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http://au.news.yahoo.com/a/-/world/5...mic-dominance/

An economic adviser to former US president Ronald Reagan has warned that the current global economic crisis may cost the United States its position of global economic dominance.

Dr Jerry Jordan was the president of the Federal Reserve Bank of Cleveland for a decade until 2003, and a former member of the powerful National Economic Advisory Council under president Reagan.

Now with the private Pacific Academy for Advanced Studies, he warns that the governor of the US Federal Reserve , Ben Bernanke , may have been overly optimistic earlier this week when he suggested the recession in the US could end this year if Washington gets its policies right.

Stabilising the financial system will mean supporting some banks while allowing others to fail, at a time when investor confidence is already deeply shaken.

It will also require forging new agreements on regulation, and saving or creating millions of jobs.

Dr Jordan says that when the US economy does recover, it will never be the same.

"What people need to understand about the United States in this environment and probably the British as well, that this is not your garden-variety economic contraction caused by restrictive monetary or fiscal policies to slow things down and cool off inflationary pressures," he told Radio Australia.

"Rather this is much more the case that we went over the waterfall, we didn't drown but we're not able to swim back up to the top, and there's no amount of monetary or fiscal policy that is going to get us back up to where we were a couple of years ago.'Recession, not depression



But Dr Jordan does not believe a global recession will escalate into another Great Depression.

"I don't think depression is the right word," he said.

"I think of it as a discontinuity from the growth path that we were on before, but the important part is that you cannot use pump-priming of the fiscal type or the monetary type, to get back to the level of car sales furnishings, home appliances [that we saw previously].

"There are literally thousands of stores in the United States that have been boarded up; companies bankrupted out of business by the end of last year, and they're not coming back into business.

"It's going to involve a new direction for the economy, but not a restoring of the old level of economic activity."

Dr Jordan says it is too soon to tell whether the stimulus packages and other incentives for reviving the economy will achieve Mr Bernanke's hope of an end to the US recession by the start of 2010.

He warns that Asian states which have relied economically to varying extents on the United States for export-driven growth, will also be deeply affected as the US economy changes - with implications for countries like Australia and New Zealand .

"[Asian nations] are going to have to rethink that strategy, because they find that they were left exposed to the ending of a consumer-spending bubble," he said.

"That then has secondary effects that come back on Australia, New Zealand and other countries dependent on selling things to other Asian economies.

"That's going to have to be rethought [to find] a different strategy."