Photo Gallery: Tough Times in America


A Superpower in Decline Is the American Dream Over?

America has long been a country of limitless possibility. But the dream has now become a nightmare for many. The US is now realizing just how fragile its success has become -- and how bitter its reality. Should the superpower not find a way out of crisis, it could spell trouble ahead for the global economy. By SPIEGEL Staff

It was to be the kind of place where dozens of American dreams would be fulfilled -- here on Apple Blossom Drive, a cul-de-sac under the azure-blue skies of southwest Florida, where the climate is mild and therapeutic for people with arthritis and rheumatism. Everything is ready. The driveways lined with cast-iron lanterns are finished, the artificial streams and ponds are filled with water, and all the underground cables have been installed. This street in Florida was to be just one small part of America's greater identity -- a place where individual dreams were to become part of the great American story.

But a few things are missing. People, for one. And houses, too. The drawings are all ready, but the foundations for the houses haven't even been poured yet.

Apple Blossom Drive, on the outskirts of Fort Myers, Florida, is a road to nowhere. The retirees, all the dreamers who wanted to claim their slice of the American dream in return for all the years they had worked in a Michigan factory or a New York City office, won't be coming. Not to Apple Blossom Drive and not to any of the other deserted streets which, with their pretty names and neat landscaping, were supposed to herald freedom and prosperity as the ultimate destination of the American journey, and now exude the same feeling of sadness as the industrial ruins of Detroit.

Florida was the finale of the American dream, a promise, a symbol, an American heaven on earth, because Florida held out the prospect of spending 10, perhaps 20 and hopefully 30 years living in one's own house. For decades, anywhere from 200,000 to 400,000 people moved to the state each year. The population grew and grew -- and so too did real estate prices and the assets of those who were already there and wanted bigger houses and even bigger dreams. Florida was a seemingly never-ending boom machine.

Could the Dream Be Over?

Until it all ended. Now people are leaving the state. Florida's population decreased by 58,000 in 2009. Some members of the same American middle class who had once planned to spend their golden years lying under palm trees are now lined up in front of soup kitchens. In Lee County on Florida's southwest coast, 80,000 people need government food stamps to make ends meet -- four times as many as in 2006. Unemployment figures are sharply on the rise in the state, which has now come to symbolize the decline of the America Dream, or perhaps even its total failure, its naïveté. Could the dream, in fact, be over?

Americans have lived beyond their means for decades. It was a culture long defined by a mantra of entitlement, one that promised opportunities for all while ignoring the risks. Relentless and seemingly unstoppable upward mobility was the secular religion of the United States. Alan Greenspan, the former chairman of the Federal Reserve, established the so-called ownership society, while Congress and the White House helped free it of the constraints of laws and regulations.

The dream was the country's driving force. It made Florida, Hollywood and the riches of Goldman Sachs possible, and it attracted millions of immigrants. Now, however, Americans are discovering that there are many directions that life can take, and at least one of them points downward. The conviction that stocks have always made everyone richer has become as much of a chimera in the United States as the belief that everyone has the right to own his own home, and then a bigger home, a second car and maybe even a yacht. But at some point, everything comes to an end.

The United States is a confused and fearful country in 2010. American companies are still world-class, but today Apple and Coca-Cola, Google and Microsoft are investing in Asia, where labor is cheap and markets are growing, and hardly at all in the United States. Some 47 percent of Americans don't believe that the America Dream is still realistic.

Loud and Distressed

The Desperate States of America are loud and distressed. The country has always been a little paranoid, but now it's also despondent, hopeless and pessimistic. Americans have always believed in the country's capacity for regeneration, that a new awakening is possible at any time. Now, 63 percent of Americans don't believe that they will be able to maintain their current standard of living.

And if America is indeed on the downward slope, it will have consequences for the global economy and the political world order.

The fall of America doesn't have to be a complete collapse -- it is, after all, a country that has managed to reinvent itself many times before. But today it's no longer certain -- or even likely -- that everything will turn out fine in the end. The United States of 2010 is dysfunctional, but in new ways. The entire interplay of taxes and investments is out of joint because a 16,000-page tax code allows for far too many loopholes and because solidarity is no longer part of the way Americans think. The political system, plagued by lobbyism and stark hatred, is incapable of reaching consistent or even quick decisions.

