National Debt: The weakness of US Power

How are we able to borrow $12 trillion in the first place?
Nearly all countries borrow money to finance deficit spending. It is a fact of the modern world economy. Some countries borrow more than others. For example, Japan's debt is 120% of their GDP. Ours after 2010 will be 90% of GDP. The United States, Japan, and European Countries are able to borrow because they are considered excellent credit risks. In our case, the world believes the U.S. dollar is the most stable and reliable investment in the world. For most of the past 60 years that has been true. The dollar is stable because the United States is stable.

Banks, countries, and international institutions will continue to finance our deficits as long as the US dollar has primacy. To continue on our present course, the dollar must remain strong. So the issue is whether the US dollar will remain a good investment for the forseeable future given the President's budget proposal. To be stable the U.S. economy must remain strong, vibrant, and its government must be able to repay the treasury bonds and pay the interest on time. Conversely, should the US economy weaken, contract, and the government becomes unable to meet its loan obligations, it is a problem. The risk is higher than it has ever been. So much so that credit rating companies are considering lowering the "AAA" rating on US treasuries, something that has never been discussed before.

Another problem. Many world powers are considering creating a new world currency, or re-evaluating their investments in the US dollar. China has already decided it will start diversifying its holdings because it believes the US dollar is more risky and may threaten them. They are worried, so much of their assets are in US dollars, and therefore, to avoid massive losses they must diversify. Russia and others have talked about establishing a new currency unattached to the US. Should a lower risk alternative present itself, US debt will become even less attractive and will likely have to start paying higher interest rates to compensate for the increase in risk.

We cannot fund Social Security, Medicare, and our deficits are massive. So in short, we are getting closer to being unable to pay interest on our debt. Our credit risk is increasing and the primacy of the dollar is being called into question. The answer is clear, on the current track our debt presents more risk than ever before, and the US dollar, although secure for the next 5-10 years, will fall after that. Especially if a new currency replaces it.

In the scenario where a new currency replaces the US dollar, a couple things happen. First, we will not be able to run deficits like we do now, and we would likely have great difficulty borrowing at the level of 90% GDP. We will have to pay higher interest rates, increasing its share of the federal budget crowding out spending on defense, healthcare, education, social security, etc. In short, we will have a much lower credit limit. Basically a death sentence for our economy and our way of life. There are numerous examples of empires of the past, and countries in the modern era falling deep and hard in this situation.

No more aircraft carriers, no more troops abroad, and no more subsidized healthcare for anyone at home. Everything else that we want to do as a nation to protect life, liberty, and the pursuit of happiness would be difficult or impossible to do. It would take years to recover and by then who knows what the world will look like. China and Russia may be running the show by then. Countries that have relied on our protection will start arming themselves, possibly with nuclear weapons to deter aggression. Dictators and other authoritarian regimes would seize the opportunity and gain power and influence in the world. The power vacuum would be immense and it will put the entire world in great danger.

This is not an economic issue. It is a national security issue and an existential threat to our way of life. My generation does not want to pay for your mistakes. And the great nation we became after World War 2 will be squandered thanks to the ineptitude and cowardice of the American government, and the inability of the American people to do their civic duty and elect officials with the capacity to make the hard choices.