On inauguration day, after the euphoric mass celebration on the Mall and before the black-tie balls that evening, leading Democrats gathered for dinner in Washington’s Park Hyatt Hotel. It was a crowd including Paul Volcker, former head of the Federal Reserve, Lawrence Summers, incoming head of the National Economic Council, and three future cabinet secretaries.

But the first person to speak was the last Democratic occupant of the Oval Office – Bill Clinton. And in his brief comments the former president sketched a passionately optimistic view of the political implications of the current crisis. “We are at a pivotal moment in this country,” the politician who taught the American left how to win elections in the age of Ronald Reagan exulted. “I think there will be a progressive majority in this country for the next 30 years.”

For the Main Street families losing their homes and their jobs, and for the Wall Street firms that have been facing collapse, the economic crisis has felt like a natural disaster. The economy, as the investor Warren Buffett put it this week, seems to have “fallen off a cliff”. But Mr Clinton urged his listeners to perceive in the cataclysm a once-in-a-lifetime chance. President Barack Obama and his administration have “an enormous opportunity”, he said with a note of wistfulness. “They will have more freedom to do it than any other team in a long time.”

After barely 50 days in office, it is clear the administration perceives the watershed identified by Mr Clinton and intends to exploit it. This determination to turn the world’s deepest economic downturn since the Great Depression into the beginning of a new era of progressive politics in America is the most important political consequence – and the biggest political gamble – of the crisis of capitalism in capitalism’s homeland.

Rahm Emanuel, the president’s chief of staff, likes to say that a crisis is a terrible thing to waste. Mr Obama, characteristically, provides a more stirring spin. Beginning with his inaugural address, he served notice that he intended to be a consequential president, rebutting future critics even as he laid out his plans: “There are some who question the scale of our ambitions – who suggest that our system cannot tolerate too many big plans ... What the cynics fail to understand is that the ground has shifted beneath them ... The question we ask today is not whether our government is too big or too small but whether it works.”

The echo of Reagan – remember when government was the problem and not the solution? – is meaningful and intentional. Early in the primary fight, Mr Obama ruffled Clintonian feathers by naming Reagan as the most significant president of modern times. Mr Obama hopes to have a similar impact. According to former Reagan staffers, the Obama team has gone so far as to get in touch with detailed questions about the mechanics of the Gipper’s White House and how they choreographed his first 100 days.

Nor is it just the hope-drenched Obama-ites who see in the economic downturn a chance to change America’s political weather. Grizzled Democratic warriors see the opportunity, too. “I have been in government for 35 years and this is the most exciting time. You really feel you are making history,” says Charles Schumer, New York’s senior senator. “In every generation there are tectonic elections which redefine the role of government. Obama has a chance to create a new generation of Democrats.”

“I have never seen a shift in public opinion like the one we’ve had now,” agrees Barney Frank, the influential congressman. Mr Frank believes the long era of “Republican ascendancy”, which he dates to Richard Nixon’s election in 1968, has been replaced by a period of Democratic dominance.

Republicans, too, admit their era of setting the terms of the political debate has come to an end. “The only question is whether the Obama era lasts two years, four years, or eight years,” says Newt Gingrich, the former House of Representatives speaker who is re-emerging as powerful intellectual force in the party. “The question is whether this is a new era or an interregnum.”

The Obama era, if that is what it becomes, will be built on the two defining political and economic shifts of the past six months: the evident and acknowledged failure of “market fundamentalism” and the response by Hank Paulson as Treasury secretary.

Ideologically, the manifest failure of market fundamentalism is the starting point. There are, to be sure, some hardcore Republican hold-outs: Mr Gingrich argues that the current crisis “is a government problem, not a market problem”. But the consensus view is that, as Alan Greenspan, former Fed chairman, confessed in his influential congressional testimony in October, there was a “flaw” in the model.