The country is reacting strangely irrationally to the loss of its importance -- it is a reaction characterized primarily by rage. Significant portions of America simply want to return to a supposedly idyllic past. They devote almost no effort to reflection, and they condemn cleverness and intellect as elitist and un-American, as if people who hunt bears could seriously be expected to lead a world power. Demagogues stir up hatred and rage on television stations like Fox News. These parts of America, majorities in many states, ignorant of globalization and the international labor market, can do nothing but shout. They hate everything that is new and foreign to them.

But will the US wake up? Or is it already much too late?


The sociologist Robert Putnam hems and haws, not wanting to be the kind of professor who drops names to make himself seem more important. But the issue is much too important for him to resist. "I have had the chance to discuss income inequality with George W. Bush and Barack Obama, and I can assure you both were worried about the trend," he says. "It was possible to have an adult conversation with them on this topic."

Putnam, a Harvard professor who sports an enormous beard, sounds pleased, as if this were an exception. He is a surveyor of the American psyche. A few years ago, he caused a stir with his book "Bowling Alone," in which he argued that more and more Americans are bowling alone -- and not in a bowling club -- because the average American hardly even speaks to other Americans anymore, and certainly not with those who hold views different from his own.

Now Putnam is worried about economic imbalances and new disparities within society. Today an American CEO earns about 300 times as much as an ordinary worker. In 1950, that number was only 30. The consequence is "social segregation," says Putnam, by which he means that people go to different schools and parties and live in different neighborhoods, and that there is no longer any overlap between groups.

"The fundamental bargain, the core of America, has always been that we can live with big gaps between rich and poor as long as there is also equality of opportunity," Putnam says. "If that is no longer true, then the core bargain is being violated."

The Ownership Fetish

Nothing symbolizes America's dream more than ownership, that fetish that politicians, culture and the media have glorified and inflated since the beginning of the 20th century. Former President Franklin D. Roosevelt once said that a country of homeowners would be "invincible." "Owning a home lies at the heart of the American dream," former President George W. Bush said. And former President Bill Clinton said that one of the most important goals of his presidency was to create 8 million new homeowners.

In the 1960s, two-thirds of Americans already owned a home. The goal was to increase that percentage. The industry and banks played along, because the government encouraged home buying with subsidies and tax benefits worth about $100 billion (€72 billion) a year. Developers dreamed up entire neighborhoods in places with mild climates, like California and, most of all, Florida. There used to be 15,000 houses in Lehigh Acres, the Fort Myers suburb. By 2007, that number had jumped to 28,000.

"It was crazy," says Axel Jakobeit, a German by birth and American by choice, a real estate agent and investor in southwest Florida. Everyone was speculating in real estate, including secretaries, office workers and people who, as Jakobeit says, made $50,000 a year and were periodically up to $1 million in debt, because they were buying and selling multiple houses at the same time. When things were going well, that is. But, as always, things went well until they didn't.

Since prices have dropped, 11 million homeowners in the United States owe the banks more than their properties are worth. Houses are on the market for $80,000 that were built for $120,000 two years ago and have never been occupied. The unemployment rate is at 12 percent in Florida. Many people are leaving, running away and leaving everything behind, not just their dreams, but also their furniture, their keys and, most of all, their debt. Others are taking everything with them, from toilets to copper cable.

Americans Are Not Careful

"I had hoped that the Americans would change their way of thinking, that they would take responsibility and only spend as much as they made," says Jakobeit. But Americans aren't like that. Americans are not careful.

The political leadership, says Raghuram Rajan, deliberately made sure that people at the lower end of the socioeconomic scale were provided with low-interest mortgage loans, so that they would forget that their incomes were stagnating. "It was easy for people to get credit, and when home prices went up they felt rich, borrowed more money and spent it," says Rajan, who teaches at the University of Chicago. It's the old concept of bread and circuses. According to Rajan, this approach was easier for the people in power, on both the right and the left, than investing in education or health care.

But there are pain thresholds in every country, including one for debt. According to economists, that threshold is at 90 percent in the United States. When government debt reaches 90 percent of the gross domestic product, the country begins to feel sick. People lost confidence in a better future, investors stop investing, consumers stop buying and the economy stops growing. America reached its pain threshold in the second quarter of this year. Alan Greenspan, once the cheerleader of a society that lived beyond its means, is now urging the US to cut back on borrowing.

