If it isn’t clear to you by now that the financial crisis of 2008 is still reverberating in the world’s economic, political, and social realms, then this timely and fascinating audiobook will serve as a reminder. Everything from world trade to immigration and the rise of populism can be traced back to the Great Recession. The author credibly reads the introduction, using his British accent and earnest tone to set the literary table, but it’s narrator Simon Vance’s performance that provides the sound feast. Vance also has a British accent, and he pairs it with a smooth delivery to accentuate the sense of crisis. His voice is not elastic, but Vance is able to vary his reading enough to present the facts as a story, rather than simply a recitation of facts. R.I.G. © AudioFile 2019, Portland, Maine
A NEW YORK TIMES NOTABLE BOOK OF 2018
ONE OF THE ECONOMIST'S BOOKS OF THE YEAR
A NEW YORK TIMES CRITICS' TOP BOOK
"An intelligent explanation of the mechanisms that produced the crisis and the response to it...One of the great strengths of Tooze's book is to demonstrate the deeply intertwined nature of the European and American financial systems."--The New York Times Book Review
From the prizewinning economic historian and author of Shutdown and The Deluge, an eye-opening reinterpretation of the 2008 economic crisis (and its ten-year aftermath) as a global event that directly led to the shockwaves being felt around the world today.
We live in a world where dramatic shifts in the domestic and global economy command the headlines, from rollbacks in US banking regulations to tariffs that may ignite international trade wars. But current events have deep roots, and the key to navigating today's roiling policies lies in the events that started it all-the 2008 economic crisis and its aftermath. Despite initial attempts to downplay the crisis as a local incident, what happened on Wall Street beginning in 2008 was, in fact, a dramatic caesura of global significance that spiraled around the world, from the financial markets of the UK and Europe to the factories and dockyards of Asia, the Middle East, and Latin America, forcing a rearrangement of global governance. With a historian's eye for detail, connection, and consequence, Adam Tooze brings the story right up to today's negotiations, actions, and threats-a much-needed perspective on a global catastrophe and its long-term consequences.
A NEW YORK TIMES NOTABLE BOOK OF 2018
ONE OF THE ECONOMIST'S BOOKS OF THE YEAR
A NEW YORK TIMES CRITICS' TOP BOOK
"An intelligent explanation of the mechanisms that produced the crisis and the response to it...One of the great strengths of Tooze's book is to demonstrate the deeply intertwined nature of the European and American financial systems."--The New York Times Book Review
From the prizewinning economic historian and author of Shutdown and The Deluge, an eye-opening reinterpretation of the 2008 economic crisis (and its ten-year aftermath) as a global event that directly led to the shockwaves being felt around the world today.
We live in a world where dramatic shifts in the domestic and global economy command the headlines, from rollbacks in US banking regulations to tariffs that may ignite international trade wars. But current events have deep roots, and the key to navigating today's roiling policies lies in the events that started it all-the 2008 economic crisis and its aftermath. Despite initial attempts to downplay the crisis as a local incident, what happened on Wall Street beginning in 2008 was, in fact, a dramatic caesura of global significance that spiraled around the world, from the financial markets of the UK and Europe to the factories and dockyards of Asia, the Middle East, and Latin America, forcing a rearrangement of global governance. With a historian's eye for detail, connection, and consequence, Adam Tooze brings the story right up to today's negotiations, actions, and threats-a much-needed perspective on a global catastrophe and its long-term consequences.
![Crashed: How a Decade of Financial Crises Changed the World](http://img.images-bn.com/static/redesign/srcs/images/grey-box.png?v11.11.4)
Crashed: How a Decade of Financial Crises Changed the World
Narrated by Simon Vance, Adam Tooze
Adam ToozeUnabridged — 25 hours, 27 minutes
![Crashed: How a Decade of Financial Crises Changed the World](http://img.images-bn.com/static/redesign/srcs/images/grey-box.png?v11.11.4)
Crashed: How a Decade of Financial Crises Changed the World
Narrated by Simon Vance, Adam Tooze
Adam ToozeUnabridged — 25 hours, 27 minutes
Overview
A NEW YORK TIMES NOTABLE BOOK OF 2018
ONE OF THE ECONOMIST'S BOOKS OF THE YEAR
A NEW YORK TIMES CRITICS' TOP BOOK
"An intelligent explanation of the mechanisms that produced the crisis and the response to it...One of the great strengths of Tooze's book is to demonstrate the deeply intertwined nature of the European and American financial systems."--The New York Times Book Review
From the prizewinning economic historian and author of Shutdown and The Deluge, an eye-opening reinterpretation of the 2008 economic crisis (and its ten-year aftermath) as a global event that directly led to the shockwaves being felt around the world today.
