainly as BRIC countries, does not pose a threat to America despite their growing wealth and influence. That is because the upcoming power shift is caused more by the rise of these developing nations rather than a collapse of the US.

If the developing world is only tied to, but not buoyed by, the American economy then we would expect to see the top developing countries feeling some economic pain but not the complete stagnation previous bank failures have caused. The facts seem to support this. China and India's economies will certainly slow in the coming years (heck, even the Party admits it) but they also own a more than significant portion of our debt, as do the petro-powers of the Middle East.

In fact, the main reason the Fed can even afford to buy up these toxic Wall Street assets is because the Chinese seem to have an unending appetite for dollar-denominated assets. Is this because they see the American economy as something risk-free? Well they certainly did at one point and even with the recent crisis they are still confident that their investments are safe. As Tyler Cowen puts it:

Bush, Bernanke, Paulson -- we call them leaders. The Chinese think of them as the customer service department. I suspect the Chinese get straighter answers from them than we ever do.

The point is not that foreign countries are on the path to "owning the US". This protectionist scare raised its head during the last oil boom and the Japanese rise of the '80s only to prove unfounded. What is relevant is that as "the rest" rise they are still tied to the dominance of the American economy. In fact they continue to grow both because of, and in spite of, the US. Every country that has grown mainly from FDI or an export-led model relies on the US market but will also continue to grow during our downtick. With diversified portfolios, good savings ratios, and prudent spending, many countries will continue to grow as the US falters (China, as usual, being the best example).

This is not to say that the rest of the world is immune from our economic and political fate. Rather, despite their increasing independence, countries are still entangled with US finance and capital in an increasingly murky, and politically oriented, dance. Interesting pieces in the past few days delineate just how much Europe and China both rely on and distance themselves from the US. Whether this represents the continuing dominance of the US economy or the new integrated nature of global finance is a tangled and complicated question. One thing is certain, we cannot let the model collapse. Thankfully, the US Senate took note.