Category Archives: United States

More on Abusing America’s ‘Exorbitant Privilege’: How Long can the US Borrow to Sustain Hegemony – up to a 100% Debt-to-GDP ratio?

Posted on by
6

85448_Dollar-Hegemony-by-Luojie-China-Daily-China-515x335

As part of a now lengthy chain (one, two, three, four) on US allies and the likelihood of US retrenchment (hat-tip to Andrew Sullivan for referencing this chain of posts yet again), I argued that American hegemony, despite America’s huge debt and deficit, is more financially stable than almost anyone expected. Because foreigners’ appetite for dollars seems unquenchable and because we print the global reserve currency, borrow in it, and face no serious reserve challengers (the euro and RMB maybe, see below), US can exploit this ‘exorbitant privilege’ far worse than anyone ever thought.

For example, I think almost everyone expected the bond-market to turn against the US in the last decade given: exploding debt and deficits, huge welfare state expansions like Medicare part D and ObamaCare, the expensive and financially-unplanned GWoT, China’s relentless ascent, the Great Recession, and two rounds of quantitative easing. Wow – that’s a helluva list. Despite all that, interest rates and inflation are low, because we can exploit (and have) that exorbitant privilege. Stein’s Law says there must be a limit, but I think almost everyone is amazed at just how deep confidence in the dollar goes.

More simply put, all this means is that foreigners so want dollars, that America can just print more and more dollars without consequent inflation, and borrow from foreigners a lot cheaply (because they want those dollars so badly). This means America can borrow and/or just print huge amounts of money at very low interest and inflation rates. That is ‘exorbitant,’ because no one else can do that without Greece-style financial trouble. We can borrow at low interest rates (the rate on the US ten-year bond is around 1.5% right now) and print lots of money (the recent quantitative easings, e.g.) without suffering like so many others who over-borrow and run the printing press. Barry Eichengreen’s book on this is helpful if you don’t quite get it.

Vikash Yadav gave such good commentary on this tangle over at Duck of Minerva, that I have reposted our full debate on US borrowing and hegemony below. Warning: it gets fairly wonky, so please be sure to read the OP. Also, further IPE are comments wanted. Specifically, someone tell me please when the US will finally hit the ‘soaring’ inflation and interest rates regularly predicted by deficit hawks at the WSJ or CNBC? This is what Romney means when he says we will become Greece, but I just don’t see any evidence of that. Does anyone have a good guess on the timeline for exploiting the exorbitant privilege? When does it finally give way? When do foreigners turn against us in the bond market? As I said in the OP, I think it (super cheap US borrowing) has gone on already far longer than anyone expected. But I also think that a 100% debt-to-GDP ratio might be the bond-market turning point. That is a pretty big psychological benchmark.

So here is our debate on this:

Continue reading →

More on US Allies (2): A Response to My Critics

Posted on by
13

The_world_seen_from800

I found the above image here.

Here is part one of my response to two recent, heavily-trafficked posts (one, two) on hypothetical retrenchment under Ron Paul. (So yes, that makes 4 total posts, including this one.) I got some flak on how I ranked US allies in order of importance, with the implication that those further down were more likely candidates for a diminished American commitment. So rather than responding point-by-point, here are some broad responses on specific countries.

My original ranking, in order, was: Canada, Mexico, Saudi Arabia, Taiwan, India, Indonesia, Israel, South Korea, Japan, EU/NATO, and Egypt. (That’s actually 11, not a ‘top 10,’ because I originally put Canada and Mexico in together at # 1.)

1. I was surprised how much controversy my choice for Canada at # 1 provoked. I thought that was pretty self-evident actually. (Stephen Walt, in a riff on my post, says pretty much the same thing.) Just because Canada is quiet and boring (in a good way) doesn’t mean it is not existentially important for the US. (This same logic, boring ≠ unimportant, applies to my choice for Indonesia. The very fact the Indonesia is a moderate Muslim state is why no one cares about it, but that is a good thing! I guarantee you that if Indonesia had nasty salafists running around like in the ME, we’d all be talking about it.) The US trades the most in the world with Canada. We expect Canada to come with us on just about all our foreign ventures. Its cooperation provides crucial symbolic value: if the country most like us in the world can’t agree with us, then we must be doing something wrong. And most obviously, its security is a direct concern, because of the border. In fact, given that the border is something like 3x the length of the US-Mexico border, Canada easily beats every other state in the world for the most basic US national security concerns.