We live in a world where dramatic shifts in the domestic and global economy command the headlines, from rollbacks in US banking regulations to tariffs that may ignite international trade wars. But current events have deep roots, and the key to navigating today's roiling policies lies in the events that started it all-the 2008 economic crisis and its aftermath. Despite initial attempts to downplay the crisis as a local incident, what happened on Wall Street beginning in 2008 was, in fact, a dramatic caesura of global significance that spiraled around the world, from the financial markets of the UK and Europe to the factories and dockyards of Asia, the Middle East, and Latin America, forcing a rearrangement of global governance. With a historian's eye for detail, connection, and consequence, Adam Tooze brings the story right up to today's negotiations, actions, and threats-a much-needed perspective on a global catastrophe and its long-term consequences.
Editorial Reviews
If journalism is the first rough draft of history, Tooze's book is the second draft. A distinguished scholar with a deep grasp of financial markets, Tooze knows that it is a challenge to gain perspective on events when they have not yet played out. He points out that a 10-year-old history of the crash of 1929 would have been written in 1939, when most of its consequences were ongoing and unresolved. But still he has persisted and produced an intelligent explanation of the mechanisms that produced the crisis and the response to it. We continue to live with the consequences of both today.
Having published previous books on the turbulent post-World War I era and the economic policies of Nazi Germany, Tooze has made a specialty of financial collapse and historical disaster. He also understands the language of corporate balance sheets and sovereign debt deeply enough to know that he ought to use it sparingly, translating some of the most byzantine gibberish into elegant English…One of the great virtues of this bravura work of economic history is how much attention it devotes to issues of power. "Who was being hurt?" Tooze writes of the 2008 crisis. "Who was included in the circle of those who needed to be protected? And who was not?" He reckons that in their bid to paper over such fundamental political questions with technical solutions, neoliberal centrists inadvertently answered them.
05/21/2018
Columbia history professor Tooze (The Deluge) recounts and analyzes the continuing repercussions of the 2008 economic crisis in this dense, but accessible, book. Although he presents more information than most readers will require (including a chart titled, “Demand for Dollar Funding in the European Central Bank’s One-Month Auctions”), Tooze makes the arcana of international economic policy relevant to a lay audience by framing his account with Donald Trump’s political ascension. He walks through the significant financial crises of the previous 10 years, not neglecting those possibly less familiar to Americans than Lehman Brothers’ collapse, such as the debt crisis in Greece and Ireland. Tooze amasses telling details from the bailout of the big banks (for instance, that they more than doubled their funding advantage relative to small banks after the crisis) to bolster his contention that Trump’s surprise electoral victory was rooted in the U.S. government’s response to the 2008 meltdown. Those government policies gave “absolute priority to saving the financial system” and disregarded “the arrow of causation,” reshaping American politics and setting the stage for a populist backlash. In addition to making international economics understandable and attention grabbing, Tooze has written an essential addition to the ranks of histories that place Trumpism in context. (Aug.)
