The global economy is like the St. Andreas Fault.  You know that a terminal disaster is inevitable, but you keep your fingers crossed and try not to think about it.  When a tremor occurs, you often fear it could be the Big One and sometimes panic, but then, when the dust settles, you sigh with relief to find yourself alive and the Golden State still above the ocean.

In the last week of January, the world had a major tremor that, at first, looked like the Big One.  In two frantic days, America’s economic woes suddenly spread across the oceans and infected Asia and then, within hours, Europe.  The news that losses from America’s subprime home-loans crisis were costing Chinese banks some untold billions triggered a massive sell-off in Asia.  On January 21, in Tokyo, the Nikkei had its worst two-day drop in 17 years.  The following day, Hong Kong’s Hang Seng lost a tenth of its value, with similar losses posted in Singapore, India, Taiwan, South Korea, and Australia.

As the major Asian indices officially entered a bear market, the panic swiftly gripped Europe.  More than $150 billion was wiped off the value of Britain’s stock market on January 21, with the FTSE 100 Index posting its steepest fall on record.  The combined losses of the London, Paris, and Frankfurt markets alone amounted to more than $350 billion—the precise equivalent of Mr. Bush’s 2003 major tax cut that was meant to stimulate demand and encourage growth.  His latest stimulus package, announced on January 23, was less than half that amount—$145 billion—and analysts immediately said that it was far too little too late.

The effect of America’s woes in Europe and Asia refuted the theory—known as decoupling—that they are not as dependent on the American economy as they once were, in part because they trade more with one another.  No market has escaped the carnage caused by America’s subprime crisis, and the fear of worse news to come is turning into panic.

That panic abated by the end of the week, after the Federal Reserve intervened with a dramatic three quarters of a percentage-point cut in interest rates and U.S. employment figures proved better than expected.  Most markets ended up roughly where they started.  The world did not come to an end—but the Fault remains.  The fiscal imbalances caused by President Bush’s addiction to deficit spending, by over-indebtedness, by ordinary Americans’ negligible savings, by the huge and growing foreign debt, and by the falling dollar are all still there.

For the time being, the United States is able to issue and sell large quantities of low-cost debt, denominated in dollars, through Treasury bonds.  Right now, they yield less than the inflation rate, but as long as much of the world’s oil continues to be traded mainly in dollars, central banks around the world have to keep holding substantial dollar reserves.  Furthermore, to the extent that the OPEC cartel raises oil prices to capture the dollar’s constantly falling purchasing power vis-à-vis the euro—rather than simply because of chronic excess demand for oil as it peaks—it imposes on Europe the burden of sharing that part of the oil price hike that follows the falling dollar.  This, paradoxically, creates additional built-in support for the dollar, without which its current sickness could have been well nigh terminal.  Other countries’ dollar reserves are still invested in American assets, creating an artificial capital-accounts boost for the U.S. economy.

When the “petro-euro” becomes reality, the global demand for dollars will collapse; the exchange rate will then likely fluctuate between two and three dollars per euro.  The consequences for the global economy will be scary at first, painful in the medium, but beneficial in the long term.  For the United States, however, they will be traumatic.  World trade will cease being a scheme in which Washington prints dollars and the rest of the world produces things that dollars can buy.  The U.S. economy will no longer enjoy the benefits of a gigantic subsidy provided by the goods and services of countries holding their reserves in dollars—notably, by Japan, who imports four fifths of her oil from the Middle East.  The fewer dollars circulating outside the United States will then translate into fewer goods and services that this country can obtain from abroad on what amounts to interest-free credit.  The current-account deficit—at present, $800 billion—will no longer be financed by foreign capital, because its influx would simply cease.  Global demand for shares of U.S. companies and Treasury bonds will collapse.  Without foreign investors, interest rates will zoom into double digits, and the Fed will find inflationary pressures simply irresistible.

In Washington, the threat is still regarded as somewhat remote, because a further significant decline in the value of the dollar would hurt major oil producers.  The Saudis cannot afford to see the value of their U.S. currency reserves and Treasury bonds depleted, the argument goes, and the resulting economic downturn would be felt around the world and would hurt Saudi oil revenues by reducing demand.

That argument no longer holds.  Whatever an oil sheikh can get for dollars, he can get for euros—and his euro reserves are looking safer with each passing day.  The Eurozone does not run a huge trade deficit.  It is not heavily indebted to the rest of the world, and it is not subject to the political will of a single national decisionmaking structure.  Europe is the Middle East’s biggest trading partner; it imports more oil and petroleum derivatives than the United States; and it has a bigger share of global trade.

