Time: Niall Ferguson on the Path Forward

While Time magazine has a somewhat over-the-top cover on the current issue, the underlying article by economist Niall Ferguson is worth reading, even if a little heavy on history and light on prescriptions.

What’s more, this is no longer an exclusively American crisis. European banks are going under as well. Growth rates in the euro zone and Japan have fallen further than in the U.S. Emerging markets too are suffering. With the exception of Brazil, stock markets in the BRIC economies (Brazil, Russia, India and China) are now down about 40% or more on the year.

The notion that Asia has somehow "decoupled" itself from the U.S. now seems fanciful. China and America have come so close to merging financially that we can almost speak of "Chimerica." When Fannie and Freddie were on the brink of collapse, many were surprised to learn that fully a fifth of China’s currency reserves was composed of their bonds. Small wonder. Having spent much of the past decade intervening on currency markets to prevent the appreciation of its renminbi, China has accumulated a huge hoard of dollar-denominated bonds. No foreign nation stands to lose more from a U.S. financial collapse.