2. Japan (#9): A good commenter noted that after WWII, the US wanted to make Japan into the ‘Switzerland of Asia,’ and that we are reaping what we sow. Absolutely. I do think Americans send mixed signals to allies. We don’t want them taking an independent line, we want them to do what we say, but then we complain that they free-ride. As I argued in the OP, all this US commitment ‘infantilizes’ US allies by not forcing them to deal with their own regional issues. But Americans, or rather the neocon-liberal internationalist elite synthesis that dominates US foreign policy discourse, ultimately accept weak, dependent allies, because we are in love with our own hegemony. It fires our imagination to compare ourselves to Athens, Rome, or Britain. Neocons read Pericles’ Funeral Oration or Gibbon, and they tear up that America too is the noble, tragic ‘weary titan,’ carrying the great orb of its world-historical task of spreading democracy. Americans thrill to that kind of ‘national greatness’ pseudo-metaphysics while Europeans roll their eyes in disillusionment and Asians wonder wth we are even talking about. So yes, free-riding is pretty obvious to see, because we abet it.

Continue reading →

More on US Allies: America’s ‘Exorbitant Privilege’ means it can borrow to Sustain Hegemony Longer than Anyone Ever Expected

Posted on by
11

P1-AP194B_CHINA_NS_20090323190818

This post expands ideas which were published in my recent JoongAng Daily op-ed.

Two of my posts this week (one, two) on hypothetical retrenchment under Ron Paul got a lot of traffic and comments. Hat-tips go to Andrew Sullivan and Stephen Walt for citing me; if you don’t read Walt and Sullivan already, you should. Given the large numbers of comments, both here and elsewhere, I thought I would try to capture some of the concerns generally. This post focuses on the surprisingly low likelihood of retrenchment; a second, in a few days, will look at specific countries mentioned by commenters.

The OP was intended as an emergency exercise if the US were to face a truly significant crisis that forced retrenchment. The purpose was to ask who are the most important US allies and commitments if we were forced to choose. Right now, the US is not choosing. We are all over the place; if anything, we are taking on more commitments (Iraq, Afghanistan, Pakistan, Yemen, the Asian pivot). As I tried to say in the second post, I don’t think we are about to pull out of Japan or Egypt, but if we get to the point where we really can’t afford globe-spanning hegemony anymore, it would be help to try to prioritize what is genuinely strategically necessary, from what are ‘extras.’ One doesn’t hear this much, except for Ron Paul, whose debate performances motivated the post.

On this point, I should say that the bifurcation of the OP into two parts was not to indicate the those in part 2 should get the axe; it was just a matter of convenience. The point of the OP was to try to force a ranking – who is more important to the US than who? This is why I tried to limit the listees to a conventional ‘top 10.’ To go beyond that tight focus, would get us back into the global alliance sprawl the US is in now.

The above point raises the next, obvious question about whether we are therefore getting to a point of forced US retrenchment. There is a whole declinist literature that emphasizes long-term US problems, like atrocious public finances, too many wars, bad public schools, political gridlock, rising anti-Americanism in the world, etc. Zakaria’s ‘post-American world’ captures are lot of this, and apparently the Chinese believe the US is in decline too. Probably the best I can think of at the moment is Gideon Rachman’s take.

I go back and forth on this myself. The economist in me finds it hard to imagine how the US can borrow $1-1.5T a year and stay on top. We’re borrowing around 9% (!) of GDP per annum, and the IMF calculates America’s debt-to-GDP ratio is 100% already (if you include state debts; it’s 75% now at just the federal level.) I wonder how we can fight so many wars without national exhaustion and diversion of investment from domestic priorities like infrastructure or health care. Signal markers in the decline and fall of empires are heavy borrowing and lots of wars which sounds a lot like us, no?

Continue reading →

Say Ron Paul Won…Which US Allies would get Retrenched? (2) Japan?

Posted on by
41

retrenchment graph

This post series is getting so much traffic, here is a part three on likelihood of retrenchment. Here is part one where argued that America’s 8 most important allies are, in order: Canada, Mexico, Saudi Arabia, Taiwan, India, Indonesia, Israel, and South Korea.