Greenspan was the first pop star of the economy, the face of what was then a new era, one in which the economy was shaking off government regulation and corporations no longer saw the state as a partner, but as an adversary. It was the phase of constant tax cuts, the stock market boom and the New Economy, a time economic liberals saw as an era of liberation. While Greenspan was in office, from 1987 to 2006, America experienced the biggest boom in its history and, at the same time, the economic, political and social triumph over the socialist model. US GDP doubled during that time. The only problem was that it wasn't real or robust, and that it was fueled by too much pretense and naïve hope of never-ending growth.

Weaknesses of the Old Order

When Greenspan came to Washington in 1967, as a campaign advisor to Richard Nixon, the old order of the New Deal was still in place. The unions were powerful. Big corporations like General Motors, General Electric and ITT controlled the market. But Greenspan felt that the old order was too sedate. He placed great stock in the experiences of his friend, the Russian immigrant and philosopher Ayn Rand, who wrote about the evils of collectivist systems. "What she did...was to make me think why capitalism is not only efficient and practical, but also moral," Greenspan said. "Parasites who persistently avoid either purpose or reason perish as they should."

Ronald Reagan was a rising regional politician in California at the time. He believed that the government was not the solution to all problems; rather that government was, in fact, the problem itself. In his biography, Reagan wrote: "People are tired of wasteful government programs and welfare chiselers, and they're angry about the constant spiral of taxes and government regulations, arrogant bureaucrats, and public officials who think all of mankind's problems can be solved by throwing the taxpayers' dollars at them."

The beginning of the 1980s offered conservatives the opportunity to reshape the country as they saw fit. Unions were suffering from a decline in membership. Technical advances enabled companies to produce smaller quantities cost-effectively and thus gain access to markets previously dominated by major corporations. Reagan took advantage of the weaknesses of the old order to deregulate the economy.

When air traffic controllers went on strike for higher pay, Reagan fired them and banned them from federal service for life. He also deregulated the telecommunications industry, the shipping industry, banks and commercial aviation, and he lowered the maximum tax rate from 70 to 28 percent.

The Need for Lower Interest Rates

The United States became a different country, a radical, free, forward-looking and bold country -- a triumphant country, or so it appeared.

Exporters from other countries surged into the American market, first from Japan and later from China and India. The Internet became popular. The deregulation of the financial markets awakened interest in stocks as a financial investment. The retailer Wal-Mart displaced automaker General Motors as the world's largest company. In this new order, the consumer was among the winners. The investment fund was the modern advocacy group. Banks became more important, and the banking industry had managed to double its profits since the 1970s. Shortly before the crisis, almost 40 percent of American corporate profits were made in the financial sector.

But was it healthy and sustainable?

Fast money was too sexy. In those days, before the crisis, 40 percent of Harvard graduates were taking jobs in the financial and business sectors, earning three times as much as their fellow graduates working in other fields. Trading in financial products had become more lucrative than producing goods.

But because this remnant of the economy still needed to be kept happy, consumers had to keep on consuming, buying bigger cars and bigger houses. Consumer spending made up more than 70 percent of total economic output. But consumers were also spending more than they made, and the savings rate was shrinking. Americans made up for their stagnating or declining earnings by borrowing money. This created a need for lower interest rates.

America's 'Perfect Storm'

Reagan appointed Greenspan to the position of Fed chairman, and a new era began. The digital world was designed in America, and the United States under Reagan and later under Bill Clinton saw itself as the home of fantasy and boldness. Near the end of his era, between November 2001 and November 2004, Greenspan kept interest rates below 2 percent, even though the economy was growing at a rate of 2.8 percent. As the low interest rates boosted the stock market, more people bought stocks. Their expectations of new profits drove up stock prices and consumers had more disposable income -- seemingly.

Robert Reich has dissected the causes of the crash in his book "Aftershock," in which he analyzes an American character trait that seems oddly simplistic: If my neighbor has more, than I want more too. And I get what I want, because I'm an American.

