In a recent paper released by Malmgren-Glinsman Partners, the difficult situation in which the United States Government finds itself financially was underscored.

Their white paper argued: Over and above the concerns surrounding inflation and the economy, there are also daunting fiscal risks facing the U.S. government. And this situation will be aggravated by spending needed for new global commitments, the Ukraine War and spending for U.S, military operations.

They highlighted the factual situation as follows:

While financial market news is currently preoccupied with the inflation rate and possibility of recession, an entirely different policy challenge is emerging: How will mammoth U.S. Government debt be managed in the next 15 months before 2024 national elections?

The bipartisan Congressional Budget Office (CBO) estimates that the federal budget deficit for the first 10 months of the current fiscal year (which runs from October 2022 to September 2023) is $1.7 trillion. This is more than twice the deficit for the same period in the preceding fiscal year.

To put this escalating figure in perspective, government debt as a percent of GDP in the year 2000 stood below 50%, whereas U.S. government debt today stands at 118.6%, and is projected by the CBO to go even higher.

At the end of July, the U.S. Treasury announced that it expected to need to borrow $1,007 trillion from private markets in Q3 (July to September), and another $852 Billion in Q4 (October to December).

It was not made clear what assumptions had been made in these estimates.

It should be noted that the all-time high for quarterly borrowing of almost $3 trillion was hit in April-to-June 2020, thanks to the pandemic crisis.

In early August, several days after these numbers were announced, a Treasury spokesman said the Treasury was no longer assuming a recession in 2023. No recession is a growing financial market view. No recession would mean no large decline in tax receipts or rise in counter-cyclical spending such as unemployment compensation.

However, tax receipts have slowly been declining in recent weeks, suggesting sagging economic activity.

Falling measures of physical economic activity, such as declining volume of shipments of goods by sea, rail and trucks, are suggesting significant slowdown.

If, as we expect, recession begins to erode GDP growth, then the July 31 borrowing estimates would have to be revised to take into account rising unemployment benefit expenditures and falling tax receipts, resulting in larger numbers for the remainder of this year, and of course, higher numbers well into 2024.

They then reviewed the global situation and how the Administration is spending defense money, notably in Ukraine, and argued that the global situation will likely accelerate the debt problem.

They highlighted the various commitments the Biden Administration is making globally which require increased defense spending and then underscored that the Ukraine aid added to these commitments and increased spending necessary for operations short of the beginning of armed conflict with a peer competitor. These actions all argue for increased defense spending ON TOP of the current debt structure.

They noted:

Enhanced integration of U.S. military responses with Japan, Australia, South Korea, and possibly other like-minded nations is being actively pursued.

As part of U.S. military conflict contingency planning, the U.S. military is likely considering wider dispersion of its military presence in other locations in the neighborhood of the South China Sea, Sea of Japan and the Pacific Island rings.

If an armed conflict between the U.S and China were to happen, there is no doubt that management of the U.S. government budget would be dramatically affected. Wars are brutally expensive. Moreover, the costs of conducting an armed conflict are invariably underestimated when political decision makers decide to act without elaborate analysis by the military in advance.

How viable is such a situation?

And where is the strategy to deal with it?

If the U.S. did find itself entangled in an armed conflict, the U.S. Treasury would have to develop an emergency debt management program that would entail massive new borrowing.

This possibility has been given virtually no thought in Congress or mainstream journalism.

Even if no armed conflict took place, a process of preparing for conflict would inevitably entail dramatic escalation of the defense budget to cover widespread deployment of U.S. forces throughout the Indo-Pacific Command.

A new National Defense Activity Authorization would have to be enacted.

With that, new Treasury operations scenarios would have to be developed, and the Federal Reserve would have to reconsider the changed financial market parameters posed thereby.

In this week’s The Economist, the lead article addresses what they call “Obama’s Biggest Mistake.”

The article focused on Obama’s red line in Syria that was not.

They then ask; “How much was his red line in Syria to blame for America’s lost credibility?”

Because we essentially are being governed by Obama III, the question needs to be extended to how realistic and effective is American leadership following the traditional liberal path?

The question of course is even broader: Given where the world is and has been evolving, what is a realistic view for America and its place in the world?

I would argue that neither Obama III or the Trump “Make American Great Again” perspectives are realistic in terms of the world in which America finds itself, nor it is capable of navigating.

The world has changed dramatically beyond what either liberals or neo-cons contemplate when considering American policy or anything remotely realist in terms of what America can “lead” in terms of the West.

I agree with The Economist that going back to the 8 years of the Obama Administration is a good place to see the disconnect between strategic policy and strategic reality.

And I have recently edited a book on the Administration which provides a year-by-year account of an Administration which could not come to grips with the rise of China or the imperialistic appetite of Putin.

As I put it in the introduction to the book:

The United States does not have the resources, or capability, to remake the countries into which it has inserted itself, and in trying to do so, it has undercut its own geopolitical interests. Or put another way, American diplomatic and military approaches have reshaped U.S. tools to do things like stability operations, rather than investing in relevant air and naval systems to defend the United States directly and to be able to compete with a rising China more effectively or a resurgent Russia.

As Mearsheimer put it: “Liberals tend to think of every area of the world as a potential battlefield, because they are committed to protecting human rights everywhere and spreading liberal democracy far and wide. They would naturally prefer to achieve these goals peacefully, but they are usually willing to countenance using military force if necessary. In short, while realists place strict limits on where they are willing to employ force, liberals have no such limits. For them, vital interests are everywhere.”

Even though this quote highlights liberals, the liberal hegemonic approach he is discussing has been at the heart of the past three Administrations’ policies, whether driven by neo-cons or liberals. With the Soviet Union gone, and the working assumption that the Chinese were being assimilated into the global order, the United States was free to work with its allies to reshape the troublesome Middle East and to deal with “Islamic terrorism” as the key strategic threat.

Donald Trump began to change course. His Pentagon released a new national security strategy, which focused on the return of Great Power rivalry and the need to reshape U.S. policies and capabilities to make such a strategic shift. It is an open question of whether the Administration was really reorganized to do this or whether the United States can easily shift course. In essence, Trump recognized the shift but provided tactical adjustments rather than a coherent strategy to deal with the strategic shift and transition to a new historical era.

What is not in question is that the rise of China and the resurgence of Russia have put in play 21st century authoritarian powers directly challenging the United States and the liberal democratic allies whose challenges need to be met. Put bluntly, the collapse of the Soviet Union and the end of the Warsaw Pact was seen to open up a new period of domination by the liberal democracies. New states would be added to the EU and to NATO, and the globalization of the economy was seen as inextricably intertwined with the ascendancy of liberal democracy. What was lost in this euphoric way forward was the rise of the 21st century authoritarian capitalist powers, Russia and China, and their ability to challenge the ascendancy of the liberal democratic European and American regimes, both at home and abroad.

In this book, we take the reader year by year from 2009 through 2016 to examining the global shifts and how the Obama Administration saw these shifts and dealt with them.