AUGUST 2016                                                                         Download PDF Version

One Nation Divisible                                                              Listen to Podcast

By Ashraf Adil

Edited by Christopher Andrew and Mustafa Zaidi


With 662 bases worldwide, 10 aircraft carriers, 276 deployable battle ships, 13,000 military aircraft and over 1.3 million active personnel the US military is a nation within itself. In 2015 this nation cost the US federal government $740 billion dollars. To put this into perspective, the entire GDP of Turkey or Saudi Arabia is around $700 billion each.

US military spending peaked in 2011 at $837 billion and since then has slowly decreased. Through this ‘military nation’ the US continues to exercise a dominant role in global affairs. The question to ask is whether anything or anyone can challenge this global position. Perhaps the real challenger is not some foreign power but is instead the American ‘Nation of Interest Payments’.

The key relationship to focus on is that between the level of debt servicing and military expenditure. In 2008, before the credit crisis, total federal debt was $9.9 trillion which commanded an interest payment of $388 billion; military expenditure was $754 billion.

Fast forward to 2015 and federal debt has nearly doubled to $18.3 trillion, but interest payments, due to the collapse in interest rates, have only risen to $440 billion; military spending is now $740 billion.

So why is the relationship between military spending and debt serving important? As interest payments rise military expenditures will not be able to maintain their dominant position. This means that interest payments will consume a larger proportion of the US federal budget at the expense of defence spending. By 2025 it is estimated that US federal debt will have risen to $27 trillion and the accompanying interest payments will reach $1.2 trillion; military spending, however, is estimated to be $712 billion. As the table and graph of projections on the following pages show, by 2018 interest payments will exceed military expenditure by $14 billion.

Once this cross is made there is no looking back with the differential increasing year over year. This crossover threatens America’s dominant global position in the same way an earlier cross at the end of World War I, signalled the end of the British Empire’s super-power status when the Empire’s interest payments started exceeding its defence spending.

America has three options; lowering interest rates even further, raising taxes or increasing deficits to accommodate continued military spending. Interest payments give limited benefit to the economy and have a poor multiplier effect, especially if these payments are made to foreign entities. Military expenditure on the other hand generates investment in the economy, creates jobs and encourages cutting edge R&D.

What is clear is that by 2018 a new American nation will rise - the ‘Nation of Interest Payments;’ the size of which is expected to grow and grow. To reiterate it was 100 years ago, by the end of WWI, when the British Empire experienced a similar dilemma and began its slow yet steady decline and the transfer of power to the new challenger, the United States. It is now equally unavoidable that the rise of the American ‘Nation of Interest Payments’ will set in motion the fading of the American military nation and the consequences it brings for global affairs.


Graph: Military Spending versus Interest Payments and Total Debt














Table: Military Spending versus Interest Payments and Total Debt























 

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