The title quote is attributed to French President Nicolas Sarkozy in Roger Altman’s insightfully sobering piece in the current issue of Foreign Affairs [volume 88, at pp. 2-14]. The topic sentence: “The financial and economic crash of 2008, the worst in over 75 years, is a major geopolitical setback for the United States . . . .” True, the final paragraph concludes, “The United States will remain the most powerful nation on earth for a while longer.” [at 14]. But its standing and influence are badly damaged and there is little that can be done to reverse or limit the effects.
On average, Americans lost 1/4 of their net worth from June 2007 to December 2008. [I am one of those average Americans.] Net worth reductions appear in all assets classes: home equity values down 33% [$4.2 trillion, mine down 20%], retirement savings values down 22% [$2.3 trillion, mine down 25%], other securities investment values down 25% [$2.5 trillion, mine down 20%]. Total value reduction: $8.8 trillion.
Broad stock market indexes fell by nearly half from highs in 2007 to the end of 2008. Altman says this means participants are “anticipating an even worse drop in corporate profits” ahead, although he also notes how the current environment reflects psychological as well as substantive effects, highlighting “deep fright”, “shock,” and a sense of “doom pervading Washington and the U.S. media.” Altman also notes that the recent period shows “a classic pattern of overshooting, [with] markets swinging from euphoria to despair.”