Published by
prof. Martin van Creveld
http://www.martin-van-creveld.com/2016/08/
18 August 2016
US Position is
Untenable
By: Karsten Riise
The US Congressional Budget Office (CBO) has newly released a projection of Federal debt 2016-2046.
The CBO analysis shows that Federal debt is on path to increase from 75% of GDP to 146% of GDP in 2046. These figures exclude state & local government debt of approimately 16% of GDP (source: Fed.Reserve Z1,D1 and BEA.gov), meaning that the total public debt in the USA is on track to increase from 90%+ to 160%+ of GDP.
A public debt of
100%-200% of GDP is possible in Japan and Italy, where nearly all public debt
is owned nationally—in Japan, by (often state-promoted) enormous private entities.
However, for the USA, such high public debt figures are bound to lead to a
fundamental crisis of non-confidence in the US dollar.
Falling dollar rates
and rising interest rates will incur still higher deficits to pay the interests
on the public debt.
A vicious circle threatens the US economy. When and
how it may start, we don’t know.
The biggest driver of
the US Federal debt is the aging of the US population. Today 15% of Americans
are aged 65+. This percentage will increase by two thirds, so that by 2060
about 24% of the US population will be 65+. Until now, the USA has benefited from
a young population. The strain on medicare and social spending of an aging
population, even with the still limited entitlements in the USA, will be
enormous.
The CBO has
calculated, that just to keep the Federal debt at its present level, the
balance between tax revenues and federal expenditures must be improved by 1.7%
of GDP—every year the next 30 years. In other words, tax revenue must increase
and government expenditures must be curtailed.
The US economy is
becoming less and less competitive. One reason for this is because the USA has
some of the worst 3rd world-like public infrastructure in the
western world. Roads, bridges and railways in the USA are a sham. High-speed
trains are non-existent. Not only is China building far more kilometers of inter-state
high-ways than the US, but it is also one of the world’s leading countries in
the field of high-speed trains; in fact, China may become the main-supplier of
America’s first high-speed railway line.
Furthermore, American
public schools, hampered as they are by violence and other problems. are not
exactly the best in the world, The US level of education is going down, as
pointed out by the economic guru Michael Porter, who also points out, that the
level of bureaucracy and red-tape hindrances to business are enormous in the
USA. The middle class is disappearing in the USA, with now barely 50% of the
population perceiving themselves as middle class. Median incomes have barely
improved or even gone down the past 40 years, significantly reducing the middle-section
of the tax base, which is normally the most reliable. The American Dream is a
night-mare for most Americans. The Laffer-curve, stating that heavy tax-burdens
on the rich will incur less total tax-revenues, still applies for the
top-section of the US tax base. Any attempts to heavily taxate (fiscate) the
upper 10% (or 0.1% !) of the US tax base will lead to US dollar capital-flight,
and acute economic crisis.
Ueber-rich people in
the US will prefer to dump their American passports and go with their money to
the Bahamas, Belize, the UK, Australia, Singapore, UAE, or even South Africa,
or Brazil, if doing so is what it takes to protect their enormous fortunes from
high taxes.
Poor Americans lack
education and training to make them competitive in the global labor-market.
America’s left erroneously blames the high percentage of unemployed poor on
free trade, but the real problem is the lack of education which prevents the
under-class from obtaining productive jobs. Poor Americans are too expensive
compared to Asians, and too badly educated and trained, and the infrastructure
around them too lousy, to make them able to earn a higher pay. The risk of
starvation amongst the poorest in the USA remains high: In Obama’s presidency,
one in seven Americans (14%) face the risk of not having enough to eat.
At the same time, the
US military inventory is aging, and declining. The number of US ships and
combat aircraft is declining, their average service-age goes up and their
operativeness goes down. New US military hardware often take the form of
useless “white elephants”, meaningless prestige-products like the 20-30 billion
dollar Zumwalt class destroyer. The US addiction to over-investments in such
relatively useless symbols of “strength” as the Zumwalt, in spite of economic
problems and American city-disintegration, violence and poverty, is in the USA
a sure sign of decay and decline – just like Rome in its latter days. The US
Government Accountability Office (GAO report 15-364 ) has demonstrated, that
the US military, in spite of spending 4% of US GDP (source: BEA.gov – extra
spending is hidden in separate budgets), has no overview of its own economic
needs, and the economy of the mega-expensive F-35 aircraft, according to GAO,
has a big chance of not being economically sustainable over time, even for the
USA.
The US military is
simply on its way to run smack into a wall of economic impossibility.
In absolute strength
levels, the American military is standing still or going backwards.
The US military now
delays military purchases in order to keep overall military expenditures flat
the next 5 years.
If military budgets
are not increased, the aging of the US military will be tough in the 2020’ies.
In light of the overall budget problems of the USA from now on until 2045 (as
mentioned above), it must be expected that the US military will be economically
forced to cut down on absolute strength levels the next 10 years.
At the same time,
absolute strength levels of militaries in Russia and China is going up.
The qualitative lead
in high-precision weapons, cruise missiles, and high-quality combat aircraft
has come to Russia and China too. Though the USA still has a number of unique
capabilities, especially its carrier fleet, advanced submarines, other ships, and
“stealth” aircraft, Russia and China are specifically building up (and
exporting!) cheaper weapons to off-set US advantages.
Military lobbyists in
the USA dream of a new US “revolution in military technology” to regain
American tech-lead in weapons, but so far such US “wunder-weapons” as
rail-guns, laser-cannons etc. have shown to be elusive and too costly, even for
the USA.
On the political
front, the UK exit from the EU is a devastating blow to the US system of
alliances.
The US economy is unsustainable
– and the US military is going down in absolute as well as in relative
strength.
Costly wars like Libya
have been counter-productive. Afghanistan is becoming a failure. China is
getting the upper-hand in the Straight of Taiwan, and Russia surprises (though
still under-estimated in the west).
Without the
tools-of-power or greater wisdom, Mrs. Hillary Clinton wants to increase the
force-confrontation against Russia, China, and others.
A new world order is
already developing. Mr. Donald Trump seems to have realized the new situation
of the US. Mrs. Hillary Clinton has not – which makes her dangerous in world
affairs.
Karsten Riise
Partner &
Editor
CHANGE NEWS
&
CHANGE MANAGEMENT
