U.S. in role of wounded giant at Davos


DAVOS, Switzerland: The United States has filled various roles at the World Economic Forum over the past decade: dot-com dynamo, benevolent superpower, feared aggressor, and now, wounded giant.
On the first day of this conference, a parade of bankers, economists, and political officials expressed deep fears about the faltering American economy, peppered with blunt criticism of its institutions, chiefly the Federal Reserve, which some accused of sowing the seeds of today's crisis.
George Soros, the financier who made a fortune betting against the pound, went so far Wednesday as to say that the downturn would put an end to the long status of the dollar as the world's default currency.
"The current crisis is not only the bust that follows the housing boom," Soros said. "It's basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency."
Signs of a new economic order abounded in this Swiss ski resort: the minister of commerce and industry of India, Kamal Nath, noted that China had overtaken the United States as India's largest trading partner - buttressing his view that India could largely sidestep an American recession
The head of the National Bank of Kuwait, Ibrahim Dabdoub, said Americans who opposed sovereign wealth funds like the one run by his government needed to come to terms with the new reality.
Completing the role reversal, Nouriel Roubini, an American economist, said, "the United States looks like an emerging market," with large budget deficits and a swooning currency. By contrast, he said, Brazil, an actual emerging market, had done a better job of overhauling its economy.
Roubini, whose frequent predictions of a downturn have made him something of a soothsayer in Davos, predicted the United States would suffer a recession lasting at least a year. He foresees a flood of defaults on car loans and corporate bonds, as well as a prolonged bear market.
"The debate is not whether we're going to have a soft landing or a hard landing," he said. "The question is only how hard the hard landing will be."
Several economists said the Federal Reserve seemed to have lost control of events since the subprime crisis erupted last summer. Some criticized its steep cut in interest rates Tuesday as a knee-jerk reaction to calm the markets rather than a sound response to a deteriorating situation
Policy makers are reaching back into the same playbook that got us into this mess in the first place," said Stephen Roach, an economist who recently became the chairman of Morgan Stanley Asia.