How the Deficit Could Curb American Power

If we're not careful, we could go the way of Japan

With the U.S. budget deficit to hit $1.6 trillion in the current fiscal year, a post-World War Two record, grim predictions are rolling in. Deficit spending is projected to remain high for years to come. We explored the deficit's role domestically, but what will it mean for America internationally?

• U.S. To Follow Japan's Decline? The New York Times's David Sanger notes that President Clinton entered office with similarly grim predictions, but he managed to reduce deficit spending to sustainable levels. However, if Obama can't reproduce Clinton's success, it could be disastrous:

Unless miraculous growth, or miraculous political compromises, creates some unforeseen change over the next decade, there is virtually no room for new domestic initiatives for Mr. Obama or his successors. Beyond that lies the possibility that the United States could begin to suffer the same disease that has afflicted Japan over the past decade. As debt grew more rapidly than income, that country's influence around the world eroded.

• Budget Deficit Doesn't Affect International Standing But the trade deficit does, the American Prospect's Dean Baker writes. "[T]he United States has been running large and unsustainable trade deficits in recent years because of the over-valued dollar. The trade deficits, not the budget deficits, have caused the country to become the world's largest debtor," he writes. "If the dollar and GDP were both at their current levels and the budget was completely balanced, we would be borrowing just as much money from abroad as we are today."

• Weakens Our Global Competition Former U.S. Comptroller General David Walker tells Politics Daily, "we're reducing the role of investments in our future because the budget on the discretionary side is getting squeezed at a time when America is facing growing competition in a global economy." Walker says that the deficit, more than our ongoing wars, "threatens the ship of state." He worries about China demanding higher interest rate lending, worsening the problem.

• End Of Imperial America Liberal blogger Steve Radamisto hopes so. "Guns or butter? That's a question America will have to face very soon," he writes. "I was disappointed that Pres. Obama didn't propose cutting the DoD budget and I hope congressional democrats can force him to do so." He hopefully points to the QDR to predict, "we may be relinquishing the neo-cons' dream of empire."

• Shut Down Afghanistan War Liberal blogger Prairie Weather thinks the solution is clear. "The fallout from all this isn't entirely bad. At least there are no ifs, ands, or buts in the budget figures: we have to get out of Afghanistan," he writes. "Maybe now is the time to begin working on the defense budget with our little icepicks."