"There have been hundreds of illuminating books on the great financial collapse. Crashed, written to mark its tenth anniversary, will stand for a long time as the authoritative account. In his masterful narrative, the economic historian Adam Tooze achieves several things that no other single author has quite accomplished. Tooze has managed to explain a hugely complex global crisis in its multiple dimensions, and his book combines cogent analysis with a fascinating history of the political and economic particulars."—The New York Review of Books
"An intelligent explanation of the mechanisms that produced the crisis and the response to it...One of the great strengths of Tooze's book is to demonstrate the deeply intertwined nature of the European and American financial systems."—The New York Times Book Review
"An impressive narrative history, weaving together events from around the world with a light touch and a great deal of helpful explanation. Sometimes it feels like Tooze has read every official working paper, memoir and substantive news article on macroeconomics and finance over the past decade. Even for readers who have attempted to follow the twists and turns of events, Tooze adds significant value."—The Washington Post
"The most substantial and insightful account yet written of the financial crisis and it will be required reading for financial policy-makers for years to come."—Times Literary Supplement
“[A] monumental narrative history of 10 years that have reshaped our world...Crashed gives readers a detailed and superbly researched account of the origins and consequences of the wave of financial crises that emanated from the core of the global financial system from 2007. The prose is clear. The scholarship remarkable. Even people who have followed this story closely will learn a great deal.”—Martin Wolf, The Financial Times
"Brexit, Trump, Russia’s annexation of Crimea in 2014 and China’s ever-escalating role in the financial system: Tooze covers them all and much more, in a volume that’s as lively as it is long — which is to say very, on both counts...Tooze has made a specialty of financial collapse and historical disaster. He also understands the language of corporate balance sheets and sovereign debt deeply enough to know that he ought to use it sparingly, translating some of the most byzantine gibberish into elegant English."—The New York Times
“There have been many, many books about the financial crisis, but few, if any, have treated it as a world-wide event...This is economic history on an epic scale, and readers who persevere through the book’s roughly 600 pages of text will find many surprises...Mr. Tooze has written a valuable book about the challenges of managing a tightly connected world economy. The questions he raises resonate in the Age of Trump.”—The Wall Street Journal
“[An] ambitious study of the causes and effects of the financial meltdown that caused the Great Recession… Tooze is not simply telling a story of the financial crisis. Crashed is also the tale of the political intricacies of the crash, the ensuing bailout, and of the great political unraveling that has followed...But it is the configuration of Tooze’s analysis that is novel—he darts from the crisis in Washington to monetary politics in Europe, and on to Chinese fiscal policy to explain how interconnected each of these countries’ economies are. This sends a clear message to those who believe in nationalist economic policies: We are all in this together, to a greater extent than financial institutions and governments have made clear.”—The New Republic
"[An] expansive, essential account of the crisis and the years that followed...Highlighting the economic interconnectedness the world's national economies had achieved by 2008, he shows how the crisis turned the abstract idea of a 'global' economy into something unhappily concrete."—Bookforum
"A compelling new book has arrived which deserves to be at the top of the reading list of anyone interested in the events of 2008 and eager to make sense of the aftermath...Combines simple explanations of complex financial concepts with a majestic narrative tracing the prehistory and destructive path of the crisis across the planet."—The Guardian
"Tooze’s new history of the 2008 crisis and its aftermath offers no shortage of penetrating insights into the calamitous epoch we’ve been living through."—NYMag.com, Daily Intelligencer
"[Tooze] brings a historian’s understanding to the financial crisis and its aftermath . . . The result is an ambitious narrative which runs from the United States, through Western Europe into Central Europe, across the steppes of Russia and onwards to China."—Reuters / Breakingviews
"Bold . . . At the heart of [Crashed] lies a paradox: even though the financial crisis exposed the failings of the American economic model, its aftermath has underscored America’s continuing economic pre-eminence . . . The good thing about Crashed is that it allows for the possibility of American regeneration. Like any sophisticated history, it acknowledges that human agency matters; political and economic forces may shape context but outcomes are not predetermined."—Sebastian Mallaby, Evening Standard (UK)
"[An] intelligent and persuasive account of the global economy since the U.S. mortgage market exploded into a border-jumping financial conflagration."—Strategy+Business