I argued for 3 quick-and-dirty reasons for that ranking, but I got some criticism on these in the first post, so here is some elaboration :

1. National Security: Some places, like SA and Mexico, may not appeal much to Americans, but they are so obviously important, that abandonment would be hugely risky. So yes, SA is a nasty, reactionary ‘frenemy,’ not really an ally at all, but we’re stuck with it. A Saudi collapse would set off both huge economic and Islamic religious turmoil; all the more reason to slowly exit the Middle East and pursue green energy. But until then, I think we have to be honest and say that we can’t really leave the Gulf. But the bar of this criterion should be awfully high. With some frenemies, like Afghanistan and Pakistan, we don’t really need to pretend to be allies actually. We can just get out if have to.

2. Need: In some places, the US can get a lot more bang for its commitment buck, because without us, our ally would likely collapse/lose/fail. Taiwan is the most obvious example. Conversely, other places, like Germany, pretend to need us, because they don’t want to shell out the cash (and we’re so bewitched of our God-given, history-ending, last-best-hope-for-mankind, bound-to-lead neocon unipolar awesome-ness that we let ourselves get taken for a ride).Between Taiwan and Germany, I would place Israel and SK.

3. Values/Symbolism: I don’t like this criterion much, because it reminds me a lot of McNamara, ‘credibility,’ Vietnam, the Munich analogy and all that. But still, there are a few places where the American commitment has taken on an almost ‘metaphysical,’ good-guys-vs-bad-guys dimension. The whole world is watching, and a departure would be seen as a huge retreat from critical values that would bolster dictators everywhere, especially in China and Russia. SK is the most obvious example. NK is so bizarre, frightening, and horrific that while the US commitment isn’t really that necessary anymore, it’s taken on a symbolism wholly out of proportion to events on the peninsula. Taiwan also comes to mind, as does cold war West Germany. Avoiding another such perpetual commitment was one of the important reasons to get out of Iraq. If we’d stayed, we might have have gotten chain-ganged into never leaving our symbol of GWoT ‘success.’ We really don’t need more of that sort thing

So back to the list. Now come the ones that can more easily be retrenched, because either they are wealthy enough to defend themselves, or their value to the US has fallen:

Continue reading →

Would Ron Paul Retrench the US from Korea?

Posted on by
61

retrenchment

Here is part two, and then a third, given just how much traffic this post has received (h/t to Stephen Walt and Andrew Sullivan).

Here is Steve Walt saying nice things about Ron Paul, and Layne has a nice recent piece in the National Interest, and another at ISQ, about looming US retrenchment.  Earlier I argued that I think lots of people in IR now both expect and want some measure of US pullback. The argument is pretty well-known by now – empirically, the US is doing more than it can afford, like the Iraq war (trillion dollar deficits and ‘overstretch’); normatively, we are violating far too many of our liberal values against a comparatively minor terrorist threat (torture, indefinite detention, unoverseen drone strikes). But I don’t see too much on what specifically could be cut if absolutely necessary. The British retrenchment east of Suez in the 70s is probably our best model, but of course, the Brits had different sets of commitments, so it’s not a great blueprint.

So I try below to compile a list of who would/could/should get the axe and who not. Just like the intense competition over the periodic BRACs, one could imagine US allies making their case for a retention of US bases, troops, aid, etc. In one of his speeches, I heard Ron Paul argue that we have 900 overseas bases, so the field of choice is very wide.

I can think of 3 basic criteria for judgment of whom should be cut loose and who not:

Continue reading →

Kim Jong Un’s Ascent (2): Rocket Launch as a Sign of a Power Struggle?

Posted on by
6

KJU

Here is part one, where I argued that Kim’s rise scrambles our conventional wisdom on NK, opening a lot of unexpected room, at least early in his tenure, to try to deal. The cold war stand-off in Korea is now so bad, that there is little to lose in trying to talk with him, and it would seem like a huge missed opportunity to simply blow him off as identically awful to his father. For my regular argument that negotiating with Kim Jong Il was impossible, try here and here (or if you’d rather just read about the ridiculous Homefront video game, try this).

