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-US-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, Liu Junhong, is a researcher with the China Institutes of Contemporary International Relations.

(China Daily January 20, 2009)