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. Last Updated: 07/27/2016

Global Economy Rests On American Shoulders

U.S. Congress faced a difficult vote Monday on a $700 billion plan to save the country's financial system from an endless succession of bankruptcies. The unwillingness of both political parties and their presidential candidates to take responsibility for the unpopular measure made it necessary to find a compromise suitable to all, thereby slowing negotiations.

The current plan is to allocate $700 billion to buy up only part of banks' "bad" securities -- though not all, as the administration of President George W. Bush had initially proposed. Banks that apply for government assistance will be required to relinquish a portion of their shares to the state so that taxpayers will not only shoulder the risks but also benefit from possible profits down the line. Additionally, banks will face limits on the salaries of executives who had signed contracts guaranteeing huge bonuses regardless of the bank's performance.

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There are two reasons why the world's attention is riveted on the U.S. political process. First, the global financial system is highly interconnected, and most countries' economies are tied directly to the dollar. The shockwaves sent out by the U.S. economy this year have been enough to cause stock markets to plummet in the developing world. Second, U.S. citizens are not the only people to fear a repeat of the Great Depression of 1929. In fact, Americans have less reason to fear than others. There was no widespread starvation in the United States, and the war veterans' march on Washington in 1932 -- despite deeply impressing the U.S. intelligentsia -- did not result in a military overthrow of the government.

The case was different in Europe, where the economic crisis led to military revolutions, consolidation of power by fascist and Communist dictators, famine, and bloody civil and interstate wars. Thus, the whole world is anxiously watching U.S. lawmakers, who might be deciding the fate of the global economy.

However, even during grave circumstances we can find a reason to smile. Maureen Dowd, the popular New York Times columnist, quipped in her Sunday column, "Who would have dreamed that when socialism finally came to the U.S.A. it would be brought not by Bolsheviks in blue jeans but Wall Street bankers in Gucci loafers?" With all due respect to Ms. Dowd, people like me who grew up under Russian communism know that the closest we ever got to a pair of jeans was looking at them in photographs. The United States, where jeans and a plethora of consumer goods have long been pervasive, is still a long way from socialism.

Konstantin Sonin, a professor at the New Economic School/CEFIR, is a columnist for Vedomosti.