Reich is a tiny man. One hardly sees him when he walks into his lecture hall in Berkeley. In addition to being an academic, Reich, who served as labor secretary under Clinton, is the left conscience of the Democratic Party. The two men met on a ship bound for England, where they were both going to study. Reich became seasick and Clinton offered him some chicken soup. Later on, Clinton brought his friend Reich into the White House, but when the Democrats lost the House of Representatives in the 1994 midterm elections, Clinton, a pragmatist, moved toward the center and his friend Reich resigned. "We tried," Clinton said by way of farewell.

For Reich, just trying isn't enough. He hates compromises, especially today, with the country being threatened by what he calls a "perfect storm." The wind is blowing from three directions. The rich keep getting richer, with the top 0.1 percent of income earners making more money than the 120 million people at the bottom of the income scale. The rich, says Reich, are trying to buy the elections. Meanwhile, the government is not helping the poor, and in fact is telling them: There's no money left for you. It is human nature to want what others have, says Reich, but the real problem is that people aren't making enough money, and that America's wealth is concentrated within the small upper class.

An Outbreak of Nativism

All of this is making radicals more vocal. "I think what we're seeing now in America is an outbreak of isolationism, nativism and xenophobia," Reich says, pointing toward animosity toward immigrants, accusations against China and growing skepticism of foreign trade.

When the dotcom boom suddenly ended on the stock markets around the turn of the millennium, prices fell by 78 percent on the NASDAQ. Investors pulled their money out of stocks and invested it in real estate instead. The stock market bubble turned into the real estate bubble.

"The US economy has been losing momentum for the last decade," says Edmund Phelps, winner of the 2006 Nobel Prize for economics. According to Phelps, it has been increasingly clear, since the beginning of the millennium, that no new jobs are being created on balance, because the US economy has undergone structural change. Companies are dominated by investors interested only in the kinds of quick and large profits that can be achieved by reducing the workforce. Almost 6 million jobs have been eliminated since 2000. Today only 9 percent of Americans work in the manufacturing industry -- half as many as in 1985.

"America has to change," says Obama's economic advisor Paul Volcker in New York. "I wish we had fewer financial engineers and more real engineers instead, like mechanical engineers." America, according to Volcker, must "rebuild its industrial sector." Since World War II, job growth has kept up with population growth, ranging from 10 to 20 percent per decade. The country was firmly convinced that it could continue to do so. In the last decade, the population grew by 25 million, but there were no new jobs, or at least no net job creation. But a minimum of 100,000 new jobs a month was needed just to serve those who wanted to enter the job market.

When Greenspan cleared out his Washington office on Jan. 31, 2006, he left behind a country deeply in debt. Two wars, one in Iraq and one in Afghanistan, had already cost the country $1 trillion. The government debt continued to grow, from 57 percent of GNP in 2000 to 83 percent when Obama took office in 2009. The current national debt of $13.8 trillion amounts to 94.3 percent of GNP, and in two years it will exceed 100 percent. But what's the next threshold if the pain threshold has already been breached?


The Petersons have two children, two cats and two cars. They were high school sweethearts. Marc Peterson has a small business that sells windows and his wife, Amie, is a nurse. They have a three-bedroom, single-story house with a garden in Cape Coral, where they have lived since 1991, when they became engaged. The Petersons are a model middle-class family, the kinds of people everyone recognizes from the colorful TV series that celebrate the American dream.

This week, the banks will decide whether the Petersons will lose their house.

Marc's business isn't doing well anymore. He had been selling his windows to retirees, to those whose income in large part depends on their savings and the financial markets. The business tanked after the Lehman Brothers bankruptcy, "like somebody flipped a light switch," says Marc, smiling uncomfortably. Now even the retirees have stopped coming to Florida.

Can he find a different job? "There are no jobs," he says. The Petersons haven't been able to make their mortgage payments for the last 16 months.

"It's all so frustrating," says Marc. He is referring to their imminent move, his sons' anxiety, their debt, of course, and, most of all, the realization of not having made any progress after working for 20 years. "Salaries did not rise, but the cost of living did," says Amie. "We scaled back, even our dreams. The things we hoped for will not come true."

'How Did it Come to This?'

The naked fear of the undertow is palpable throughout the entire country, where people who once considered themselves part of the middle class, the solid center of the country, now feel threatened. These are the people who, now that the smoke has cleared, are suddenly realizing that 30 years of economic growth, all the boom years, have virtually passed them by. In 1978, the average income for men in the United States was $45,879. In 2007, it was $45,113, adjusted for inflation. "I have been thinking a lot about this, how it came to this," Amie says.

