radio·free·donia

Sunday, April 09, 2006

The United States as a Great Power

Libruls like me, according to the caricature, really aren't supposed to value America's position as a Great Power in the world. I do. I don't know if that makes me an exception or not. Maybe it's all the years I played DiplomacyTM.

But the U.S. can be a potent force for good in the world - at least, when Bush is not running the show - and quite often has been so. And that potential is worth preserving for the future.

So what defines a Great Power? Power, obviously. Our power to affect the larger world, and our relative immunity from the rest of the world's ability to make us jump at their command.

The problem right now is, we've got just one out of two. We've got plenty of power to make a difference in the world, but our immunity to the manipulations of other countries is increasingly an illusion, for two simple reasons: oil and debt. We're more dependent than ever on foreign oil, and we're more dependent than ever on a host of other countries' central banks continuing to buy U.S. treasury bills - to continue loaning us new money.

For oil, that of course means Saudi Arabia, Iran, and the other Middle East oil exporters, but also countries like Venezuela and Nigeria. World oil supplies are really tight these days, which is why crude is selling for $65 a barrel. (Remember back in 2000 when Bush complained about the price of crude, then $28, being too high, and how if he were President, he'd jawbone the Saudis into reducing prices? Har har! But enough about Bush, for the moment.) Any hiccup in the supply chain can send gasoline prices up.

What this means is that a number of countries - Saudi Arabia in particular - have us by the balls. We can talk all we want about democracy promotion in the Middle East, but when it comes to the House of Saud, we don't really mean it; we can't afford to. And everyone over there knows it too, which undermines our claims of 'promoting democracy' right from the start.

It also undermines our Iran saber-rattling. If we attack Iran, their annual 2.5 billion barrels of exported oil will go off the market, and we'll see $100/barrel oil, or close to it.

Similarly with debt. We have to borrow hundreds of billions of dollars each year to finance our budget deficits. The central banks of many governments are helping to prop up the dollar by buying our treasury bills as fast as we can print them. The Saudi equivalent in this sphere is China, which loans the U.S. huge quantities of money every year. They're joined by a number of the other East Asian economic powerhouses such as South Korea, and also by the Middle Eastern oil countries, which have even more money to lend than usual, with oil at $65 a barrel.

The problem is not that we have already borrowed money from these folks; the problem is our continuing need to do so in the future. We can't tell China what we really think of its policies because we need them to loan us more money next month, and the month after, and the month after that, and so on indefinitely into the future.

Right now we can buy a lot of stuff from the rest of the world because the value of the dollar is high, propped up by all that borrowing. If the dollar were worth less, Americans would suddenly have less buying power. A year ago, South Korea said they were reconsidering investing so much of their surplus in Treasury bills, and the value of the dollar dropped by about a European nickel overnight. Fortunately, South Korea's our ally, and they reconsidered their reconsideration, the dollar stabilized, and life was good again. But that's how vulnerable the dollar is.

In short, we're not so much of a Great Power as we used to be. A lot of countries have us over a barrel (or a T-bill). And we aren't doing anything about either of our two big vulnerabilities, by reducing our oil dependence, or reducing our deficits.

Even during those years when Bush looked like a strong leader, it was hollow underneath. Pray that we don't suddenly find out just how hollow.

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