Is the United States a Harbinger of Global Economic Mayhem?

It's really not a news flash that the United States is facing tough times ahead.  The Dow Jones Industrial Average fell 300.57 points today, which is attributed to a huge loss from insurance giant AIG.  An article from FOX News says, "Today's sell-off has put the Dow and S&P on pace for their fourth consecutive monthly losses -- something that hasn't happened since 2002."

A post on the Foreign Policy Passport blog entitled, Is The United States Dragging The World Toward Recession?, predicts global economic mayhem:

The Financial Times published three stories yesterday that represent more bad news about the U.S. economy: the dollar is reaching new lows against the euro and a trade-weighted basket of currencies; the Federal Reserve is so concerned about U.S. growth that Chairman Ben Bernanke signaled there would be yet another rate cut in March, in spite of inflation risks; and U.S. manufacturing data revealed that orders were the lowest in five months, and home sales reached a 13-year low. As Nouriel Roubini argues in the cover story of the latest issue of FP, this spells grave news -- not just for the United States, but for the rest of the world.

Roubini argues that the impending U.S. recession will cause global economic mayhem. He lays out five triggers that will form the roots of sharp economic downturn in countries around the world, if not a full-fledged global recession: a drop in trade, a weak dollar, the bursting of housing bubbles around the world, a fall in commodity prices, and a faltering of financial confidence.

The Crashing Down Now blog has an excellent post entitled, China: Savers Versus Debtors, that elucidates how dependent the US dollar is on the kindness of other countries:

Hey, as bad as things are becoming in the US, at least we don’t have 100,580.2% inflation like Zimbabwe.  But, like the Zimbabweans, we are to a large degree kept from complete disaster by loans from China.  In fact, about half of the three trillion dollars we owe to foreign nations is owed to China.

Whereas we Americans like to spend all the money we have, and then spend all the money we don’t have, both on an individual and collective basis (can anyone say 3 trillion dollar war?) the Chinese actually live within their means.  In fact, were OPEC to de-peg the price of oil from the dollar and instead sell in euros, as the leaders of Iran and Venezuela would like, and just as Saddam did back in 2000 (funny how all three of them were never on our friendship list), it would shatter faith in the US dollar so drastically that one of the few things giving the dollar value would be the fact the Chinese had enough faith in the currency to buy it up.

You’d think we’d be at least respectfully polite to the Chinese for doing so, but no.  I wonder what would happen if China dumped all their reserves at the same time OPEC ditched the dollar?

I like to try and remain optimistic, but I find it more and more difficult to not think we're headed into an economic meltdown.