Welcome to the post-American world. It has come sooner than we expected. But as bank shares gyrate and the livelihoods of millions of people are at stake, the country I have loved for so long looks as parochial and myopic as a banana republic. Its politicians would apparently rather impoverish their own people - and ours - than risk their careers at the polls in five weeks' time by being seen to “bail out greed”. The global financial system is out of control, and in Washington no one is in charge. No one has been in charge since Republicans and Democrats voted down the bank bailout Bill at 7.10pm on Monday night.

This woeful absence of leadership is a hammer blow to America's status as a great power. I do not mean that America has ceded its economic dominance to Asia quite yet. China and India are still too dependent on the American consumer and foreign investment for that to happen. But America's reputation may not recover from having forfeited leadership at the time when its leadership is most desperately needed to restore confidence in a panicking world.

This is not the pragmatic, courageous America we thought we knew. This is an America which, offered a chance to save the world Hollywood-style, prefers to rerun the show that turned the Wall Street Crash into the Great Depression. The Bill was voted down by Congressmen and women in marginal seats who are fixated not on their place in history but on the November election. Everyone hopes that they will be bribed out of it on Thursday: that is what is keeping stock markets up. But I am not so sure.

It is a depressing spectacle when the only men with vision are political appointees. Without Hank Paulson, the US Treasury Secretary, and Ben Bernanke, the Chairman of the Federal Reserve, we would have had a crash many months ago. Mr Bernanke did his PhD thesis on the 1929-1934 Great Depression. Sadly, few politicians seem to have his grasp of history.

Mr Bernanke understands that what we face is a problem of liquidity. For months, banks have been so suspicious of each other that they have been unwilling to lend for more than very short periods. As a result, interest rates on loans to businesses are now punitively high. The best analogy I can think of is with famine. Professor Amartya Sen established long ago that most famines are exacerbated not by a dearth of food, but by panicking people hoarding food. In the same way, panicking banks are hoarding money. When that happens - as with famine - the weakest starve first. As I write, HBOS looks to be the next weakest in the chain. But a collapse of HBOS is unthinkable, since it holds so much of the savings of the British people.

Confidence must be re-established among two groups of people. Depositors have to be dissuaded from taking their money out - which is why the Conservatives are right to argue that the deposit insurance threshold should be raised to £50,000, and why the Government was right to guarantee all deposits when it rescued Bradford & Bingley. Creditors also have to feel confident that banks will not go bust with their money in it - as Lehman Brothers did. Right now it is the money managers who lend long-term who are even more jittery than depositors.

That second point is not well understood across the Atlantic, but it is understood on this side. The untold story of the past 48 hours is the decisive leadership that finance ministers in Europe have shown. In that time there have been six huge interventions by governments across the Continent. These have rescued Bradford & Bingley in the UK; Glitnir, the third largest bank in Iceland; Hypo Real Estate in Germany; Dexia, which funds local government in Belgium and France; the whole of the Irish banking system; and Fortis, the biggest employer in Belgium with 85,000 jobs, which was so large that it has had to be rescued by the Dutch, Belgian and Luxembourg governments combined.

Each rescue has been different. Ireland moved swiftly to guarantee all deposits, thereby shoring up a system that was not short of equity but was woefully short of confidence. Dexia and Fortis had too much debt and not enough capital - so governments have become part-owners in exchange for cash. But what all these interventions have in common is that they have not destroyed the capital structures. In every case, creditors and depositors have been protected. Europe has learnt from America's mistakes.

Even if the US plan does go through tomorrow, the credit squeeze could create many more casualties before then. Events in global markets move at internet speed: they do not wait for lazy legislators to wander back from their holidays. Many bank shares may continue to defy gravity for a while, but the fact that stock markets are still looking relatively healthy does not indicate that all is well. Stock markets are supposed to take a long-term view. It is the credit markets that matter right now. They take a view of the risks of lending for up to 30 days. And it is impossible to overstate the danger of their current lockjaw paralysis.

The most flattering reading of the turmoil in Congress this week has been that this is democracy in action. Personally, I have never felt more attracted to benign dictatorship. But the reality is that politicians who are using their taxpayers as an excuse to do nothing are condemning those same taxpayers to suffer: savers, homeowners, employees and entrepreneurs struggling to make a go of the businesses that will create the wealth the world needs.

It should come as a desperate irony to every American that the only grown-ups today are in the capitals of Europe. Europeans are forging the way ahead as Washington's childish sulk brings America to a new nadir.

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