The United States’ status as the world’s greatest power will end for the same reason as its predecessors: crushed by a mountain of debt that politicians see fit to ignore, historians have warned.
And America’s century of leadership could be coming to an end faster than expected, with countries in Asia increasingly likely to disengage.
Debt interest payments surpassed defense spending earlier this month, but it will not be force of arms that brings the country down, according to historian Professor Niall Ferguson.
“Any great power that spends more on debt service than on defense will not remain great for long,” he said.
‘It is true for Habsburg Spain, it is true for Ancien Regime France, it is true for the Ottoman Empire, it is true for the British Empire. This law is about to be tested by the United States starting this year.’
Harvard history professor Niall Ferguson warns that the United States faces the same decline in dominance that affected Spain, France and Britain before it.
The US debt-to-GDP ratio fell during the 1990s to a low of 32 percent in 2001, but is expected to reach an all-time high of 122 percent over the next ten years.
The Congressional Budget Office (CBO) estimated this week that another $1.9 trillion will be added to the national debt this year alone, bringing it to a staggering $36 trillion.
This is equivalent to the total value of goods and services produced by the United States over the course of a year.
The rising cost of Medicare and the rise in the bank rate to a 23-year high are among the factors that will likely lift it to $56 trillion over the next ten years, according to the CBO, taking it to a record 122 percent. of GDP.
And there appears to be little to choose between the two presidential contenders, as both Joe Biden and Donald Trump have added $7 billion to the figure during their terms, according to the WSJ.
JH Cullum Clark of the Economic Growth Initiative at the Bush Institute and Southern Methodist University has studied the history of past superpowers and sees disturbing parallels with the current plight of the United States.
He says the pattern was established as early as the Roman Empire, when excessive spending tempted third-century emperors to begin devaluing the currency, causing endemic inflation that ultimately destroyed their power to defend themselves.
The wealth flowing in from the New World blinded Spain to its dependence on foreign loans to maintain its empire abroad and ended its rule in the 17th century.
In the end, it “managed to default seven times in the 19th century alone, after having done so six times in the previous three centuries,” economists Carmen Reinhart and Kenneth Rogoff wrote in their book This Time Is Different: Eight Centuries of Financial Folly.
Yale professor Paul Kennedy warns that China and other Asian countries now have immense power over the United States thanks to their ownership of Treasury bonds.
The hegemony of the Roman Empire was only the first to end due to fiscal irresponsibility, according to historian JH Cullum Clark of the Economic Growth Initiative of the Bush Institute and Southern Methodist University.
The US national debt of $34 trillion is equivalent to $101,233 for every man, woman and child in the country, according to the Peter G. Peterson Foundation.
France’s turn came 100 years later, after a series of casual defaults, before Britain lost its place to the United States in the 20th century, with debt skyrocketing during and immediately after World War II.
The pound sterling had been the international reserve currency between the wars, allowing it to finance its extensive empire, but it decisively lost that status to the US dollar after the war.
The US debt-to-GDP ratio fell during the prosperous 1990s, reaching a low of 32 percent in 2001.
But it has since shot up to 99 per cent, boosted by the great recession of the 2010s and the impact of the Covid-19 pandemic.
“The largest contributor to the cumulative increase was the addition of recently enacted legislation that added $1.6 trillion to projected deficits,” the CBO wrote in its report.
“That legislation included emergency supplemental appropriations that provided $95 billion in aid to Ukraine, Israel and countries in the Indo-Pacific region.”
The world’s need to buy dollars used for international trade has protected the United States from its high levels of debt, but there are growing signs that its status as the world’s reserve currency is under threat.
Credit rating agency Fitch downgraded US debt from AAA to AA+ in August last year, citing “a steady deterioration in governance standards.”
And in November, Moody’s warned it could remove the government’s AAA rating, while cutting its outlook from stable to negative.
“Even if a country issues the primary reserve currency, even if a country is the dominant geopolitical power, that doesn’t bail out countries,” Cullum Clark told the WSJ.
“They lose that status.”
Professor Paul Kennedy, a Yale historian, warns that Asian nations, including China, hold huge amounts of US debt in the form of Treasury bonds.
He said they now have the power to trigger a seismic threat to the status of the United States if they “simply decide, for some reason of having a political dispute with the United States, to get rid of large amounts of Treasury bonds.”
‘I’ve been asking my economist friends about this enigma… of a very, very large and in some ways overextended great power, capable of continuing to issue more and more currency-denominated bonds without, let’s say, punishment for it. ,’ he said.
His 1987 book, The Rise and Fall of Great Powers, helped focus policymakers’ attention on the dangers posed by debt, which bore fruit in the fall of debt to the GDP levels of the 1990s.
And other nations, including Denmark, Sweden, Finland and Canada, have also managed to reduce their debt spending in recent years, despite the impact of the pandemic.
Both Joe Biden and Donald Trump have about $7 trillion toward America’s growing national debt during their time in office, according to the WSJ.
The US national debt has reached a record level, reaching $34 trillion for the first time in history.
But the nation’s debt has taken a back seat in the presidential race so far, with Republicans promising tax cuts and Biden promising not to raise federal taxes on families earning less than $400,000 a year.
Donald Trump’s 2017 tax cuts are set to expire next year, but Biden has said he will extend at least some of them to low- and middle-income people.
Trump himself has said that all of them will be extended if he returns to the White House, which could cost another $5 trillion over 10 years.
“The deleterious effects of higher interest rates fueling higher interest costs on a huge existing debt load continue,” said Michael Peterson, executive director of the tax think tank Peter G. Peterson Foundation.
“It’s the definition of unsustainable.”