Fiscal Jeopardy: The strategic risks of U.S. debt and how to avoid them

Posted on March 14, 2011


Excerpt from Armed Forces Journal
“Perhaps the most underappreciated effect of diminished fiscal space is a reduced capacity for response to future unknowns. The extension of federal government resources to underwrite risk in wider areas of the U.S. economy signals the possibility for greater commitments in the future and further limits response capacity. The magnitude of resources and associated contingent liabilities committed to stabilize the financial sector and avert a larger downturn dwarf the size of the nation’s 2010 defense spending of $664 billion. Whether such interventions are an appropriate use of federal resources will be a subject of debate for some time. However, the precedent signals a broader role for the federal government in private markets and an interpretation of national security that transcends physical threats to the U.S. In the present fiscal stance, federal budgets bound by mandatory spending and saddled with onerous debt service lack the flexibility to reprogram resources on a massive scale in response to a changed security landscape. The appearance of a new peer competitor, natural disasters resulting from unexpected climate change, or renewed financial crisis among state and local governments would represent significant challenges for the U.S. government.”