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The National Debt: Why Putin Doesn’t Fear America

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usdebtWhile many political reasons have been put forth to explain why Vladimir Putin seems not to be afraid of America and the West, the real reason has nothing to do with politics. It has everything to do with money – specifically, the crushing power of America’s immense federal debt.

The Great Recession caused U.S. government debt to skyrocket from 40 percent of U.S. GDP in 2008 to 74 percent in 2014, almost doubling in only a few years. In fact, the level of U.S. government debt is today almost the same as it was during World War II. By 2039, U.S. debt will exceed total U.S. GDP, possibly rising to 183 percent of GDP.

The bad news is that America’s politicians have no intention of doing anything about this growing cancer of debt. It is also improbable that the U.S. economy will grow significantly in the next decade, which would reduce the debt’s impact.

Such levels of debt will act like a straitjacket on America’s ability to respond to various crises, including fighting major wars and projecting military power abroad, as it makes further borrowing more costly.

Putin knows this, which is why he is betting that the U.S. will do little or nothing for Ukraine, even if Russia were to invade. The U.S. would simply not be able to sustain the cost of projecting a major force to Europe at this point in time. And things will only get worse.

In the near term, the size of the U.S. military will also continue to shrink because of the effects of sequestration budget cuts. At the same time, however, the debt problem will limit American’s ability to quickly increase force size should the need arise. This set of factors will have far-reaching geopolitical consequences in Europe and Asia, as both Russia and China are investing billions in increasing their military capabilities: America’s allies, wherever they are, will increasingly see that their ally is unable to actually do much should Russia or China decide to attack them.

One consequence of such a development in Europe would be the drawing of the EU into Russia’s orbit, as European states seek to maintain their economic position. Of course, Europe is already more or less attached at the hip to Russia economically: It is dependent on Russian energy, and billions in Russian cash are stowed away in European banks and invested in European real estate – money politicians in Europe would be loath to lose.

Europe’s governments also face immense debt problems because, as Ben Judah writes: “Europe is really run by an elite with the morality of the hedge fund: Make money at all costs and move it offshore.” This makes European governments not only incapable of increasing their defense spending but vulnerable to Russian influence.

It is also possible that China could start to play a more active role in Europe in order to balance Russia if the Russia-China alliance does not happen. With Russia and China trying to carve the continent into spheres of influence while the U.S. struggles to maintain a foothold, Europe might become a big Ukraine.

As America withdraws from the world because it cannot afford to stay engaged, Russia and China will expand their spheres of influence. This is bad news for countries in Central Europe and in South Asia.

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About A. Jurek

A. Jurek is one of the editors at Blogcritics. Contact me at: a.jurek@blogcritics.org
  • bliffle

    This argument would make sense 30 or 40 years ago when debt was a negative and people planned to pay off their debts, but it makes no sense in the modern world where only the naive pay off debts. Indebtedness is considered an accomplishment in the USA, where it serves as a measure of the trust placed in you by previous lenders, and thus, a basis for assessing future lendability. It’s just a high-finance version of the “greater fool” theory in stock investing: no matter that you overpaid for that stock, you can find a greater fool to pay even more.

    We don’t have debtors prisons anymore, so no one faces prison if their business fails. They simply declare bankruptcy and walk away, and thanks to our generous corporate law, they take their winnings with them. Thus, I advise young parents to create a corporation for each of their babies instead of a college fund. It’s about $1600 cost ($800 for a LLC) and a lot safer, given the precious limited liability status we give to corps. If one corp won’t do, you can create a second holding company to insulate a person from “penetrating the corporate veil”, as we say in CEO-land. Yes, “we”, because I am a CEO of several small companies, which old-timers would have called “sole proprietorship’s” (but they can be ‘attached’ and sued, etc.!)

    If your business looks weak and as if it may go under and ruin you, then you create a second company that will own the first company for profit purposes and milk the first company every quarter for incidental profits, if any. Thus, you are the recipient of blessings and excused from curses.

    Most of the airlines are operated this way. Thus, any quarterly profits are sent to the owners and are not available to cover losses in the next quarter.

    Not only that, but any book losses can be sold to another company that had an actual profit and faces the horrid prospect of paying taxes! By combining a loss with a profit you get zero tax liability! Both companies benefit!

  • bliffle

    China is NOT going to make it as one nation. It’s too big to govern. As we’ve seen with USSR in the 20th century and will see again as the USA starts to breakup in the 21st century, government does not scale up. Management does not scale up, as we see every day in the business world. Mathematics dictates that overhead of an organization of n workers goes up as nlog(n), not just n, which you’d expect. That extra log(n) is what drives you into the poorhouse. Slow but persistent.

    But then, every American high school student figures he’ll just hire a mathematician after he wins a billion in the lottery, so he doesn’t need to know math. Fool.

  • A

    In theory, since the debt is in dollars, the US could just print money to make payments on it but that would cause inflation and other problems in the US. Of course, creditors such as China would lose the trillions they have in US treasury bills as they would become worthless. It is hard to imagine they would simply accept this.

  • bliffle

    “print money” is such a naive word, since very little money IS actually printed. Most money is actually electronic and communicated between machines without ever being instantiated with paper and ink. Thus, the amount of paper money in circulation hasn’t changed much over the last several years, remaining at about $900billion, as I recall. About half of that has disappeared from circulation, probably into private reserves. Printed money is usually used to replace worn out money, not to augment the cash flow.

    Inflation isn’t caused by “printing money”, but by having reserves too small for loans, and/or having a decreasing population.

  • bliffle

    “Printing money” is an archaic concept, since little of the money we use every day is actually printed. There’s about $900billion, IIRC, of actual printed money and it hasn’t changed much over the past several years. Most money changes hands in accounts not in pockets.

  • bliffle

    This is a lousy article. It’s all talk and no proofs, or even suggestions of proofs.The author fails to support his assertions with data and argumentation.For example, the first two premises he advances are unsupported: “…Vladimir
    Putin seems not to be afraid of America and the West, …”, and “…the crushing power of America’s immense federal debt.”

    How does the author know Putin well enough to divine his ‘fear’, or lack of it? And, so what? If Putin feared us more would he be more belligerent, or less? Does Putin ‘fear’ that we will invade Russia?

    And who says our debt is ‘crushing’? If it were ‘crushing’ wouldn’t we be crushed already? And, as politicians have been saying for years, don’t we owe that money to ourselves?

    And, did you, Mr. Jurek, protest when Bush/Cheney refused to budget the Iraq invasion, saying they were “going off-budget” to finance it? When Rumsfeld threw a reporter out of his office for saying that the Iraq invasion might cost as much as $50billion?

    The events of the past 15 years have provided concrete proof that (1) trickle down doesn’t work, (2) the Laffer tax-cut strategy doesn’t work, and (3) the prosperity of our economy depends on injecting funds at the lowest levels with increased unemployment payments and universal healthcare and dental care.