Historian Niall Ferguson's theories compare the world today with the world before World War I, and the rise of "Chimerica"
The defining feature of the current world economy is not an excess of liquidity or a shortage of assets, but the gap between company profits and the level of real interest rates. This wedge between the return on capital and the cost of capital is in large measure attributable to the spectacular rise of what we call "Chimerica": the sum of China, the world's most rapidly growing emerging market, and America, the world's most financially advanced developed economy.
One of Ferguson's themes is the shift in power from the West to the East. "It suddenly hits you that it's been downhill for the West since 1900, when the West ruled the world," he says. "It has become a cliché to think of the 21st century as an Asian century, but it has already happened. Americans like to think of the 20th century as an American century, which was supposed to be the consequence of victory in World War II. I think that never happened. Throughout the Cold War, only half the world enjoyed the benefits of American hegemony."
Ferguson calls the U.S. an "empire in denial." To be an empire in denial, he wrote in the September/October issue of Foreign Affairs, means "resenting the costs of intervention in the affairs of foreign peoples, and underestimating the benefits of doing so."
Ferguson's message isn't entirely gloomy. While many worry about the enormous U.S. trade imbalances with China, Ferguson sees the U.S.-China relationship in a more favorable light, referring to these intertwined economies as "Chimerica." As a student of history, he knows it is unusual for a relatively poor country like China to finance the richest nation on earth. But he thinks the system can be sustained because the Chinese may be willing to add enormous dollar reserves and tolerate a strong currency in order to support their critical export industries and expand employment.
Ferguson calls China "East Chimerica" and the U.S. "West Chimerica." "East Chimericans save and West Chimericans consume," he says. "East Chimericans put together flat-screen TVs and West Chimericans are responsible for the knowledge frontier."