As of this month, the federal debt stands at more than $13 trillion, or about 90 percent of annual Gross Domestic Product.
Let’s do the math. If you had been alive since Jesus was born and spent a million dollars every day, you wouldn’t have spent $1 trillion dollars, never mind $13 trillion. That’s according to calculation by Kevin Williamson of the National Review.
Why is the burgeoning debt a security threat? In addition to hindering economic growth, a 90 percent threshold of government debt relative to G.D.P. will make it extremely difficult for the U.S. government to make debt-service payments to its creditors, including governments around the world.
If its creditors in Asia and the Middle East doubt Washington’s ability to pay back interest on treasuries, they may stop purchasing US-backed securities, experts warn. They might even demand higher interest rates. Both will impede the federal government from doing its job, including protecting the country’s security.
As of last month, a quarter of the country’s debt is in the hands of foreign governments, nearly double the ratio in 1988 at 13 percent. Of that amount, China holds 23 percent, followed by Japan with a little more than 20 percent.
“I think the biggest threat we have to our national security is our debt,” said Adm. Mike Mullen, Chairman of the Joint Chiefs of Staff, during a “Tribute to the Troops” breakfast in Washington last month.
House Democratic Majority Leader Rep. Steny Hoyer, D-Md., said, “It is time to stop talking about fiscal discipline and national security threats as if they’re separate topics.” His comments came during a speech to the Center for Strategic and International Studies in June.
Hoyer phrased the whopping dollar amount as “unsustainable,” and mentioned how financial dependence has toppled other superpowers.
David Walker, the former Comptroller General and current President of the Peter G. Peterson Foundation, said Washington’s financial dependence on foreign loans affects its policy towards its lenders. “One of the reasons American tax payers now guarantee $5 trillion in Fannie Mae and Freddie Mac debt is because the Japanese and the Chinese demanded it,” said Walker during an interview with Politics Daily earlier this year.
Walker added, it’s likely that “China will say, ‘We’re not going to lend you money unless you pay us higher interest rates.’”
While that is a possibility, the Basel, Switzerland-based Bank for International Settlement reported that that is highly improbable for public sector investors, i.e. governments. The global institution caters only to central banks and international organization, with the aim of fostering cooperation within the world financial system.
Doug Bandow, a senior fellow at the Cato Institute agrees. The specialist in foreign policy and civil liberties said that asking for a higher interest rate, and thus putting the U.S. economy in danger, will be a “self-destructive move” by Beijing. “The Chinese government knows the importance of a vibrant American economy, China’s biggest market.”
Similar confidence in financial stability in the future is also reflected in a briefing paper published on July 26 by the Economic Policy Institute, a non-partisan, non-profit think tank. John Irons and Josh Bivens wrote the fact that interest rates of U.S. treasuries are at historic lows reflects that there is still demand by global investors.”
While there is no immediate threat to national security, the defense chief, Mullen, is urging sharp cuts in expensive programs. His department spends $700 billion a year, the biggest part of the federal budget. That’s as much on defense as the rest of the world’s combined.
The largest program right now is the F-35 Joint Strike Fighter, funded at a level of $11.5 billion in next year’s budget request. The aircraft carrier replacement program receives $2.7 billion in annual funding, the DDG-51 Destroyer gets $3.0 billion, and Space-Based Infrared System receives $1.5 billion.
Todd Harrison, Senior Fellow for Defense Budget Studies at Center for Strategic and Budgetary Assessments said it is time for an overhaul. “It would be a mistake to simply downsize the military such that in a few years it looks essentially like a smaller version of the force we have today. ” Harrison added, “We should use this as an opportunity to make some strategic decisions about what missions and capabilities our military no longer needs to support.” Harrison concluded that targeted cuts that reshape the force could actually be a benefit in the long run.
Despite worries that the burgeoning debt might put the U.S. government in vulnerable position, many experts claim its influence on world economy is too large for any one of its creditors to want to destabilize. And with the defense department showing unprecedented efforts to downsize, the rate of government spending will likely slow down.
