US will emerge as undisputed top dog in 2009

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4123663/US-will-emerge-as-undisputed-top-dog-in-2009.html
Obama's America will shine. The country will reemerge as undisputed top dog, the only one with real demographic, scientific, and strategic depth. As first into the crisis, it will be the first to hit bottom. Those expecting the dollar to collapse will have to wait.
The damage to core Europe will take longer, but run deeper. Belgium will face a break-up scare. Markets will test highdebt states as they try to roll over bonds – €200bn (£191bn) for Italy and €40bn for Greece. Spain's corporate debts will turn bad.
Germany's economy will contract by 3pc as exports collapse, and the delayed effects of the strong euro and tight money feed through. Angela Merkel's (pictured below) Left-Right coalition will be haunted by its failure to tackle the crisis earlier. The neo-Marxist Linke party and the hard-Right will muscle in. The country will start to look ungovernable. This will at least divert attention from the Club Med mess, making a North-South split in the eurozone less likely. After sterling's sudden death, the euro will face slow death. The pair will refind their accustomed level.


Authoritarian regimes will fare badly. Those that depend on perma-boom to hold power will fray. Repression will escalate in China as an inflammatory cocktail of migrant workers and jobless graduates vent their anger in riots. Massive fiscal spending will buy time.
Analysts will be shocked by the ferocity of the downturn across Asia, where the strategy of export-led growth will be called into question. It will become clearer that Asia's boom has been a leveraged play on the West, and leverage works both ways. Some Pacific tigers will try to resist the denouement by holding down currencies. Such beggar-thy-neighbour policies will lead to tit for tat responses. The US and Europe will tire of holding the ring for free trade. The WTO will look ever more like the League of Nations.

By late 2009, the massive monetary and fiscal stimulus will feed through. Angst will start to switch from deflation back to the risk of incipient inflation. Equities, oil, and gold will rally. Bonds will falter, and then crash.
At that point it will become clear that reflation is just as dangerous as deflation in a world of debt. We will find that there is no way out. But that, perhaps, can wait until 2010.