Elizabeth Warren, a law professor at Harvard, offers one answer. Americans have been dealing with rising basic expenses for the last two years, says Warren. At the beginning of the millennium, families were paying twice as much for health insurance than a generation before. "To make ends meet, both parents have had to go to work in millions of families," says Warren, adding that the average family has already used up its income and savings "just to stay afloat." Everything was paid for with borrowed money. Total US household debt is now approaching $14 trillion, which is 20 times as much as in the 1970s.

The Petersons paid $69,000 for their light-brown ranch house, a few hundred meters from the ocean. Then the value of the property went up to $300,000. When Amie needed money to pay for a supplementary medical education, the couple took out a second mortgage. She says they took out less than half as much as the bank would have given them. But it was enough to bring about their financial downfall when the recession arrived.

The Petersons are in the same boat as millions of American homeowners: Their dream has become their trap. This has consequences for the job market. In the past, 15 million Americans moved every year for job-related reasons, but people who are trapped are no longer mobile. They also stop being optimistic -- they lose precisely what was once their country's biggest strength.

The New American Nightmare

One Monday in September, six weeks before the mid-term elections, the CNBC television network invited President Obama to a town hall meeting with voters. One after another, members of the audience stood up to air their grievances: about the job crisis, America's crisis and the feeling of hope that the country has lost since the excitement of the 2008 presidential election.

Velma Hart, a stout woman in her mid-40s, stepped up to the microphone. "Mr. President," she said, as her eyes teared up, "I'm a mother. I'm a wife. I'm an American veteran and I'm one of your middle-class Americans. And quite frankly, I'm exhausted. I'm exhausted of defending you, defending your administration, defending the mantle of change that I voted for, and deeply disappointed with where we are."

Hart, who is black, voted for Obama. It was an obvious choice for her at the time, and she says that has never felt closer to an American president before. She is about the same age as the president and, like Obama, she has children and a job as an executive. She works at Amvets, the American veterans association. If anyone is a natural Obama voter, it's Velma Hart.

"The financial recession has taken an enormous toll on my family," Hart said. "My husband and I have joked for years that we thought we were well beyond the hot-dogs-and-beans era of our lives. But, quite frankly, it is starting to knock on our door and ring true that that might be where we are headed. And quite frankly, Mr. President, I need you to answer this honestly: Is this my new reality?"

No Real Answer

The president smiled thinly. He mentioned the "right steps" that had been taken but he had no real answer. He couldn't reassure her or even argue with her point. Her dream was his dream, he said.

The unemployment rate in the United States is at about 10 percent. But when the people who have stopped looking for work and are not registered anywhere are included, the real number is likely to be closer to 20 percent. For the first time since the Great Depression, Americans have a problem with long-term unemployment.

Hart's worries, in other words, have become the new American nightmare for many. In a country with a limited concept of social cohesion, laughable from a European perspective, the quiet demise could have unforeseen consequences. How strong is the cement holding together a society that manically declares any social thinking to be socialist? The US economy lost almost 100,000 jobs in September. Is this Obama's fault?

Dinesh D'Souza, a former advisor in the White House of President Ronald Reagan who is now the president of The King's College in New York, has written a 258-page bestseller about Obama, "The Roots of Obama's Rage." The title itself ought to be a joke.

It has been a long time since the United States has had such a levelheaded president as Obama, a man who governs so dialectically and didactically, who spends so much time listening, weighing options and calmly arriving at his decisions. The president has a lot of problems, including many inherited from his predecessor. He also has a hard time coming across as warm and empathetic. He is good at generating enthusiasm in crowds but, unlike Clinton, he is not adept at connecting to people on a more personal level. Obama feels uncomfortable when he faces someone like Velma Hart. But angry? Obama?

Full of Hatred

The Tea Party, that group of white, older voters who claim that they want their country back, is angry. Fox News host Glenn Beck, a recovering alcoholic who likens Obama to Adolf Hitler, is angry. Beck doesn't quite know what he wants to be -- maybe a politician, maybe president, maybe a preacher -- and he doesn't know what he wants to do, either, or least he hasn't come up with any specific ideas or plans. But he is full of hatred. And so is Dinesh D'Souza.

Indeed, the United States of 2010 is a hate-filled country.

