That number, 185 percent, is stunning. Countries like Greece hit the fiscal wall well before reaching that level. Washington long has benefited from the lack of effective monetary competition. That is slowly changing. Much of the world desperately wants alternatives to the dollar, which currently gives U.S. politicians another tool for exercising political domination. Most important, investors who wonder at the ability of America to shoulder an increasing debt burden are likely to demand ever higher interest rates.
The rising debt will weaken the U.S. fiscally in other ways. Explained the agency: “When the government borrows, it does so from people and businesses whose savings would otherwise finance private investment in productive capital.” Thus, Washington displaces the latter, reducing the rate of economic growth. The public is left with lower earnings with which to pay higher interest payments and other government expenditures.
Moreover, a fiscal crisis will become ever more likely. Warned CBO: “Concerns about the government’s fiscal position could lead to a sudden and potentially spiraling increase in people’s expectations for inflation, a large drop in the value of the dollar, or a loss of confidence in the government’s ability or commitment to repay its debt in full, all of which would make a fiscal crisis more likely.” And this could turn into a financial crisis if major banks and other institutions hold sufficient federal debt of declining value. Then, “because the United States plays a central role in the international financial system, such a crisis could spread globally.”
As outlays, interest rates, deficits, and debt head upward, what happens to military spending? Members of the foreign policy establishment, or the Blob, typically deploy the term “national security” as a trump against any objection to increased military outlays. The broader the foreign policy and higher the expenditures, the less convincing this argument. Today an increasing number of Americans realize that keeping troops in such nations as Afghanistan, Iraq, and Syria has little to do with America’s defense. As U.S. fiscal difficulties intensify, popular enthusiasm for treating Asian and European industrial states as helpless military dependents is likely to wane. Ever more Americans are likely to ask why they are doing so much so others can do so little.
Another favorite argument of those who favor open Treasury doors for the Pentagon is that domestic, not military, outlays are the main cause of the country’s impending debt crisis. Thus, a few easy reforms—for instance, just cut Social Security benefits and raise the retirement age—would set everything right.
Although social programs will take up an increasing share of the budget and GDP as Baby-Boomers retire, military spending will remain a significant burden. And if entitlement reform was easy, it would have been implemented years, indeed, decades ago. For good reason American are likely to prove skeptical when told that their benefits should be pared to make it easier for the prosperous Europeans to devote more of their money to their bountiful welfare states.
Of course, significant tax hikes are another option. The U.S. public has gotten used to a free ride, however, lots of benefits financed by loads of debt enabled by substantial foreign money. Hiking rates and adding levies would generate substantial political resistance, especially since much of the money would go to the defense of others who spend much less to defend themselves. “Pay up so the allies can pay less” isn’t likely to be a winning electoral slogan. Middle class benefits are understandably quite popular since they benefit Americans. In contrast, much of the U.S. “defense” budget goes for other nations.
Even when war came to Europe’s eastern border this year, the U.S. did much more than NATO’s European members to aid Ukraine while Washington’s supposed allies sought to entangle it in a direct conflict with Russia. The same people in 2020 told pollsters that in a crisis they opposed aiding their NATO allies but expected the U.S. to intervene on their behalf. Even more grotesque was the specter of a submissive President Joe Biden visiting the Kingdom of Saudi Arabia, promising U.S. military personnel as personal bodyguards for the corrupt and oppressive Saudi royals.
World War II left America with the world’s dominant economy, and able to bear the terrible burden of confronting the Soviet Union and its gaggle of allied and client states. The collapse of the USSR left the U.S. as the planet’s unrivaled military power. These advantages are ebbing away.
Americans will have to set priorities and decide whether they want to continue playing globocop as fiscal crisis engulfs Washington. War is sometimes necessary, but for America it has become a foolish, almost frivolous matter of choice. The endless Global War on Terrorism was awful, but conflict with Russia or China, or even North Korea or Iran, would be much worse. The looming debt crisis will have at least one silver lining: forcing Americans to finally rethink U.S. foreign policy.