Continue reading →

Kim Jong Un’s Ascent (1): A Unique Negotiating Opportunity

Posted on by
8

Kim-Jong-un-Meme-GeneratorOr maybe not…

The following short piece for the Korean National Defense University was written after the Leap Day Deal, but before the rocket launch announcement. In the interim, the US has decided to cancel the leap day deal, which is entirely understandable, but a mistake nonetheless I think. NK’s elite has to do something for Kim Il Sung’s 100th birthday this month (the cause of the launch); the regime depends on these sorts of shows. But this is a lot more tame than other possible hijinks, like another clash in the Yellow Sea, could be. Kim Jong Un might be signaling us from within the almost certain, post-Jong Il quiet power struggle now gripping the Pyongyang. For a similar and, I think, persuasive argument, try this. My full text at KNDU can be found here.

Kim Jong Il’s death is more than just the passing of a chief executive; given North Korea’s (NK) hyperpersonalization, it is transformational. As such, Kim Jong Un’s ascent offers a unique opportunity to try engagement once again with NK. It may fail, as it has so often before, but the very fluid new circumstances make it worth a major effort. NK is such a dangerous country and the cold war standoff with SK so severe now, that to pass up this rare window would be a tremendous missed opportunity.

Continue reading →

China’s Counter to the Asian ‘Pivot’ (2): ‘Swarms’ in the Pacific

Posted on by
11

china-us-economic-warfare

Part one is here, where I noted China’s growing fear of encirclement (I get Chinese students a lot who talk about this). So, in the role of China, I argued for an Indian charm offensive to prevent encirclement, and how China might buy off Korea from the US camp by abandoning North Korea. Here are some more ‘B-Team’ style ideas for pushing back on US local dominance, including swarming the US navy in the western Pacific with cheap drones and missiles:

Continue reading →

China’s Counter to the Asian ‘Pivot’ (1): Korea, India

Posted on by
13

obamahu132628592pk

So the US is supposedly going to pivot to Asia and start worrying more about China. This makes sense (which is probably why we won’t do it). The Middle East has become a pretty terrible sinkhole of American power. Increasingly the verdict on the war on terrorism is negative, and we should probably retrench from the Middle East (but we won’t because of the religious right’s interest in the region). Mearsheimer argued that if it weren’t for 9/11 we probably would have focused on China a lot earlier. Kaplan sketched how the US would defeat China in a war. I argued a few years ago, at the height of the ‘China-has-changed-into-a-scary-revisionist’ hype of 2009-11, that containment of China was likely (maybe even desirable Sad smile). And clearly China’s behavior over the last few years has raised the likelihood of at least soft containment; even the Vietnamese and the Filipinos are asking for US agreements now.

But I don’t see much Western discussion of how China would/should respond. So in the tradition of those old CIA A team/B team exercises, here are five ideas for how China should/could respond to its incipient encirclement:

Continue reading →

The US will not ‘Pivot’ much to Asia (3): We can’t afford it

Posted on by
24

Pesident-Obama-China-001

Please read parts one and two first, where I argued that there is no constituency in the US for the pivot, and that Asia is so culturally distant from the US, that Americans are unlikely to care enough to sustain the pivot. But we also don’t really need to pivot, nor do we have the money for it:

3. The Middle East is characterized by so many nondemocracies that the US must be heavily invested (at least to meet current US goals – oil, Israel, counterterrorism). Katzenstein noted this; America has no strong subordinate anchor-state in the region (like Germany in Europe and Japan in Asia). This is why the GOP particularly emphasizes an enduring, semi-imperial presence in the Gulf. Besides tiny Israel, we don’t have the friends necessary for things like the dual containment (Iran and Iraq) of the 90s, and or the Iraq war of the 2000s. So we have to do it all ourselves.

By contrast in Asia, we have lots of allies and semi-friends who are strong and functional – Japan, Australia, Korea, and Taiwan most obviously – with improving relations with India and Vietnam too. Now, if we are smart – or maybe just because we are broke – we can push a lot of the costs of our goals onto them. Specifically, much of the pivot has been assumed to be targeted at China. But why should we encircle, contain, or otherwise provoke China, when the frontline states should be it doing it first? In other words, we don’t have to pivot toward Asia unless China threatens to invade everybody, because places like India, Korea, and Japan will work hard to build and maintain a multipolar equilibrium. They don’t want to be dominated by China, and they will suffer a lot more than we will if China becomes the regional hegemon. So we can hover in the background, offshore, over the horizon, as we always have. Given the strength of liberal democracy in Asia (unlike the ME), there is no need for us to be there in strength.

Continue reading →