D'Souza says that Obama's father was an anti-colonialist and that he dreamed of his native Kenya liberating itself from its British colonial rulers. His son Barack has the same dream, says D'Souza. He wants to put America, the neo-colonial power of the 21st century, in its place. "The most powerful country in the world is being governed according to the dreams of a Luo tribesman of the 1950s," D'Souza writes. "America today is governed by a ghost."

D'Souza's book has been a huge success, reaching fourth place on the New York Times bestseller list. The Washington Post published an opinion piece by the author, Forbes had him write a cover story, and D'Souza himself thinks he knows why so many people believe that Obama was not born in the United States and is a Muslim. People can't identify with him, says D'Souza, because he doesn't believe in the American dream.

This is the climate in the country leading up to the Congressional elections on Nov. 2. It isn't shaped by logic or an interest in rational debate. The United States of 2010 is a country that has become paralyzed and inhibited by allowing itself to be distracted by things that are, in reality, not a threat: homosexuality, Mexicans, Democratic Majority Leader Nancy Pelosi, health care reform and Obama. Large segments of the country are not even talking about the issues that are serious and complex, like debt, unemployment and serious educational deficits. Is it because this is all too threatening?

Gridlock as the American Status Quo

It has become a country of plain solutions. People with college degrees are suspect and intelligence has become a blemish. Manfred Henningsen, a German political scientist who teaches in Honolulu, Hawaii, calls it "political and economic paralysis." One reason for the crisis, says Henningsen, is that the American dream, both individual and national, has in fact always been a fiction. "This society was never stable. It was always socially underdeveloped, and anyone who talks about the good old days today is forgetting the injustices of racist America."

Agitators like Glenn Beck are "nationalist, racist and proto-fascist," says Henningsen. "They take advantage of the economic situation, almost the way the right-wing intelligentsia did back in the Weimar Republic."

Gridlock has become the modern America status quo, and the condition Henningsen calls "institutional idiocy" is especially obvious in the country's most important legislative body, the Senate, which has come to resemble a royal court where nothing has happened in centuries.

Each state elects two senators, including Wyoming, with its 540,000 inhabitants, and California, with a population of 37 million. If enough senators from states with small populations band together, they have the capacity to block everything, which is precisely what they do. And no one questions the rules, both written and unwritten. The Senate is no longer a club in which the members speak to one another. The filibuster, a way of blocking legislation through continuous debate, was the exception in the past, but today it's the rule. The Republicans have already used the filibuster to torpedo more than 100 of Obama's proposals.

A Brighter Future?

One feels the despondency and timidity of political America in Washington. Tim Adams is sitting in the Hotel Willard InterContinental, a stone's throw from the White House. He says that the term "lobbyist" was coined at the hotel, where supplicants used to wait in the lobby for the president. Adams, who served as undersecretary of the treasury for international affairs in the Bush administration, is now a consultant to hedge funds -- the big fish.

Adams talks about how America lived beyond its means, how the budget has spun out of control, and how imperative it is to start thinking about a new tax system. Adams is well aware that the subject isn't popular in Washington, and certainly not in his party. Adams is a Republican. "Debates about the issues are difficult right before the elections," he says, adding that the opposition has become too accustomed to instinctively opposing every Obama proposal. "But they might not be happening for another two years. Currently, the debate on economic policy is paralyzed."

And then he says something that could sum up the entire dilemma of the Obama presidency: "The Democrats refuse to talk about budget cuts. The Republicans refuse to discuss budget increases. So the debate has come to a standstill."

Back in Florida, the Petersons, in their little house not far from the beach, are packing boxes and unscrewing their flat-screen TV from the wall. They've been working on a short sale -- selling the house for less than the balance on their mortgage -- for months, and the bank that holds their primary mortgage has agreed. They also have a buyer. Axel Jakobeit, the German real estate agent, brokered the deal. Now everything depends on the bank that holds the second mortgage, which will be left with nothing but its minimum share of $2,500 if the sale goes through.

Maybe the Petersons will have to move out of their American dream tomorrow, or maybe in a week. They plan to rent in the future. "Owning a house today is not what it seemed to be," says Marc.


