Financial crisis threatens US influence
By Jim Lobe
WASHINGTON - While the White House and United States lawmakers hash out the
terms of a proposed US$700 billion Wall Street bailout, foreign policy analysts
warn that the current financial crisis could hasten the decline of US power and
influence overseas.
Much depends on whether the impending bailout will be sufficient to quickly
restore international confidence in the US economy, and particularly the US
dollar, whose status as the world's preferred reserve currency has long
encouraged foreigners to buy US Treasury bills, thus propping up an economy
that consumes far more than it produces.
But coming on top of unprecedented deficits run up by the administration of
President George W Bush, especially in its
ongoing $15 billion a month wars in Iraq and Afghanistan, the current crisis -
and the major new burden it adds to US taxpayers - will almost certainly damage
Washington's ability to get its way abroad, according to many experts.
"It's not as if the rest of the world is looking at America's financial crisis
and jumping to the conclusion that they can now test American power," said
Charles Kupchan, an analyst at the Council on Foreign Relations who teaches at
Georgetown University. "But I do think that, from a psychological perspective,
this financial crisis, coupled with America's troubles in Iraq and Afghanistan,
will take a toll on respect for and deference to American strength as concerns
both hard and soft power."
Coincidentally, two weeks ago the nation's top intelligence analyst, Thomas
Fingar, warned that, while Washington "will remain the [world's] pre-eminent
power in 2025, [its] dominance will be much diminished". Moreover, he told
other intelligence professionals, Washington's leadership will "erode at an
accelerating pace [in the] political, economic and arguably cultural arenas".
The subsequent collapse, or nationalization, of several of the country's
leading financial institutions seemed to confirm that prognosis all too
quickly. Notable was the not entirely sympathetic reaction of foreign leaders
who, assembling in New York for the annual opening of the United Nations
General Assembly, seemed agreed that the drastic measures taken by the US
Treasury marked the effective end of the "Anglo-Saxon" model of free markets
and unfettered capitalism that Washington has been avidly exporting for several
decades, often through the World Bank and the International Monetary Fund.
"Models in history are very important, and I think this clearly damages the
prestige of the Anglo-American model that we've been pushing," according to
Michael Lind, a senior fellow at the New America Foundation (NAF), a
Washington-based think-tank. "The Chinese model could now be seen as more the
wave of the future."
"People in Latin America, the Middle East, and elsewhere are probably saying,
'The Americans have been preaching this free-market ideology, and look what it
did to them, so maybe we should try a different model'," he said. "In terms of
competing in terms of soft power, reputation and prestige, I think we've been
severely damaged right now."
Indeed, China in recent years has already become a much bigger player in terms
of aid and investment in Africa and Latin America, and, what with the "US
banking sector in a shambles ... it's much less likely that countries will go
to New York to get finance and do business" than before, according to Dean
Baker, co-director of the Center for Economic and Policy Research in
Washington.
Moreover, the latest crisis is likely to contribute to growing dissatisfaction
both with the neo-liberal model at home and with the public willingness to make
economic sacrifices for other countries.
"I don't expect the United States to be the enthusiastic supporter of free
trade that it has been over the last several decades," Kupchan told Inter Press
Service. "If there were to be a serious economic crisis abroad, would the US
today serve as the lender of last resort as it did in the 1997-98 financial
crisis? I doubt it. We're too busy bailing ourselves, as opposed to bailing out
Malaysians or Mexicans."
Similarly, congress is certain to be tempted to reduce the skyrocketing budget
deficit by cutting traditionally unpopular programs, such as foreign aid, that
Washington has used as another means of leverage to influence the behavior of
countries overseas.
Whether that budget-cutting pressure will apply as well to more than
half-trillion-dollar defense budget (not including spending on the Iraq and
Afghanistan wars) - the largest single pot of discretionary spending in the
national budget - is not so clear, although one key lawmaker, the chairman of
the House of Representatives Appropriations Defense Sub-committee, John Murtha,
predicted on Wednesday that it would.
"If I were in the Pentagon, I'd be as worried as one of the people at
investment banks, because its budget is going down," according to Lind.
"Suddenly all kinds of cuts in the military that were unthinkable up to a
couple of weeks ago will become clear."
"Depending on the actual expense, this package is going to be put a huge
squeeze on all kinds of security-related spending," said Bill Hartung, who
heads NAF's Arms and Security Initiative. "It'll force the Pentagon to finally
make some trade-offs [among weapons systems] and will make it a lot easier for
advocates of getting rid of some of the Cold-War conventional systems, like the
F-22 fighter, the Osprey [warplane], and attack submarines that don't seem
relevant to wars in Iraq and Afghanistan to prevail."
Other analysts, however, are not so sure the Pentagon, which accounts for
nearly half of the world's total military spending, will be forced to cut back.
"One would think that an economic crisis like this would produce a re-ordering
of priorities," said Boston University Professor Andrew Bacevich, an author and
retired army colonel whose just-released book is entitled The Limits of Power:
The End of American Exceptionalism.
"But I'm not sure that it will because there seems to be this strange
unwillingness on the part of our political leaders to simply acknowledge that
American power has limits and then to examine the implications of that fact,"
he said.
Indeed, Kupchan noted that while the financial crisis "will encourage a more
restrained and less costly foreign policy, national security will still trump
economic expediency".
Nonetheless, depending on the seriousness and duration of the crisis, he said,
"There is likely to be a rising inner voice [in the public] saying it's time
for the United States to tend its own garden and focus on its own problems
instead of other peoples'. It necessarily means a more inward-looking and
pre-occupied America."
A poll by the Pew Research Center just before the Treasury announced its
bailout package this month found a sharp decline in public support for an
assertive foreign policy compared with four years ago. Forty-five percent of
respondents said that reducing US overseas military commitments should be a top
policy priority of a new administration, up from 35% in 2004.
Jim Lobe's blog on US foreign policy, and particularly the
neo-conservative influence in the Bush administration, can be read at http://www.ips.org/blog/jimlobe/.
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