The Crisis of US Monetary Hegemony and Global Economic Adjustment

Over the past decade the world economy has been characterized by escalating global current account imbalances between the United States and East Asian states. This paper argues that US structural power in the global monetary system allowed the consolidation of a finance-led growth regime in the US based on massive capital inflows, asset inflation and consumption growth while inducing East Asian emerging market economies to establish export-led growth regimes. The global credit crisis has clearly uncovered the boundaries of US monetary hegemony, imposing severe adjustment throughout the global political economy. I analyse the political economy of global economic adjustment and argue that the crisis of US monetary hegemony is based domestically on the crisis of the finance-led growth regime and globally on the shortage of global demand. On the basis of an analysis of the impact of the crisis on the models of capitalism of the US, the Eurozone, and China, this paper shows that global demand deficiency will persist in the short to medium term.