"Likely to stand the test of time as the best history of 2008 written in its immediate shadow . . . As the 10th anniversary of the fall of Lehman Brothers approaches, many books on the financial crisis will be published. Few are likely to match Adam Tooze’s Crashed in scope, ambition or rigour. This is truly contemporary history—the book runs right up to the end of 2017. It is hard to think of another author who can write as authoritatively on such a wide range of subjects."—Prospect Magazine
"Tooze presents a grand unified theory of how we woke up to a world in seemingly headlong retreat from the liberal, democratic, free-trading, ever more prosperous globalized order the West broadly promised at the end of the Cold War."—Foreign Policy
"An important and insightful work . . . combines an economic history with geopolitical analysis of the 2008 financial crisis and the subsequent decade."—Library Journal (starred review)
"First-rate financial history and an admirable effort to wrestle a world-changing series of events between covers."—Kirkus Reviews (starred review)
"Tooze makes the arcana of international economic policy relevant to a lay audience by framing his account with Donald Trump’s political ascension . . . In addition to making international economics understandable and attention grabbing, Tooze has written an essential addition to the ranks of histories that place Trumpism in context."—Publishers Weekly
Praise for The Deluge
“An essential book. Epic in scope, boldly argumentative, deftly interweaving military and economic narratives, The Deluge is a splendid interpretive history.” —The New York Times Book Review
“Globe-spanning and wide-ranging…a look at a past that is both terribly remote and hauntingly familiar.”—Salon
"Profound and brilliant…Very rarely, you read a book that inspires you to see a familiar story in an entirely different way." —The Atlantic
Praise for The Wages of Destruction
"Masterful . . . [A] painstakingly researched, astonishingly erudite study…Tooze has added his name to the roll call of top-class scholars of Nazism." —Financial Times
"It is among Adam Tooze's many virtues in The Wages of Destruction that he can write about such matters with authority, explaining the technicalities of bombers and battleships. Hovering over his chronicle are two extraordinary questions: how Germany managed to last as long as it did before the collapse of 1945 and why, under Hitler, it thought it could achieve supremacy at all."—The Wall Street Journal
"An extraordinary achievement…Tooze has produced the most striking history of German strategy in the Second World War that we possess." —History Today
If it isn’t clear to you by now that the financial crisis of 2008 is still reverberating in the world’s economic, political, and social realms, then this timely and fascinating audiobook will serve as a reminder. Everything from world trade to immigration and the rise of populism can be traced back to the Great Recession. The author credibly reads the introduction, using his British accent and earnest tone to set the literary table, but it’s narrator Simon Vance’s performance that provides the sound feast. Vance also has a British accent, and he pairs it with a smooth delivery to accentuate the sense of crisis. His voice is not elastic, but Vance is able to vary his reading enough to present the facts as a story, rather than simply a recitation of facts. R.I.G. © AudioFile 2019, Portland, Maine
★ 2018-05-15
What happens when the walls of Wall Street come crashing down? Donald Trump, for one thing. A long but not oppressive study blending politics, economics, and history.Tooze (History/Columbia Univ.; The Deluge: The Great War, America and the Remaking of the Global Order, 1916-1931, 2014, etc.), whose previous book won the Los Angeles Times Book Prize, examines the "first crisis of a global age" as it played out in an increasingly interlocked financial world. One driver was the deregulation of financial institutions, which was not confined to the United States. As the author notes, deregulation was central to the British plan to convert London into ground zero for "many of the most fast-paced global transactions" that were remaking the world. Tooze complicates the usual narratives. While many writers, especially on the right, have pegged the financial meltdown on the subprime mortgage crisis, agencies such as Freddie Mac and Fannie Mae in fact kept loans to high standards, and that aspect of the larger financial crisis proved more symptom than cause. Still, those mortgages worked to distort the market, and "when you distort the market, crises are inevitable." One unintended effect of the rattling of capital was the strengthening of Russia, whose "new prosperity was associated not with independence from the world economy but with entanglement in it," and China, whose economy responded "in directions that the Beijing leadership had been struggling to counteract." Some of the broader consequences were more profound, including a schism between globalists and protectionists in the U.S. and Europe—a schism that, by Tooze's account, resulted a decade later in Brexit, the election of Trump (whose "objectionable personality and outlandish policy proposals now had to be weighed against the more basic political question of who could do what for whom"), and the rush to once again deregulate the very forces that had set off the crisis in the first place.First-rate financial history and an admirable effort to wrestle a world-changing series of events between covers.
