Essays on American politics and foreign policy

By Donald E. Nuechterlein

Donald Nuechterlein is a political scientist and writer who resides near Charlottesville, Virginia. He is the author of numerous books on American politics and foreign policy, including

  • Defiant Superpower: The New American Hegemony, 2005
  • America Recommitted: A Superpower Assesses its Role in a Turbulent World, 2000
  • A Cold War Odyssey, 1997


Donald Nuechterlein


JULY 2009

With California in virtual bankruptcy and other large states facing deadlock over how to close budget deficits, plus the ballooning federal deficit, a serious question needs to be asked: Is the United States in decline as a superpower?

Two important countries that question U.S. economic and financial leadership are China and Germany.

In April the head of the People's Bank of China, Zhou Xiaochuan, floated a proposal that the U.S. dollar be replaced as the international reserve currency by special drawing rights (SDRs) at the International Monetary Fund. China has become America's banker during the past decade, and it worries about our creditworthiness. Some 70 percent of China's roughly $2 trillion in foreign currency reserves are denominated in U.S. dollar assets, at a time when the dollar's value may decline.

Two weeks ago, China and three other countries holding large dollar reserves--Russia, Brazil, and India--met in Moscow and jointly declared the need for a "more diversified" international monetary system. In addition, China is exploring use of its own currency, the yuan, to finance trade relations with its Asian trading partners. German Chancellor Angela Merkel met President Obama at the White House last week (June 26) to discuss the financial crisis that has enveloped the world and seriously affected Germany's foreign trade. Earlier, she publicly criticized Obama's plan to stimulate the U.S. economy through a $787 billion measure approved by Congress.

Merkel also resisted Obama's efforts to persuade her government to expand domestic spending programs. She is conscious of strong historical fears among Germans about the risks of high inflation, a concern shared by many Americans.

Chancellor Merkel and French President Nikolas Sarkozy, and other foreign leaders, place blame for the world's economic crisis on the U.S. government's failure to prevent Wall Street's financial excesses. Although they applaud President Obama's newly announced plans to overhaul U.S. financial regulations, they question whether Congress will support the stringent controls that Europeans believe are necessary to avoid future crises.

At the heart of international worries about this country's economic leadership is concern that Americans are not prepared to accept a lower living standard than they enjoyed during the past 20-30 years. Many Americans privately agree that we have lived beyond our means and that higher taxes and fewer services may be necessary, for example, health care benefits, to avoid dangerous budget deficits.

But the hard reality is that many members of Congress will not be reelected in 2010 if they tell constituents they must pay higher taxes and user fees to get the country out of its financial mess. The political struggle in Washington is mirrored in the virtual bankruptcy of California and potential stalemate in the state of New York.

Robert Samuelson, columnist for the Washington Post, raised this red flag in comparing the U.S. financial crisis to the bankruptcy of General Motors:

"It was obvious a quarter-century ago that GM the company could not support GM the welfare state. But the union wouldn't surrender benefits, and the company acquiesced. Inertia prevailed, and the reckoning came. The same cycle, repeated on a national scale with sums many multiples higher, would be correspondingly more fearsome." (Washington Post. June 22, A15)

As one who grew up in Michigan and watched the growth of General Motors into a global commercial giant, I am saddened to watch its implosion. In the end, GM simply could not afford the generous benefits that it gave workers over many years, including among the most generous pensions and health care.

Newsweek's international's editor, Fareed Zakaria, had this stark warning in a recent commentary about the challenge: "The fortunes of great global powers have begun to turn when they get overburdened with debt and stuck on the path of slow growth. These are early warnings. Unless the United States gets its act together fast, the ground will continue to shift beneath its feet." (Washington Post, June 1, A15)

There is no necessity for the United States to go down that path. But it will take political courage in Congress and the White House to persuade the pampered American public that it is time to pull in its belt. This will take statesmanship, not politics, in Washington and our state capitals during the coming year.

File last modified on Saturday, 4-JUL-2009 6:36 PM EST

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