Along with drastic tax reductions, almost all nations have resorted to an expansive fiscal and a loose financial policy over the past four months to tackle the global financial crisis that broke out in the US. However, the global economic situation has not turned better as expected and the crisis continues to exert a deepening impact on the global economy. Thus, it is particularly important at this time that all countries should reach an extensive consensus on the cause of the ongoing financial tsunami and then gauge their macroeconomic policies. It is regrettable to see a responsibility-evading attitude from the United States, the epicenter of the global financial crisis.

US Treasury Secretary Henry Paulson recently accused China and other emerging economies of kindling the global crisis, saying that their long-term high bank deposits have caused a serious imbalance in the global economy. Federal Reserve Chairman Ben Bernanke even attributed the bubble in the US property market to China's high saving ratio.

From a financial and economic perspective, the ongoing financial crisis is a combination of securities and banking problems in the US. After the outbreak of the US subprime mortgage crisis in August 2007, the securities market in the world's largest economy got stuck in a disorder and its stock- and bond-dependent financing means came to standstill. The New York Stock Exchange did not issue new stocks for 10 consecutive weeks.

Since last October, the number of new shares issued in the bourses of Frankfurt, London, Paris and Tokyo has also suffered a drastic decline. As a result, funds-thirsty enterprises are deprived of financing channels, which hindered their new business development and expansion plans. Also, no country can find new growth points to bolster its economy. That is why the global economy is still in slump even four months since the outbreak of the financial crisis.

The 10-year-long vigor the US economy enjoyed in the 1990s should be attributed to the large-scale inflow of global funds to the largest economy. The "Star Wars" program launched by the Reagan administration in the 1980s greatly boosted the development of new technologies in the US, thus attracting large volumes of worldwide funds in pursuit of profit-yielding technological dividends.

Such kinds of capital movement have helped form a global capital circulation with New York as the center and dollar as the main currency. Also, since the "Big Bang" in the British financial system, Washington has replaced London as the dominant player in leading the financial globalization and liberalization process and then succeeded in developing New York into the center of global capital and fund concentration.

The large-scale inflow of international capital greatly beefed up US capital capability and thus contributed to the formation of the country's dominant status in the global capital market.

However, things changed after mid-2000. With the complete release of its information technologies in the previous years, technological innovation in the US suffered a decline together with a fall in capital draw level. Since then, Japan's new-generation key technologies represented by digital electrical home appliances, LCD screens, semiconductor devices, IPV6 and wireless network technologies have experienced a boom and have become a new destination for global funds.

Also, the September 11 terrorist attacks in 2001 exposed the investment in US homeland to new risks. The Bush administration's anti-terror strategy caused oil-rich nations to find other havens beyond the US for investment. Also, some emerging economies chose to flow their funds to the United State via the European banking system, thus reducing US capital profit. There is no doubt that all these new developments have contributed to the discounting of the value of the New York investment.

Since the euro zone became a reality, unprecedented changes have taken place to challenge the Japan-U.S.-Europe financial configuration. The US-dominated global fund circulation structure has been rocked to the bottom. The US allies' changed financial policies in the European nations and Japan have played an inestimable role in fueling the outbreak of the global financial crisis.

The US financial crisis lies in its ill-conceived financial capital mode and was directly ignited by the burst of the bubble in its housing market. The busting of its property bubble also helped trigger anther inflated bubble in the consumption market.

It is well known that the US economy has long been driven by robust consumption and even by individual and government overspending. Individual consumption accounts for 70 percent of the country's gross domestic product. In the wake of the collapse of the IT bubble, the Greenspan-led Federal Reserve took interest rates to a declining tunnel, thus helping push up housing prices. Rising housing prices and declining rates attracted huge funds to the property market and helped produce among people a sense that their assets were growing. This sense further stimulated people's consumption, burying the new seeds for the consumption bubble.

The busting of the current housing bubble also triggered the bursting of the consumption bubble. In the face of a gloomy economic prospect, the American people, long used to lavish lifestyles, began to tighten their purse strings and curtail individual consumption, dragging down global economic recovery and growth.

The lack of strong consumption together with a defective crediting system, has rocked the foundation of the market economy and now threatens to have a far-reaching impact on the global economy.

The author is a researcher with the China Institutes of Contemporary International Relations

(China Daily January 20, 2009)