Product Details
BN ID: | 2940169528824 |
---|---|
Publisher: | Penguin Random House |
Publication date: | 08/07/2018 |
Edition description: | Unabridged |
Read an Excerpt
Chapter 1
The "Wrong Crisis"
On April 5, 2006, the youthful junior senator from Illinois Barack Obama took time out from discussion of an India nuclear deal on Capitol Hill to attend the opening of a new think tank project at Brookings. The Brookings Institution is widely regarded as the most influential social science research center in the world. Obama's Brookings appearance was an audition that would define his presidency. The keynote he delivered was for a new initiative-the Hamilton Project-launched by Robert Rubin, one of the kingmakers of the Democratic Party. Rubin personified the link forged in the 1990s between centrist Democrats and globally minded bankers that reshaped the American economic policy agenda. In 1993 Rubin had moved from his position at the top of Wall Street, as cochairman at Goldman Sachs, to serve as the first head of the National Economic Council, which Bill Clinton had called into existence as a counterpart to the National Security Council. Two years later Rubin was appointed Treasury secretary. Alongside Rubin presiding over the Brookings meeting in April 2006 was a youthful economist by the name of Peter Orszag, also a veteran of the Clinton administration, who would go on to become Obama's budget director. It was from among the veterans of Rubin's Treasury that Obama would recruit virtually his entire economics team in 2008. Twelve months ahead of the financial crisis, two and a half years before Obama took office, the launch of the Hamilton Project presents the worldview of some of his most influential advisers in microcosm. It reveals both what they could see and what they could not.
I
Having returned to the business world in 1999, Rubin was worried about the drift in Washington. Globalization had been the central challenge of the 1990s. In the new millennium it was even more so. But two years into President Bush's second term, the policies of the Republican administration were putting America at risk. Rather than mitigating the pressures of global competition, they were dividing American society. This risked provoking both an antiglobalization backlash and a catastrophic financial crisis that would call into question America's monetary stability and the global standing of the dollar.
Not that Rubin and his circle were doing badly out of a world of globalization. After the Treasury, Rubin had retired to an influential sinecure as a nonexecutive chairman of the board at Citigroup. Orszag, who started his career bouncing back and forth among academia, government and consulting, would in due course end up at Citigroup too. But for average Americans the story was different. There had been good moments. The Clintonites still celebrated the 1990s and the twin booms of tech and Wall Street. But since the 1970s wages had not kept up with productivity. For the meritocrats of the Hamilton Project it was clear where the finger of blame pointed. America's schools were failing to give its young people the education essential to stay ahead of the game. The first reports issued by the Hamilton Project bristled with proposals to improve the recruitment of teachers and make better use of kids' summer vacations. It was the kind of nuts-and-bolts, "evidence-based," nonideological approach to productivity improvement that dominated economic policy discussion of the era. Its purpose, however, was eminently political. As Obama put it in his keynote:
"When you invest in education and health care and benefits for working Americans, it pays dividends throughout every level of our economy. . . . I think that if you polled many of the people in this room, most of us are strong free traders and most of us believe in markets. Bob [Rubin] and I have had a running debate now for about a year about how do we, in fact, deal with the losers in a globalized economy. There has been a tendency in the past for us to say, well, look, we have got to grow the pie, and we will retrain those who need retraining. But, in fact, we have never taken that side of the equation as seriously as we need to take it. . . . Just remember . . . [t]here are people in places like Decatur, Illinois, or Galesburg, Illinois, who have seen their jobs eliminated. They have lost their health care. They have lost their retirement security. . . . They believe that this may be the first generation in which their children do worse than they do."
This was a betrayal of the American Dream of endless uplift, and that risked spilling over into a political backlash. As Obama put it: "Some of that, then, will end up manifesting itself in the sort of nativist sentiment, protectionism, and anti-immigration sentiment that we are debating here in Washington. So there are real consequences to the work that is being done here. This is not a bloodless process."
Amid the fears about globalization and the risk of populist revolt already evident in 2006, there was one note of economic nationalism that Obama himself was not afraid to strike: "When you keep the deficit low and our debt out of the hands of foreign nations, then we can all win." Alongside global competitiveness, the other preoccupation that defined the Hamilton team was the question of debt.
As Clinton's Treasury secretary, Robert Rubin's great boast was to have turned the deficits of the Reagan era into substantial budget surpluses. Since then under the Republicans, America was headed fast in the wrong direction. In June 2001, in the wake of the dot-com bust and a disputed election, the Bush administration had delivered a tax cut estimated to cost the federal government $1.35 trillion over ten years. This paid off key constituencies, but it also wiped out Rubin's surpluses and it did so deliberately. The Republicans had convinced themselves that surpluses tended to encourage more government spending. Their approach was the obverse, what Republican strategists of the Reagan era first dubbed "starving the beast." By entrenching tax cuts and courting a fiscal crisis they would create an irresistible imperative to slash spending, curb entitlements to social welfare and shrink the footprint of government.