A creative country doesn't stop being creative because of a crisis. A society that has produced universities like Harvard, Yale, Stanford or MIT, companies like Apple and Microsoft on the West Coast, and institutions like the Metropolitan Opera, Carnegie Hall and the Museum of Modern Art in New York doesn't suddenly become stultified. There are always new projects, even in the United States of 2010. There are startups, new companies and, of course, great thinkers.

But once a decline has gotten underway, it isn't easy to change direction. Many young companies in Silicon Valley don't last very long because they are unable to secure financing or find customers. The country seems lethargic in a very un-American way -- or perhaps it's just the new American way. The demonization of political opponents, the end of debates, the condemnation of intellect -- these are all ominous signs.

Americans are saving again, for the first time in a long time. The rate of personal saving as a percentage of disposable income, negative only a few years ago, has reached 5.8 percent. It could be a good sign, but it may also be an indication of rampant uncertainty.

There is no easy way out of the debt crisis. Obama could raise taxes and reduce the federal budget, but according to Reagan's former budget director, David Stockman, the country has become "fiscally ungovernable." If Washington can't help America, who then can help Washington and America?

One of the last hopes is the US Federal Reserve, the same institution that helped maneuver the United States and the global economy into the crisis in the first place. Despite the Fed already having reduced the prime rate to between 0 and 0.25 percent, the credit business still hasn't picked up. The Fed then sought to influence the markets in a different way by buying US treasury bonds and securitized mortgage loans, injecting $1.75 trillion in freshly printed cash into the market. The policy, known as quantitative easing, was met with enthusiasm on Wall Street. A second round, worth hundreds of billions of dollars, is expected to take place after the mid-term elections.

Ineffectual Fiscal Policy

The leaders of the international financial world have come together twice in recent weeks. Central bankers and finance ministers met in October at the annual meeting of the International Monetary Fund (IMF) in Washington, and last weekend at the summit meeting of the G-20 finance ministers in South Korea. Both times, Greenspan's successor, Ben Bernanke, used somber language to describe the economic situation and to defend his monetary policy.

Unemployment remains stuck at record high levels, a second collapse in the real estate market is not unthinkable, and the classic tools of fiscal policy, tax cuts or economic stimulus packages, are hitting a wall, Bernanke said. The calls for structural reforms are correct, he added, but the problem is that fundamental reform takes time. In the end, the only path out of the crisis leads through monetary policy, the Fed chairman said.

This sounds as if the United States had found a convenient way out of the debt crisis. But it's also a risky solution, both for the United States and the entire world economy. It can trigger processes that could gain momentum and spin out of control. Nobel laureate Joseph Stiglitz warns of the consequences of a flood of liquidity. "It's doing nothing for the American economy, but it's causing chaos over the rest of the world," he says.

More money means that the value of the dollar falls relative to other currencies. This is an advantage at first, because it makes exports cheaper and imports more expensive, making the US economy more competitive. But does US industry even make enough products anymore to allow it to increase sales to the global market? And what happens if the world loses confidence in its reserve currency and unloads its dollar reserves onto the market? The resulting dollar crash could plunge the global economy into the next abyss.

The Next Bonanza

More money also means more inflation, and the faster the money becomes devalued, the faster the debts are reduced. In early 2010, the IMF proposed that central banks commit themselves to a higher inflation goal of up to 4 percent.

No one knows how the experiment will end. "We are in the drug trial phase of monetary policy," says John Makin of the American Enterprise Institute. "We have some very nice ideas, but no experience to show whether they work." Former Labor Secretary Reich doesn't even think there are any good ideas at the moment. He believes that all the cheap money will flow into the next stock market bubble, and that companies, banks and hedge funds already sense the next bonanza coming.

Financial expert Tim Adams says that there is no alternative. "Nobody wants another stimulus package right now," he says. "It has been defined as a symbol of a state and government that overreaches. The Democrats are running away from it and the Republicans are condemning it. Everyone is talking about budget cuts now."

This, according to Adams, only leaves Fed Chairman Bernanke with the option of cheap money, knowing all too well that it won't be met with enthusiasm from politicians abroad. "The Europeans will probably have to carry a share of the adjustment costs at first, because their euro will gain value and their exports will become more expensive," says Adams. And once inflation spreads across the entire global economy, the assets of Germans will also decline.

