IT'S WHAT WE DO:

America rises to the occasion as storm heads for Europe: An almighty crash has been averted, very narrowly. There is no guarantee that the revolutionary actions of the US government will prevent a full-fledged global slump, but at least we now have a fighting chance. (Ambrose Evans-Pritchard, 21 Sep 2008, Daily Telegraph)

By taking the colossal wreckage of the credit bubble onto its own books in a $700bn (£382bn) taxpayer sink, Washington has forestalled a run on the world banking system, and may hopefully have saved the viable core of modern capitalism.

Hank Paulson's "Super Sink" is the "game changer" we have all been waiting for in this interminable crisis. It puts a floor under the toxic debt that is bleeding the banking system to death, and ends the downward spiral of CDOs, CLOs, HELOCs, and such instruments of leveraged excess that lie at root of the credit terror.

No doubt the Fed, the Treasury, and Congress have made a string of mistakes but they are now rising to the occasion – the reflexes of a wounded but still formidable superpower. The US has shown time and again that it has the institutions and flair to pull itself out of disaster.

We will find out soon enough whether the rest of the world can respond with such dispatch as the hurricane smashes into them. As of today, the core risk is no longer in the US. It has rotated to the weaker and more brittle polities of Europe, Latin America, and Asia – especially China.

You often hear chatter about how other economies are starting to matter and about other regions, if not regimes, approaching superpower status. The reality dawns....

Posted by Orrin Judd at September 24, 2008 8:30 PM