I side with those (from Nye to Setser) who say this is not the end of US relative power, and that fiscal constraints will not be hugely binding.
Regarding the latter, what Japan’s actions in the 1990s show us is that fiscal policy when properly used can be effective, that running up debt in what is clearly a temporary situation is not automatically inflationary (note that yen also had a sustained major depreciation and Japan had neither rising interest rate nor inflation), and that it is net debt, not gross public debt that matters (see the work of Broda and Weinstein).
What I am much more concerned about is the US having lost the intellectual or “model setting” leadership in the global economic community. This is in large part deserved because we did get sloppy with our regulation and supervision, we were too arrogant to others, and we did too little to submit our own policies to international institutions (even under Clinton, though obviously much worse under Bush).
The negative result for US policymaking is threefold: 1) less ability to set agenda in international negotiations over financial and investment matters, which will have to take place; 2) more propaganda points for those who wish to take an alternative economic path, or who can be swayed by a PRC or Venezuelan example (I know, very different from each other); 3) reduced ability to get agreement on standards or on openness amongst national economies.
As with the US from the mid-70’s to the early-90’s, the ultimate result of this will be the rest of the world falling further behind the US in relative economic terms. We can afford our mistakes better than our allies can; our lack of intellectual and institutional leadership hurts the weakest countries; those economies that go down excessively non-market or illiberal policy paths will end up harming their own economies more than our laissez-faire excess did.
So a slightly different spin on the matter than Sebastian had in his starting point.