For too long, Americans have assumed that they could maintain effortless prosperity by investing in assets that produce no profits—dot-coms in the late 1990’s, followed by housing—and then using them to generate spending cash.  Instead of helping America sober up, the Federal Reserve merely postponed the Big One by cutting rates on January 23.  More affordable liquidity, as it happens, is no cure for a credit crisis prompted by years of excess liquidity.  The underlying financial malaise is still there.  The Fed has saved the market, albeit temporarily, at the expense of the economy.

At the technical level, the extreme volatility of the markets makes it imperative to prevent a misuse of the sophisticated technology that allows the fully automated and therefore anonymous system to function.  Such misuse for personal gain—like the case of the French rogue trader Jérôme Kerviel—would be a matter for the SEC and the courts.  Far more dangerous is the potential abuse of the system by our global enemies; and it is not unthinkable.

On the last day of 2007, the Committee on Foreign Investment in the United States (CFIUS) quietly approved Bourse Dubai’s purchase of 20 percent of NASDAQ.  At best, this means that unsupervised foreign firms may now manipulate U.S. company stocks, adversely affecting domestic markets.  At worst, Bourse Dubai could be true to its self-avowed status as “the world’s first and leading Islamic securities exchange” and exert its influence accordingly.  If a single rogue trader could cost Société Générale over seven billion dollars and contribute to the brief global panic, what could happen if the market infrastructure itself were to fall into the hands of rogue controllers?

While nominally the paragon of Arabs striving for modernity, Dubai and the rest of the Emirates are inhabited by people similar to their Arab-Muslim brethren elsewhere, yet disproportionately inclined to Islamic terrorism.  Two of the one million UAE citizens were among the September 11 terrorists.  UAE’s banking system helped to move the funds needed for the operation.  In addition, the UAE has been a key transfer point for illegal shipments of nuclear components to Iran and North Korea.  Entrusting the running of America’s stock exchanges to a company owned by them is as inherently unsafe as letting them operate America’s ports.

Keeping the markets safe from jihadist mischief is necessary.  It will not save them in the long term, however, because the malaise is moral and spiritual.  Just like under San Andreas, the plates move past each other, producing cumulative strain.  The Fault that will produce the global meltdown is the gap between the postmodern heart and mind, the impossibility of ever consuming enough goods and services to feel sated, and the unwillingness to settle the bill for those goods and services in cash.  When mere servicing of the ever-growing tab leaves nothing for further consumption, however, the end will be nigh:

The merchants of the earth will weep and mourn over her because no one buys their cargoes anymore—cargoes of gold, silver, precious stones and perils; fine linen, purple, silk and scarlet cloth; every sort of citron wood, and articles of every kind made of ivory, costly wood, bronze, iron and marble; cargoes of cinnamon and spice, of incense, myrrh and frankincense, of wine and olive oil, of fine flour and wheat; cattle and sheep; horses and carriages; and bodies and souls of men (Revelation 18:11–13).

If reasonable men agree that our civilization is spiritually diseased, morally rotten, and demographically moribund, then a colossal, rapidly spreading global economic crisis should be neither feared nor wished away.  It may yet be our last best hope for survival.

The meltdown has to be rapid and brutal, however.  Only the collapse of hoi polloi confidence in the ability of the all-pervasive State to manage relief would force blighted billions to reexamine their lives and their assumptions.  By getting no relief from the collapsing State (including the European Union, the World Bank, the IMF, and Oxfam), they would rediscover self-reliance—or die.  Being disillusioned by progress, they would rediscover the value and force of tradition.  The ensuing struggle for diminishing resources may make them drop the neurotic becoming in favor of just being—that is, surviving.  The Hobbesian mayhem in New Orleans after Katrina offered a glimpse of what is to come.

A predictable benefit for the survivors would be the return of fertility to historically normal levels.  Even in darkest Tuscany or the Upper East Side, children would no longer be seen as a burden, an obstacle to self-fulfilment, and a financial liability.  In the aftermath of the burst bubble, they would regain their traditional value as economic assets and the long-term substitute for collapsed welfare programs, entitlements, and pension systems.  The family would reemerge as the essential social unit.  Amid collapsing political structures, all ideological “propositions” would be recognized as empty abstractions.  Communities linked to their native soil and bonded by kinship, memory, language, faith, and myth would be revived.  And in adversity, the eyes of men would be lifted, once again, to Heaven.

We do not know when this will happen, just as we don’t know when San Francisco will turn into rubble; but when it happens—and it will happen—the American interest demands that it takes the form of a short, sharp shock, utterly unmanageable by the ruling political and economic elite that is destroying us.