The problem was that the spending cuts that were supposed to follow the tax cuts never happened. The terrorist attack of September 11, 2001, put America on a war footing. The Bush administration responded with a huge surge in defense and security spending. In a manner horribly reminiscent of Vietnam, it then plunged America into the Iraq quagmire. In 2006, as the Hamilton group met, Iraq was on the edge of a bloody sectarian civil war. The question now was how to get out. Iraq was not only demoralizing and humiliating. It was also hugely expensive. The Bush administration did its best to keep the costs of the war off the regular budget. So a cottage industry of Democratic Party experts set itself to doing the sums. By 2008 the bill for Afghanistan and Iraq alone was at least $904 billion. Less conservative estimates put the bill as high as $3 trillion. It was certainly more than the United States had spent on any war since World War II.
Of course it could have been paid for. America was far richer than it was at the time of Pearl Harbor. But the Bush administration was not only not going to reverse its tax cuts; in May 2003 it doubled down, introducing a further round of tax relief. Given that the military budget was sacrosanct and the rest of discretionary expenditure was not large enough to make a difference, the Republicans proposed to close the gap with grossly inequitable cuts to welfare "entitlements." Those, however, could not pass the Senate, where the Republican majority was wafer thin and "moderates" held the balance. It was this logjam that turned Rubin's budget surplus of $86.4 billion in 2000 into a record deficit of $568 billion in 2004 with no end in sight.
The original inspiration for the Hamilton Project was a paper written in 2004 by Orszag and Rubin sounding the alarm. First, the Bush deficits would drive up interest rates and squeeze private investment. Further down the line lurked a far more serious scenario. "Substantial deficits projected far into the future can cause a fundamental shift in market expectations and a related loss of confidence both at home and abroad," Rubin and Orszag drily remarked. "The unfavorable dynamic effects that could ensue are largely if not entirely excluded from the conventional analysis of budget deficits. This omission is understandable and appropriate in the context of deficits that are small and temporary; it is increasingly untenable, however, in an environment with deficits that are large and permanent. Substantial ongoing deficits may severely and adversely affect expectations and confidence, which in turn can generate a self-reinforcing negative cycle among the underlying fiscal deficit, financial markets, and the real economy." Conventional analysis, in short, was not sufficiently alarmist. What it did not "seriously entertain" was the possibility that America was headed toward "fiscal or financial disarray."
Veterans of the Clinton administration knew what they were talking about when they invoked a "negative cycle" of "underlying fiscal deficit, financial markets, and the real economy." This, in their view, is what they had inherited from the high-spending Reagan and Bush administrations. In 1993, faced with a bond market sell, Clinton had shelved ambitious plans for a stimulus. Egged on by Rubin and Fed chair Alan Greenspan, deficit reduction became a mantra of the Clinton team. Chief political adviser James Carville was left to ruminate: "I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody."
In the 1980s and 1990s, the so-called bond vigilantes had their day in the sun. Ten years later they were still in the market. Indeed, the bond funds were bigger than ever. But, as Obama had hinted, what most worried the Rubinite crowd were not domestic investors. Foreign investors were the key concern. The Bush administration's deficits were financed overwhelmingly by bond buying from abroad. As Orszag and Rubin's paper remarked, United States Treasurys were still seen as the safest investment in the world. There was no chance of default or a sudden burst of inflation. "But if that expectation were to change and investors had difficulty seeing how the policy process could avoid extreme steps, the consequences could be much more severe than traditional estimates suggest." Nor was it just the Clinton crowd that worried. In 2003 the nonpartisan Congressional Budget Office saw fit to remind its audience of an extreme scenario in which foreign investors stopped buying US securities, the dollar plunged and interest rates and inflation shot up. "Amid the anticipation of declining profits and rising inflation and interest rates, stock markets could collapse and consumers might suddenly reduce their consumption. Moreover, economic problems in the United States could spill over to the rest of the world and seriously weaken the economies of US trading partners."
