April 14, 2011

As Debt Grows, So Does U.S. Exposure to Attack

On Wednesday, President Obama grabbed onto one of the most highly charged issues in American politics: deficit reduction. The president’s speech offered a sensible way forward, even if his proposal was light on specifics. Now that the cameras are off, however, the real political challenges begin. Whether pursued through changes to tax rates, Medicare, or military spending, deficit reduction presents limitless ways for politicians to lose their jobs. And yet the American people demand that their elected leaders accept these risks, and are right to make such demands, because they sense what many experts now know: Growing federal debt threatens the long-term national security of the United States.

“The single-biggest threat to our national security is our debt,” Admiral Michael Mullen, chairman of the Joint Chiefs of Staff, said last year. It was a powerful acknowledgment from the high-spending Pentagon. Over the last two years, US federal debt increased from $6.9 trillion to $9.7 trillion. In 10 years, it is projected to reach $18 trillion, equaling 77 percent of GDP, the largest debt-to-GDP ratio since 1950, when the US was still recovering from World War II-related costs. At that point, federal spending on net interest related to the debt will surpass spending on the US military.

Since US economic prowess has long fueled US global influence and military power, Americans must understand the threats this situation presents.

First, long-term federal debt could gradually crowd out investments in the US military, which protects American interests and promotes international stability and peace. A similar situation developed in Britain at the turn of the 20th century, when British leaders’ focus on national efficiency and other peripheral issues distracted them from making the changes required to improve economic performance, bolster military capability, and prepare the nation for an uncertain future.

While Britain had the United States to help bail it out during World War I, no such savior exists for the United States today.

Second, increased federal debt could leave the US more vulnerable to economic coercion. Such coercion could take the form of another nation withholding valuable natural resources or militarily sensitive goods during a conflict over repayment, cutting back purposefully on its holdings of US dollars to inflict economic damage, or interfering directly or indirectly in US attempts to finance its debt.

Chinese leaders have publicly discussed such a strategy, a worrisome development considering that China owns a sizable and growing portion of US debt. Last year, Chinese Major General Luo Yuan told state-run media that in response to American arms sales to Taiwan, China could attack the United States “by oblique means and stealthy feints,” including “using economic means, such as dumping some US government bonds.” In 2009, the Pentagon conducted a war game to explore this scenario. According to reports, China emerged victorious after using financial weapons such as stocks, bonds, currencies, and gold reserves to damage the United States. While such a strategy also would hurt China because of our nations’ economic codependence, one cannot rule it out during a crisis.

Third, the cost of servicing US debt could harm the long-term health of the US economy and erode America’s global stature and soft power. Washington would become less able to exert influence in multilateral fora, less able to borrow at affordable rates, less able to head off financial crises, and less able to convince rising powers of the comparative merits of market-based capitalism. Shorn of its international influence, the United States would find itself struggling to guarantee the security of its citizens and allies.

The US serves as the linchpin of an interconnected alliance system of more than 60 nations that has gradually provided more prosperity, freedom, and security to people all over the world. Bolstering our preeminent position in this system depends on relieving federal indebtedness, which poses a real and growing threat to the economic foundations of American power. Our leaders must keep these higher stakes, not the political risks that are superficial in comparison, firmly in mind as they work on a deficit-reduction compromise that will put the United States on a more sound fiscal footing.