Tuesday, February 2, 2010

The Deficit

This is a great article. I have been intending to post on the dangers of the borrowing that the U.S. is doing, but just haven't done it. This will serve as (a much better than what I could produce, probably) substitute for now.

Conservative politics have traditionally meant reduced spending (I know it didn't work that way with Bush) and liberal politics generally advocate bigger government and more spending, and so its hard to believe that the budget will get anywhere near balanced (as Obama hope to get with the commission mentioned at the end of the article) while Democrats are in power, unless there is a large increase in taxes. This is incredibly serious and threatens our standard of living as Americans in the least, and threatens our entire government and way of life at worst.


The federal budget deficit has long since graduated from nuisance to
headache to pressing national concern. Now, however, it has become so large and
persistent that it is time to start thinking of it as something else entirely: a
national-security threat.
The budget plan released Monday illustrates why
this escalation is warranted. The numbers are mind-numbing: a $1.6 trillion
deficit this year, $1.3 trillion next year, $8.5 trillion for the next 10 years
combined—and that assumes Congress enacts President Barack Obama's proposals to
start bringing it down, and that the proposals work.
These numbers are often
discussed as an economic and domestic problem. But it's time to start thinking
of the ramifications for America's ability to continue playing its traditional
global role.
The U.S. government this year will borrow one of every three
dollars it spends, with many of those funds coming from foreign countries. That
weakens America's standing and its freedom to act; strengthens China and other
world powers; puts long-term defense spending at risk; undermines the power of
the American system as a model for developing countries; and reduces the aura of
power that has been a great intangible asset for presidents for more than a
"We've reached a point now where there's an intimate link between
our solvency and our national security," says Richard Haass, president of the
Council on Foreign Relations and a senior national-security adviser in both the
first and second Bush presidencies. "What's so discouraging is that our domestic
politics don't seem to be up to the challenge."
Consider just four of the
ways that budget deficits also threaten American's national security:
• They
make America vulnerable to foreign pressures.
The U.S. has about $7.5
trillion in accumulated debt held by the public, about half of that in the hands
of investors abroad.
That means America's government is dependent on the
largesse of foreign creditors and subject to the whims of international
financial markets. A foreign government, through the actions of its central
bank, could put pressure on the U.S. in a way its military never could. Even
under a more benign scenario, a debt-ridden U.S. is vulnerable to a run on the
American dollar that begins abroad.
Either way, Mr. Haass says, "it reduces
our independence."
• Chinese power is growing as a result.
A lot of the
deficit is being financed by China, which is selling the U.S. many billions of
dollars of manufactured goods, then lending the accumulated dollars back to the
U.S. The IOUs are stacking up in Beijing.
So far this has been a mutually
beneficial arrangement, but it is slowly increasing Chinese leverage over
American consumers and the American government. At some point, the U.S. may have
to bend its policies before either an implicit or explicit Chinese threat to
stop the merry-go-round.
Just this weekend, for example, the U.S. angered
China by agreeing to sell Taiwan $6.4 billion in arms. At some point, will the
U.S. face economic servitude to China that would make such a policy decision
• Long-term national-security budgets are put at risk.
year, thanks in some measure to continuing high costs from wars in Iraq and
Afghanistan, the U.S. will spend a once-unthinkable $688 billion on defense.
(Before the Sept. 11, 2001 attacks, by contrast, the figure was closer to $300
Staggering as the defense outlays are, the deficit is twice as
large. The much smaller budgets for the rest of America's international
operations—diplomacy, assistance for friendly nations—are dwarfed even more
dramatically by the deficit.
These national-security budgets have been
largely sacrosanct in the era of terrorism. But unless the deficit arc changes,
they will come under pressure for cuts.
• The American model is being
undermined before the rest of the world.
This is the great intangible impact
of yawning budget deficits. The image of an invincible America had two large
effects over the last century or so. First, it made other countries listen when
Washington talked. And second, it often—not always, of course, but often—made
other peoples and leaders yearn to be like America.
Sometimes that produced
jealousy and resentment among leaders, but often it drew to the top of foreign
lands leaders who admired the U.S. and wanted their countries to emulate it.
Such leaders are good allies.
The Obama administration has pledged to create
a bipartisan commission charged with balancing the budget, except for interest
payments, by 2015. The damage deficits can do to America's world standing is a
good reason to hope the commission works.