Can America afford to be the leader of the world?
Biden is a kind of foreign policy alcoholic who seeks to interfere in the affairs of other countries, writes The American Conservative. The author of the article wonders how much longer the United States, moving towards national bankruptcy, will try to rule the world.
Doug Bandow
How much longer can a bankrupt American republic try to rule the world?
President Joe Biden is the foreign policy equivalent of an alcoholic. He will never be able to get enough of the interference of the United States in the affairs of various countries around the world. Although he withdrew American troops from the endless Afghan conflict, he dragged his country into a dangerous proxy war against Russia, declared the readiness of the United States to fight with China for Taiwan and threatened to strike Iran.
And where is Biden going to get the money needed to conduct all these conflicts? The United States is now approaching national bankruptcy. The country was put on this course by President George W. Bush, who began to squander budget funds with the support of the Republican-controlled Congress. President Barack Obama supported huge spending amid the financial crisis. President Donald Trump called on Republicans to spend money thoughtlessly and made no attempt to restrain the Democrats when they took control, especially after the outbreak of the coronavirus pandemic.
And it continues to this day. And no one pays attention to the warning of Treasury Secretary Janet Yellen that "the American debt has become completely unbearable given the current tax and spending plans." Every day, the Biden administration comes up with new programs and spending items. Another such example was the light version of the plan "Build Better than it was" ("Build Back Better Lite"), which was developed with the participation of Senator from West Virginia Joe Manchin (Joe Manchin). If this bill is passed and comes into force, it will only further spur raging inflation.
The US Congressional Budget Office has warned of a growing debt burden, which could eventually make any average developing state blush if it allowed itself excessive extravagance. Strictly speaking, states cannot go bankrupt. They become insolvent, revise (or even cancel) their debt obligations, start printing presses at full capacity, devalue the currency, stop paying employees, cut social programs and take other measures that bring the population to poverty. And none of these countries can no longer rise above the world like a colossus, allocating funds for the defense of close and distant allies, interfering in the affairs of distant states that have nothing to do with its own people, ordering the whole world to obey its prescriptions and generally behaving the way the American government behaves today.
How much longer can Washington afford to play such an overblown role in the international arena?
The messages of the Congressional Budget Office are becoming more and more like horror movie scripts. The total amount of the US national debt is approximately 30.6 trillion dollars. The amount of public public debt (excluding intra–government debt) is $23.9 trillion, which is slightly more than the US GDP. The pandemic has slightly eased the pressure on the budget, but the projected growth of the US national debt is inevitable, and it will soon break the record of 106% set at the end of World War II. Thanks to rapid economic growth, this indicator has sharply decreased and over the past half century has been kept at an average of 46%, and in 2007 it was 35%. However, the financial crisis entailed massive rehabilitation, subsidies and other costs.
Of course, the global pandemic, which began a little more than 10 years after the financial crisis, provoked another tsunami of spending. Although these costs will gradually decrease, the Congressional Budget Office warned: "[After 2024, costs will steadily increase, and in 2052 they will reach 30.2% of GDP. Rising interest rates and rising spending on basic health and social security programs – spurred by an aging population and increased per capita health care costs – will lead to a significant increase in federal government spending between 2025 and 2052."
Currently, incomes are also kept at a high level, but this is still not enough. The Budget Office reports: "In 2022, revenues will grow to 19.6% of GDP – one of the highest levels ever recorded in the country - thanks to a significant increase in individual income tax collections. After falling relative to the size of the economy over the next few years, revenues will increase in 2026 – mainly due to planned changes in tax rules. They will continue to grow after 2030, as the share of income collected as taxes will gradually increase. In 2052, revenues will reach 19.1% of GDP."
The widening gap between government spending and revenue, compounded by rising interest rates, will lead to an increase in the deficit. The Budget Office explained: "According to the forecasts of the Congressional Budget Office, the size of the federal budget deficit in the period from 2022 to 2052 will average 7.3% of GDP (this is more than twice the average over the past 50 years) and will grow from year to year, reaching 11.1% of GDP in 2052. The projected increase in the overall deficit will be mainly due to an increase in interest expenses: during this period, net interest expenses will more than quadruple, reaching 7.2% of GDP by 2052. The primary deficit – that is, the deficit, minus net interest expenses – will grow from 2.3% of GDP in 2022 to 3.9% in 2052."
Interest rates have begun their inevitable rise as the Federal Reserve seeks to slow the pace of inflation. Interest payments cannot be cut without giving up part of the payments on the national debt, which, of course, would entail a sharp drop in Uncle Sam's credit rating. As a result, these costs are rising, and there is less money left for everything else, including foreign and military policy. And the federal government will borrow more and more funds to pay off the old debts.
The Congressional Budget Office's forecasts are really shocking. Today, the percentages are 1.6% of GDP. From 2043 to 2052, this figure is likely to increase to an average of 6.2% – this is more than the total amount of domestic discretionary spending, and almost as much as the government spends on social security. That is, the annual amount of interest will reach an average of 1.2 trillion dollars.
