With the words “Yes, we can!” Barack Obama announced a new era. Now it is really here, but not the way he imagined it. Standard & Poor’s has taken its AAA rating away from the United States.
For the first time in history, America has ceased to be the world’s most reliable debtor, and the global economy has lost the stable axis on which it used to revolve. The days when American government debt was synonymous with risk-free investment and the dollar was a reserve currency are coming to an end.
Perhaps that would sound like an exaggeration had it not been said by Mohamed El-Erian, head of PIMCO, the world’s largest bond trader, and the Chinese government and ruling party, America’s largest creditor. El-Erian’s brokers and Beijing will start deciding today what will happen next on both coasts of a Euro-Atlantic civilization overburdened with debt.
In El-Erian’s view, it is difficult to imagine that, after the fall of America, others would not be eliminated from the elite AAA club. He has mentioned France. That would mean the end of rescue operations in the Eurozone, unless Germany is willing to become the sole financier and sacrifice 56 percent of its GDP to the cause. A wild era is coming, one that calls for minimal debt and a maximally adaptable economy.