This is my simple theory of the role of the US in the world economy since the 90s. During the Clinton administration the US led the world economy. During the Bush administration the US sank the world economy. Now what is the good news? That the Bush presidency will soon be over and whoever wins the next election most likely will fix the US economy and probably the world economy as well. Why is US economic behavior so important if Europe is actually the largest economy in the world? What makes USA so important is that element of surprise in US policy. US behavior in the global economy is much harder to predict compared to that of Europe. Europe does not make the world economy rise or fall because Europe does not have the huge economic swings that America. Europe is steady. Europe does not go from a huge budget surplus with Clinton and a huge deficit with Bush. Europe is boring compared to USA, but in economics boring is good and excitement is bad. Outside of the States the world had been quite a steady place during the Bush years. Asia grew consistently fast. Europe grew consistently slowly but still remain the number one economic region of the world. But America was the wild card these past years and in economics the key part of the forecast is exactly that one, the one that contributes the uncertainty.
Europe is involved in military affairs around the world but none of the European economies are as heavily dependent on military spending swings as the US. And on the financial front Europe does not experiment with lending to consumers who borrow a trillion dollars they cannot pay. And compared to the military adventurism of the United States Chinese Foreign Policy is also "boring." The Chinese want Taiwan, they want to keep Tibet and that's basically it. The Chinese will not go and invade an African country to make it say, communist. But again the good news here is that Bush is nearly gone and that no Presidential candidate is likely to have an administration as unpredictable as that of Bush. I don't think that McCain who suffered himself the policies of the military gone wild in Vietnam will increase military spending and nor will the democrats should they win. So USA is not about to squander precious human lives and another trillion dollars in doomed military adventures. And regarding lending money to people who cannot pay... that scheme is also likely to end as banks are more closely watched. Funny how everyone thought that the hated hedge funds would bring the financial world to its knees but it turned out that it was the hyper-regulated mighty American banks were the ones brought us down. Personally I have had my savings in a collection of hedge funds for years with much steadier returns than the financial instruments offered by large banks or investment banks. Hedge fund managers have skin in the game and as a group they do reasonably well. Hedge fund managers as a group do what they said they would do, they hedge.
As far as commodities are concerned, I also think their uncontrolled rise is coming to an end. With oil at $120 even the worst oil wells will become profitable. In the next 3 years production is likely to go through the roof in a somewhat recessionary environment and this will lead an oil prices declining. Yes China, India and to some extent other LDCs are adding demand by the day for oil and other commodities. But they are not adding it at the rate that commodities prices have been rising. Same for food, with sky high rice prices people will be growing rice in their gardens! We have seen the prices rise, we will soon see supply rice.
Bottom line? I think it's time to sell commodities and move back to the dollar and trust the new US administration, who will probably be known not so much for what they did, but what they did not do, and did not allow businesses to do.
USA sank the world, but just by getting its house in order the USA will fix it.