How will all this affect the federal debt? Here's what the Congressional Budget Office reports:
"By the end of 2022, according to the forecast, the size of public public debt will reach 98% of GDP. The rapid growth of nominal GDP – which, in turn, is a reflection of high inflation rates and the continued growth of real GDP (that is, GDP minus the inflation factor) – will help to contain the size of public debt relative to economic productivity in 2022 and 2023. According to the forecasts of the department, the national debt as a percentage of GDP will begin to grow in 2024, will exceed its historical maximum in 2031 (when it reaches 107%) and will continue to increase steadily, rising to 185% of GDP in 2052."
This figure – 185% – is shocking. Countries like Greece hit a fiscal wall long before they could reach that threshold. Washington has long benefited from the lack of real currency competition. This is gradually changing. Most of the world is now desperately looking for alternatives to the dollar, which provides American politicians with an additional tool of political dominance. More importantly, investors who never tire of marveling at America's ability to withstand the growing debt burden are likely to demand even more increases in key interest rates.
The growing national debt will weaken the United States financially in other ways. The Budget Office explained it this way: "When the government borrows, it borrows money from people and businesses whose savings would otherwise finance private investment in productive capital." That is, Washington is displacing these people and private enterprises, reducing the pace of economic growth. And the population has to put up with lower incomes, from which they have to pay higher interest and other government expenses.
Moreover, the probability of a financial crisis will also grow. The Budget Office warned: "Concern about the financial situation of the government can lead to a sudden and potentially rapid increase in people's expectations for inflation, a significant drop in the value of the dollar, or a loss of confidence in the ability or desire of the government to fully repay its debt. All this increases the likelihood of a fiscal crisis." And this, in turn, can turn into a financial crisis if large banks and other institutions hold sufficiently significant federal debt, whose value will decrease. Then, "because the United States plays a central role in the international financial system, such a crisis could spread around the world."
As spending, interest rates, deficits, and the size of the national debt continue to rise, what will happen to military spending? Members of the foreign policy establishment usually use the term "national security" to dismiss any objections to increased military spending. The broader the scope of foreign policy, the higher the costs, and the less convincing this argument sounds. Today, more and more Americans understand that the presence of troops in countries such as Afghanistan, Iraq and Syria has practically nothing to do with US security. As the financial problems of the United States intensify, public enthusiasm for treating the industrial states of Asia and Europe as helpless countries in need of military support is likely to weaken. More and more Americans will begin to wonder why they have to do so much so that others can do so little.
Another common argument of those who advocate an increase in military spending is that the main reason for the impending debt crisis is not military, but domestic spending. Therefore, just a few simple reforms – for example, cutting social benefits and benefits and increasing the retirement age – will help fix everything.
Although more and more budget funds and GDP will be spent on the implementation of social programs as the baby boomer generation ages, military spending will also remain a very significant burden. And, if the reform of social benefits was so easy to carry out, it would have already been carried out several years, or even decades ago. Most likely, Americans will be very skeptical about the news when they are told about the need to cut their social benefits so that prosperous Europeans can spend more on the development of their rich welfare states.
Of course, another option may be a significant increase in taxes. However, the American public is used to gratuitous spending, and a lot of benefits are financed by a huge number of loans, which is facilitated by a significant influx of foreign money. Raising rates and increasing taxes will provoke powerful political resistance, especially given that a significant part of the funds will go to meet the defense needs of those countries that spend much less on their defense. "Pay more so that allies can pay less" is hardly an attractive campaign slogan. Benefits for the middle class are understandably popular because they benefit Americans. In contrast, a significant part of the "defense" budget of the United States is spent on the needs of other countries.
Even when fighting broke out on Europe's eastern border earlier this year, the United States did much more to help Ukraine than European NATO members, and Washington's supposed allies even tried to involve it in a direct conflict with Russia. In a 2020 survey, the same people said that in the event of a crisis they would oppose supporting their NATO allies, but they expect the United States to intervene to protect them. Even more grotesque was the prospect of President Joe Biden's trip to Saudi Arabia and the promise to provide members of the corrupt and dictatorial royal family with American military as bodyguards.
After the end of World War II, America turned into an economy that occupies a dominant position in the world. It was able to bear the heavy burden of opposing the Soviet Union and the hordes of its allies and client states. The collapse of the USSR turned the United States into a military superpower that had no equal in the whole world. Now these advantages are gradually weakening.
Americans will have to prioritize and decide whether they want to play the role of a global policeman while the country is engulfed by the financial crisis. War is sometimes necessary, but for America it has turned into a stupid and very frivolous question of choice. The endless global war on terrorism has been terrible, but a conflict with Russia or China – or even with North Korea and Iran – will be even worse. The impending debt crisis will have at least one positive side: it will force Americans to finally rethink the foreign policy of the United States.
Doug Bandow is a senior fellow at the Cato Institute and a former special assistant to President Ronald Reagan.