The Danger of Currency Warfare

It will also be a test for the relationship between China and the United States, which is already tense at the moment. The Chinese have pegged their currency to the dollar, which keeps the value of the yuan artificially low. This allows the Chinese to supply cheap goods to the world. Until now, the two economic powers had a pact: The United States would buy cheap products from China, while the Chinese would invest the dollars they had earned in American treasury bonds. This enabled the Americans to live beyond their means and the Chinese to keep the value of their currency artificially low.

But even this arrangement has not fared well. The imbalance in the American balance of trade became too large, and with it grew the Chinese dollar reserves, which are now estimated at about $2 trillion. If the United States puts too much money into circulation, these reserves will be in jeopardy. Beijing, which the United States needs as a partner, fears as a rival and hates as a world power of the future, will hardly continue to keep up its end of the bargain. This is why the Americans want to see the yuan revalued and, if necessary, to impose import duties on Chinese goods, which would lead to a trade war and a worldwide recession.

The US, of course, is right to complain that the Chinese are keeping the value of the yuan artificially low. But at the same time, the US is manipulating the valued of the dollar via monetary policy. Axel Weber, the chairman of Germany's central bank, the Bundesbank, abandoned his diplomatic reserve for a moment on the sidelines of the IMF annual meeting. "Competitiveness is gained within companies, not on the foreign currency markets," he said heatedly. Exchange rates, Weber added, should "reflect a country's key economic indicators."

It will be dangerous for Europe if the Chinese and perhaps the Japanese, as well, counter the devaluation of the dollar with the renewed devaluation of their currencies. That's when currencies become weapons. "Our currency -- your problem," the phrase then US Treasury Secretary John Connally coined in 1971, referring to dollar, is gaining a new meaning.

Big Enough to Trigger Future Crises

Everyone would lose a currency war, especially the Europeans. If the European Central Bank (ECB) remained neutral, the price of the euro would climb rapidly. German products would become more expensive worldwide. And if ECB President Jean-Claude Trichet and his associates in Frankfurt's Eurotower jumped on the devaluation bandwagon and also catapulted their currencies onto the markets, price stability in Europe would be in jeopardy. One of the biggest losers in such an escalation would be Germany, currently the world's second-largest exporter.

It could certainly be a comfort to the Germans that the United States is no longer so powerful that it can foist its ideas on the rest of the world. Almost 45 million Americans are considered poor, with 4 million falling below the poverty line in 2009 alone. The Department of Agriculture warns of growing "food insecurity." One fourth of all children in the United States depend on government food stamps. But the American patient certainly remains powerful enough to trigger future crises.

One man who has disagreed with the people on Wall Street and at the Fed for years is Dov Seidman, a philosopher and management consultant from California, who moved to New York a few months ago. Seidman writes books and gives speeches, and his company, which now has 300 employees, is expanding.

Seidman is concerned about things like ethics, sustainability and a different way of thinking in America. One could also say that Seidman is interested in a new American dream.

Sitting in his office on Fifth Avenue in Manhattan, Seidman says: "We'd have to be seriously worried if we, as a country, simply chose to fix and get back to the same behavior that got us into the crisis. The problem with the American dream has been during the last couple of years that people believed they deserved it, that they somehow were chosen because they were Americans. They thought you could rent or buy the dream."

Earning the American Dream

There are ultimately two kinds of crises, says the economic philosopher. There are what Seidman calls the "end-of-life crises," the wars and natural disasters, and then there are the "way-of-life crises." He says that the current crisis must serve to question and change our way of life.

Seidman recalls the America of Obama's election campaign, when everything seemed possible. "I really hope that those who hate and yell are so visible only because they are louder," he says. "We would be in serious trouble if they actually are the majority."

Seidman, for his part, dreams of an America that starts producing products that are needed, products that are competitive and create jobs because they serve a new market, such as the market for renewable energy. He also dreams of honesty and the end of greed.

He believes that every politician and every business executive must realize by now that crises are happening with growing frequency, because each country is connected to all the other countries. "If every crisis affects everybody, shouldn't that lead to everybody being concerned about sustainability and recoverability?"

"The American dream," Seidman says finally, "is within us. It's in our DNA, our history. With our mentality we have to get back to where we once were, after World War II: dream the dream; work for it; earn it."

By Klaus Brinkbäumer, Marc Hujer, Peter Müller, Gregor Peter Schmitz and Thomas Schulz

Translated from the German by Christopher Sultan
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