U.S. debt could undermine America’s global influence

The United States is currently the most influential nation in the world.

However, is it going to be able to maintain its top position if the ever-growing debt problem is not resolved?

A report from the RAND corporation indicates that America’s increasing debt won’t help the country’s already waning global influence.

The heightening debt levels will not allow the U.S. to pursue international and domestic goals. If the USA does not take proper measures that succeed in lowering its debt, the impact might not only be to its economy, it could also result in a serious decline in the country’s influence globally.

Senior economist at RAND, and lead author of the report, C. Richard Neu, said:

“The principal basis for U.S. economic power is the size of the U.S. economy. Evidence is accumulating that high levels of debt can slow economic growth, especially when gross general government debt surpasses 85 percent or 90 percent of the gross domestic product. U.S. government debt crossed that threshold in 2009, and the negative consequences of high debt may still be in the future.”

Neu added that if the U.S. wants to address the issue it is going to have to drive more government revenue and lower public spending.

An example of how U.S. influence is declining is in voting shares in major international financial institutions, such as the IMF and the World Bank – which are tied to output and trade. As global U.S. output declines, so does its influence.

In addition, the country has not been involved in international plans to increase IMF resources, whereas other major rivals have, such as Russia and China.

Even policy advice from senior U.S. officials to eurozone governments have been rejected, because of the U.S’. inability to control its own borrowing.

The U.S. did, however, lead economic sanctions against Iran, made arrangements for trans-Atlantic and Pacific Basin trade, and contributed to international financial regulation.

Tackling the deficit problem won’t be a walk in the park.

Neu concluded:

“When you begin to look at entitlement spending, you’re talking about things like Medicare and Social Security. Reining in the growth of these programs is extremely difficult politically. But across-the-board cuts in discretionary spending are not in the best national interest either.”