Huge U.S. Debt Could Lead to Military Impotence, Default or Revolution

Politics / US Debt
Sep 12, 2010 - 02:38 PM

By: Washingtons_Blog

As I have repeatedly pointed out, the American military and intelligence leaders say that debt is the main national security threat to the U.S.

As I noted in February 2009 http://www.washingtonsblog.com/2009/02/ ... perts.html and again last December, http://www.washingtonsblog.com/2009/12/ ... crash.html a number of high-level officials and experts are warning of financial crisis-induced violence ... even in developed countries such as the U.S.

And as I pointed out in February of this year, http://www.washingtonsblog.com/2010/02/ ... se-of.html the U.S. runs the risk of going the way of the Habsburg, British or French empires:

Leading economic historian Niall Ferguson recently wrote http://www.newsweek.com/id/224694 in Newsweek:

Call the United States what you like—superpower, hegemon, or empire—but its ability to manage its finances is closely tied to its ability to remain the predominant global military power...

This is how empires decline. It begins with a debt explosion. It ends with an inexorable reduction in the resources available for the Army, Navy, and Air Force...

If the United States doesn't come up soon with a credible plan to restore the federal budget to balance over the next five to 10 years, the danger is very real that a debt crisis could lead to a major weakening of American power.

The precedents are certainly there. Habsburg Spain defaulted on all or part of its debt 14 times between 1557 and 1696 and also succumbed to inflation due to a surfeit of New World silver. Prerevolutionary France was spending 62 percent of royal revenue on debt service by 1788. The Ottoman Empire went the same way: interest payments and amortization rose from 15 percent of the budget in 1860 to 50 percent in 1875. And don't forget the last great English-speaking empire. By the interwar years, interest payments were consuming 44 percent of the British budget, making it intensely difficult to rearm in the face of a new German threat.

Call it the fatal arithmetic of imperial decline. Without radical fiscal reform, it could apply to America next.

And William R. Hawkins (formerly an economics professor at Appalachian State University, the University of North Carolina-Asheville, and Radford University) fills in some details on the fall of the Hapsburg empire: http://www.americaneconomicalert.org/vi ... od_ID=1086

Spain was the first global Superpower...With Spain as its political base, and gold and silver flowing in from its American colonies, the Hapsburg dynasty became the dominant power in Europe. It controlled rich parts of Italy through Naples and Milan, and Central Europe from the Netherlands through the Holy Roman Empire to Austria. In the 16th century it added the far distant Philippine islands to its empire. The Hapsburgs held off the Ottoman Turks, whose resurgent wave of Islamic conquest in the 16th century swept across the Balkans and nearly captured Vienna.

The Hapsburgs went into decline in the 17th century, and while any such momentous event has many causes, for our purposes the focus will be on the economic collapse of Spain, which not only sapped the empire of strength but served to build up the power of its rivals.

The demands of empire required a strong and growing economy, but Spain did not keep up with the economic expansion that was taking place in other parts of Europe. Madrid’s financial base fell out from under its empire. Spain could continue to consume in the short term because of the flow of precious metals from American mines, but it could not produce the goods it needed at home, which in the long-run proved fatal to its standing as a Great Power and as an advanced society.

Spanish imports were double exports and the precious metals became scarce within weeks of the arrival of the American treasure fleets as the money flowed to Spain's many creditors. What industry there was, along with banking and shipping, was in the hands of foreign owners. As a modern historian, Jaime Vicens Vives, has concluded, “This was one of the fundamental causes of the Spanish economy's profound decline in the seventeenth century, maritime trade had fallen into the hands of foreigners.â€