James M. Lindsay

The Water's Edge

Lindsay analyzes the politics shaping U.S. foreign policy and the sustainability of American power.

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Debt, Default, and American Power

by James M. Lindsay
July 17, 2011

At the tail end of a post last week I posed the question of what the consequences would be for American power around the world if Washington fails to raise the debt ceiling and the United States defaults. I promised to post my answer within a few days. Well, you can find it in the Outlook section of today’s Washington Post.

In a nutshell, a default would do significant damage to American power. It would create greater pressure to cut defense spending, make it harder to negotiate with foreign capitals, and erode American soft power. A default also could potentially end the long run that U.S. Treasury’s have had as a safe haven. That may not sound like much, but the fact that global capital sees the United States as a safe haven during crises has long given Washington considerable flexibility in foreign policy.

Worse yet, the costs of a default would be wholly unnecessary—an unforced error (if you like tennis metaphors), an own goal (if you prefer soccer, excuse me, football metaphors), a fumble (in American football), or a Merkle’s Boner (if you know your baseball history) of epic proportions.

Two points I wish I had made in the Post piece but didn’t. First, the higher interest rates that a default would trigger would derail an already weak American economy, and potentially the global economy as well. That means lower government revenues, higher unemployment, ballooning deficits, and even greater pressure to cut defense spending and retrench overseas.

Second, even if Washington strikes a deal and all the default talk turns out to be empty hyperventilating—and that remains the most likely outcome—the ugly spectacle we have been witnessing over the past several weeks has already been undermining American power. Americans across the political spectrum find Washington’s current political food fight appalling; foreigners probably don’t find it any more appealing. And you can bet that China, Russia, Iran, and other countries that have been claiming for years that America is in terminal decline are saying that the debt ceiling negotiations prove their point.

Post a Comment 4 Comments

  • Posted by RGM

    And it’s also important to recognize that the deficit-reduction goal, achieved in no small part by deep cuts in defense spending, will also be a “job-killer,” as the Tea Partyists like to say.

  • Posted by Richard Coeur de Lyon

    We Americans are our own worst enemies.
    This is a time to come together and rejuvenate our national self. Not to let it go to the bins. Unfortunately, large section of the conservatives are doing exactly that. It is no coincidence that they are votaries of the deep pocket elite, who only seek to grow their bank balances while destroying the very ‘consumer’ and labor who they bank upon. Disgraceful. Continue with this unfair system, and you will get exactly that … more government and an eventual limitation on your profligate lifestyles. So much for their Republican illusion.

  • Posted by Sandra Erwin
  • Posted by Tony Shahnami

    I believe the following should be as part of the agenda between the President , House and Senate: that applies to all federal , state, county and city’s municipalities.
    1.Physical responsibilities with much strict procedures and no loopholes, everybody should be hold accountable for that.
    2.A complete overhaul in entitlement program. Close all the loopholes for Medicare, Medicaid and social security. Zero tolerance for the cheaters.
    3.If Obama can pass the healthcare bill, we ought to be able to pass the balanced budget bill.
    4.Incentive for domestic companies to stay in the country rather than relocating the headquarters to offshore to avoid excessive corporate taxes.
    5.NO custom restrictions for exporting any American products to any countries that are dealing with USA.

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