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Analysis: Debt deal, downgrade add to view of waning U.S. power

The U.S. Capitol dome in Washington
The U.S. Capitol dome in Washington

By Arshad Mohammed

WASHINGTON (Reuters) - The narrow U.S. escape from default and its credit downgrade have added to a perception that the United States is in decline, a view that could weaken Washington's influence abroad.

A debate about whether U.S. power is waning has smoldered since at least the 1970s, when the Vietnam War, the Watergate political crisis, two oil shocks and stagflation combined to raise deep questions about the United States' strength.

While such assessments are partly subjective, the spectacle of Washington waiting until the last moment last week to raise the debt ceiling and of Standard & Poors' then taking away its coveted AAA credit rating have buttressed the case of those who argue that U.S. power, in relative terms, is declining.

"This, combined with other things, has definitely led to a diminution ... in the standing of the United States in the world and in respect for it," said Paul Kennedy, a Yale University historian whose 1988 analysis "The Rise and Fall of Great Powers" suggested a relative erosion in U.S. power.

"As long as it ... cannot get its fiscal house in order, it's going to be a crippled sort of giant," he added.

However, James Dobbins, a former American diplomat now at the Rand Corporation, said any tarnishing of the U.S. reputation was likely to be transitory.

"It has some short-term effect," he said. "The longer term will depend more on fundamentals, whether the economy does go into some sort of nose-dive or not, rather than the more effervescent impact of a particular political confrontation."

"Anybody looking at the United States today would have to say, 'Well, compared to what?' Britain is burning. Europe is in the middle of a financial crisis that is considerably more serious than the American. Japan has been in a stagnant situation for considerably more than a decade," he added.

By conventional metrics, the United States remains an overwhelming power despite the rise of China and India.

In a book published this year, Dobbins made the case that the United States reached the zenith of its power in 1945, when it produced and consumed half of the world's wealth and had a monopoly on nuclear weapons.

By 1970, its share of global GDP had slipped to one quarter, where it has largely stayed, and there were four other nuclear powers, two of them hostile, he argued.

"Economically, the United States has held its place since then, with almost no change in its proportion of global GDP," Dobbins wrote. "Militarily, its relative advantage over the rest of the world has grown, not diminished."

DESPITE DOWNGRADE, U.S. TREASURIES SOAR

One of the ironies of the S&P downgrade on Friday was that renewed fears of a global downturn have since sent investors scurrying to their traditional safe haven -- U.S. Treasuries -- whose prices have risen each day this week.

In a blog post, Joseph Nye, a Harvard University professor, argued that U.S. domestic problems are soluble and that perceptions of American decline, particularly vis-a-vis China, are exaggerated.

Nye said the symbiotic nature of the relationship meant Beijing could not realistically hold Washington hostage by selling dollars or ceasing to buy U.S. securities.

"If it dumped its dollars, China would bring the United States to its knees, but might also bring itself to its ankles," Nye wrote. "The situation, analogous to the Cold War's balance of terror, where the price of aggression was the inevitable destruction of both sides, has both sides eager to maintain the balance of interdependence."

However China's elites privately assess the situation, its state media could not resist scolding the United States for the downgrade, saying it was caused by U.S. military over-reach -- a view that dovetails with China's desire to see U.S. influence in Asia retreat and its own spread.

"Since the collapse of the Soviet Union, the United States, as the world's sole superpower, has relied on its powerful military to meddle everywhere in international affairs, advancing hegemony, and paying no heed to whether the economy can support this," said a commentary on the Xinhua news agency, noting the cost of the U.S. wars in Iraq and Afghanistan.

U.S. President Barack Obama has moved to limit American commitments abroad, scaling down American troops in Iraq and Afghanistan and seeking to constrain the U.S. role in the air campaign against embattled Libyan leader Muammar Gaddafi.

American defense and security budgets, which have surged in the last decade and remain by far the world's largest, are tightening as Washington grapples with U.S. deficits.

State Department spokeswoman Victoria Nuland rejected the idea that the S&P downgrade had any meaningful effect on U.S. foreign policy or reflected an America in decline.

"The United States is still the country that the world looks to for global leadership," she said.

"When a fragile democracy needs support, who do they call? "They call the United States, and the United States tries to pull together an international coalition of support. When there's a famine in Africa, who is the largest donor? It's still the United States."

Her comments echoed Obama's blunt response to the U.S. stock market nosedive the Monday after S&P's downgrade.

"Markets will rise and fall, but this is the United States of America," he said. "No matter what some agency may say, we have always been and always will be a triple-A country."

(Editing by Doina Chiacu)

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