America Is 'Well Down the Road to Economic Perdition'

Australia has been one our closest allies for more than half a century and has served alongside America in "every major conflict since World War I." And yet, as Institute for Public Affairs research fellow Ted Lapkin writes in an op-ed for The Australian, "We Can No Longer Rely on Debt-Laden US," America's escalating economic woes mean it's time for the "lucky country" to rethink its geopolitical options.

This year, the US government will borrow 40c out of every budget dollar it spends and will run a mammoth $US1.65 trillion ($1.59 trillion) deficit.

When Washington's current extravagance is piled upon profligacy from years past, this spend-a-thon brings the US's cumulative public debt to a whopping $14.2trillion. That sum represents 96 per cent of the $US14.8trillion gross domestic product of the US. In other words, the US government owes virtually the annual total worth of all goods and services produced by every US firm and individual. And that's not counting another $US6.3 trillion in state and local government debt and pension obligations.

Remarkably, military spending plays a minor role in the US's looming sovereign debt crisis. For all of its image as a free-market bastion, the US has become much more of a welfare state than is perceived. The real culprits in Washington's fiscal woes are government health and social programs.

Federal and state government payments and subsidies constituted fully one-third of all US wages and salaries paid last year. Medicare, the US government healthcare program for senior citizens, consumed 22.5 per cent of GDP that same year. By contrast, US defence spending - including on the wars in both Iraq and Afghanistan - constituted less than 5 per cent of GDP.

The grim upshot of this number crunching is that the US is on a fiscally unsustainable trajectory towards national insolvency. These are the wages of the country's long-standing economic sins. There are only two options for Washington to stave off catastrophe: draconian budget cuts or reducing the real value of its debt by debasing the dollar through inflation. Either way, the economic and strategic consequences for the world will be profound.

Last June, the chairman of the Joint Chiefs of Staff portrayed the US's debt burden as "the most significant threat to our national security". Former US Treasury secretary and Harvard University president Lawrence Summers asked in 2009: "How long can the world's biggest borrower remain the world's biggest power?" The answer is: not long. We can't know precisely when the US's fiscal day of reckoning will arrive, but when Moody's warned a few months ago that US Treasury bonds were facing a downgrade from AAA status, you can be sure it's coming.

It was Cicero who said money forms the sinews of war. And in straitened economic circumstances, defence spending is usually the first item to go. We see this in Britain, where the Royal Navy has been cut to the bone and beyond. Without carrier air capability in the fleet until 2019 at the earliest, Britannia won't be ruling the waves anytime soon.

With its own debt burden that mandates both fiscal restraint and an inflationary devaluation of the dollar, the US's strategic wings will be clipped as well. The first round of defence cuts came in January, with $US78 billion over five years sliced from the $US680bn level spent by the Pentagon last year.

But that's only a bit of foreplay to the serious business of getting the US's fiscal house in order. It's inevitable more radical cuts to the US defence budget loom. Given that near certainty, it's time for debate about what a militarily diminished US means for Australia.

Since the end of WWII, we've enjoyed the benefits of stability provided by a Pax Americana in the western Pacific. Even during the worst Asian flare-ups of the Cold War - Korea and Vietnam - the international sea lanes upon which Australia depends were never threatened.

As a result, Australia has consistently short-changed its military establishment, getting away this year with spending a paltry 1.8per cent of GDP on defence.

Australia Defence Association head Neil James notes: "There are three generations of Aussies who've grown up under America's protective wing. They've never even had to consider the possibility that one day they might not be able to rely on US strategic supremacy, free of charge".

But with the US well down the road to economic perdition, Australia can no longer rely on the presumption that the US will have our back.

But it's not just Australia. All you have to do is look around to see that a growing number of countries are reaching a similar conclusion.

Comments

[roger]

Australia and USA share a lot of similarity's
one which is: Australia is a lucky country, run by second-rate people who share its luck, that is until now. Used to live there,loved it.

[Christian Louboutin shoes]

With the politics of local constituencies, the need to keep the many politicians employed (current office holders are unlikely to downsize themselves out of a job), and the apathy of voters (15% of our registered voters turned out this month to elect the city commission) that allow government to function at the status quo, I see little chance that anyone in our pluralistic government infrastructure will take action. Even the budgetary crisis of today seems to have little effect on getting the bureaucracy to change. Instead of reforming burgeoning government, the political power structure would rather eliminate the directs by firing teachers, police and fire fighters, eliminate food stamps for the needy or medical care for poor children.

[roger]

America Is 'Well Down the Road to Economic Perdition.

This brings up the question, how can a country so great,
who had all the aces in hand,best schools,most advanced
and powerful industrial base with some of the brightest
scientific minds on this planet and whose money became the storage
value of the world, come to this,and in such a short time.
answer: money became an obsession,it's mind boggling!!

[SurvivalAndProsperity.com]

Ted Lapkin's views are apparently shared by a number of Aussie decision-makers. On February 12 the Wall Street Journal reported that "Australia's planned $279 billion of military spending over the next 20 years will fund the biggest expansion of its military since World War II."