A single superpower emerged at the end of the cold war and continued to dominate international politics and global events until that revered position was challenged at the dawn of the 21st century.
The American way of life permeated every nook and cranny in the world as the 'American Dream' translated to a 'Global Dream'. The United States of America was founded upon three main tenets; the right to life, liberty and the pursuit of happiness. The multi-faceted expressions of this ideology have continued to improve the living standard of the average American over the 230+ years of the existence of the United States. The limits of the creativity of the human mind have been stretched continually on no other better test-bed than America. A typical American sees himself and is seen as a first-class global citizen, one before whom all doors are open and no request is denied. In many ways than few, this ideology is the fulcrum upon which all American endeavours have been established and sustained and has served (and continues to serve) its purpose to a degree never before envisaged by mortals. In retrospect and comparison, no other system has worked as optimally as possible to tap into the hidden potentials of mankind and utilize the discoveries for the common benefit of the human race as the American system has.
The historic commitment to the American way of life also empowered the esoteric aspirations of more than a billion 'unique' individuals. In the years that followed the abandonment of the gold-standard and the assertion of the US Dollar as the world's reserve currency, the economics of the world became more determined by the fine desires of the average US consumer, and the American government, in a bid to keep the capitalist engine running and uphold her commitment to the pursuit of happiness, started running fiscal deficits - and the deficits continued to increase. A fiscal deficit describes a condition in which a government's total (budget) expenditure exceeds her total revenue generated. (Of course the high level of economic activity has been upheld as a good predicate for a deficit-running economy by the distinguished economist, John Maynard Keynes. That makes sense, but my submission is that perception can be different from reality). When governments run deficits, they must borrow money to run and maintain the economy. They do so by issuing government debt, known as bonds. These bonds are issued with a promise to pay back with interest to the lender. The maturity period for a bond can vary from 1 year (short-term) through 5 years (short-term) to 30 years (long-term). A shorter-term government debt - treasury bills (T-bills) - is also issued, bearing a maturity period of less than 1 year.
On the other side of the globe, however, something important was happening. The more than 1 billion unique individuals - the Chinese - were racking up massive current account surpluses as the export component of her account continued to increase. With more than one-sixth of the world's population and relative low wages (cheap labour), she started out manufacturing very cheap, sub-standard goods and kept it up until standards improved and China became the largest exporter of goods in the world*. According to China's Bureau of National Statistics, China's population hit 1.339 billion by November 2010 and her total exports value was at $1,581 billion** by the end of the same year (just to be sure, that is about $1.6trillion). This leads me to compute each Chinese resident's contribution to the nation's export value as $1,180.73. (I understand that the demographics of the Chinese population would place it at a much higher value). These figures give an indication of the size and potential of China.
In addition to the surplus balance of trade (higher export value than imports), a savings culture was also developed in China which surged monetary reserves to more than $1trillion. As her reserves kept increasing, she decided to put some dollars to interest-yielding ventures and the best investment destination was the United States of America. In high school biology, I remember studying a special relationship known as symbiosis, which defines a mutually beneficial association between two organisms. A similar relationship developed between the United States and China; the US was running deficits year in, year out, while China was piling up greenbacks. Consequently, to borrow David Smick's phrase, an 'ocean of capital' started flowing between the US and China.
To be continued...
* CIA World Factbook
** if the EU is factored in as a single entity, China becomes the second largest