The scale of America's deficits made it vulnerable to bond market pressure. The fact that foreign investors might suddenly turn away from Treasurys evoked the nightmare of a sudden stop to external financing of America's imbalances. But it was the identity of the foreign investors that infused the scenario with real terror. Until the 1980s the major foreign investors in the United States had been European. Then Japan, with its giant trade surpluses, had taken over. Still in the new century it was one of America's largest creditors. But in the 1990s, with a surging yen and a domestic economy crippled by a devastating real estate bust, Japan's competitive threat had faded. Since the millennium, globalization had acquired a new Asian face. In April 2006, when Obama spoke about keeping our "debt out of the hands of foreign nations," everyone knew it was China and its Communist regime that he was talking about.
II
Since the 1970s China had been a cornerstone of US geopolitics. Nixon and Kissinger had unhinged the fronts of the cold war by breaking China out of the Soviet embrace. Now the Soviet Union had faded from view, and the European theater of the cold war had faded along with it. The Pacific was the new horizon of American power and China the future rival. For the first time since the rise of Nazi Germany, the United States faced a power that was, at one and the same time, a potential geopolitical competitor, a hostile political regime type and a capitalist economic success story. The fact that Obama came to the Brookings meeting from talks about a nuclear deal with India was a telling coincidence. America was looking for new allies in Asia. But what mattered more than nukes, at least as far as the Hamilton crowd was concerned, was economics.
The Clinton administration had midwifed China into globalization. In November 1995, Washington encouraged Beijing's application to join the newly founded World Trade Organization (WTO). America had done this before, of course, with Western Europe after 1945, with Japan and East Asia in the 1950s and 1960s and with Eastern Europe in the 1990s. Opening markets was good for American business, for American investors and for American consumers. America's economic interests were so widespread that they were de facto identical with global capitalism. By the mid-1990s Washington had abandoned any frontal challenge to the Chinese Communist regime over human rights, the rule of law or democracy. Instead, globalists of both the Democratic and Republican parties wagered that the powerful and impersonal force of commercial integration would in due time make China into a biddable and congenial "stakeholder" in the world order.
China's growth was spectacular. Huge profits were to be made for American investors. American manufacturers like GM would stake their future on China. After a brief storm over the Taiwan Strait in 1995-1996, diplomatic relations calmed. But China's sheer size made it a contender. With the Tiananmen crackdown of 1989, the Communist Party had signaled its intent not to abandon its one-party leadership. Since then it had fashioned a popular ideology that was as much nationalist as Communist. If Washington was betting on international trade and globalization to "Westernize" China, the Chinese Communist Party took the other side of the bet. The party's leaders wagered that supercharged growth would not weaken them but would consolidate their position as the successful helmsmen of their nation's spectacular comeback. Beijing took advantage of trading opportunities. But it never subscribed to fully open markets. It decided who would invest and on what terms. It controlled movement of funds in and out. That, in turn, allowed the People's Bank of China to fix its exchange rate, and since 1994 it had done so by pegging against the dollar.
In choosing a dollar peg, China was far from unique. Despite the reigning narrative of market liberalization, the financial world was not flat. The global monetary system was hierarchical with the key currency, the dollar, at the top of the pyramid. The twenty-first century began with a network of dollar-linked currencies accounting for c. 65 percent of the world economy (weighted by GDP). Those currencies that were not pegged to the dollar tended to be hooked to the euro. Often pegging was a sign of weakness. In many cases the exchange rate was set at an aspirational, overvalued rate. This created short-term advantages. It made imports cheap. Local oligarchs could snap up prestige foreign real estate at a discount. But it also harbored huge risk. The peg could break and frequently it would do so with a bang. The appearance of stability offered by a fixed exchange rate encouraged a large inflow of foreign funds, which helped to stoke up domestic economic activity, creating an unbalanced trade account funded from abroad. Banks that acted as the conduit for foreign funds boomed. This set up the crisis. When international investors lost confidence, the result was a devastating sudden stop. Then the central bank's foreign exchange reserves would drain and it would have no option but to let the currency peg go. Stability would give way to a disastrous devaluation. Those who got their money out first would be saved. Those who had borrowed in foreign currency would face bankruptcy.
(Continues…)
Excerpted from "Crashed"
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Copyright © 2018 Adam Tooze.
Excerpted by permission of Penguin Publishing Group.
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