S1: From the newsrooms of the Sydney Morning Herald and The Age.
S1: This is the morning edition. I'm Samantha Selinger Morris. It's Thursday,
S1: May 29th. American debt is growing fast as we record this.
S1: The United States federal government has borrowed about 36.2 trillion
S1: American dollars in order to cover its expenses. But by
S1: the time you hear this, that is less than 24
S1: hours since recording, it will have shot past this. Okay,
S1: I can hear you asking. So what? Why should we care?
S1: What does it matter to us if Donald Trump has
S1: a bill passed that will add another $3 trillion to
S1: that debt, as he's hoping, because these figures point to
S1: an empire in decline, according to international and political editor
S1: Peter Hartcher. Today, he joins me to discuss what it
S1: would take to pull the American empire back from the
S1: brink and what it all means for the rest of us.
S1: If the United States ceased to be a great power. Okay, so, Peter,
S1: let's start off with a bang. Why does it matter
S1: if America's status as a global superpower is waning? Like,
S1: what's the risk here?
S2: Well, the first step would be to make the point
S2: that almost everything we think is normal in the world
S2: is not normal. The stability and the prosperity that has
S2: dominated in the world for most of the post-war era,
S2: post-World War II era is unusual, historically unusual. So the
S2: risk is that without a dominant hegemon that has both
S2: the power and the will to enforce stability and the
S2: systems that create that stability, you end up with an
S2: unstable world. Now, you might say, but we already have
S2: an unstable world, which is true, but the stability had
S2: always been contained. So, for example, and Trump is not
S2: the first American president to start wrecking the system that
S2: America itself created. American strategic credibility started to slide under
S2: Barack Obama. That was when he told the Syrian president
S2: not to use chemical weapons against his people. And if
S2: he did, he'd come after him. Obama did nothing. Are
S2: all the other dictators in the world took note. And
S2: that's why, shortly thereafter, Vladimir Putin invaded for the first time,
S2: Crimea and other parts of Ukraine. And then that's escalated
S2: because they could see the US had lost its will
S2: and its ability to do anything about it. Now that's accelerated.
S2: And you've seen the full scale war now that Putin
S2: is waging against Ukraine and threatens to wage against all
S2: of Europe. So without a dominant and able and willing
S2: American hegemon, that sort of thing you could expect to
S2: break out more often. More and more widely across the world.
S1: That sounds bad, Peter.
S2: It is bad. I hate to break it to you, Samantha,
S2: but it's also the systems of prosperity. So here's a
S2: great example. Um, the World Trade Organization was set up
S2: by the US after World War two to create a
S2: uniform system of rules. Um, Communist countries were shut out
S2: during the Cold War when 2000 hit. Bill Clinton said, look,
S2: that Cold War stuff is nonsense, I like China. Let's
S2: bring the Chinese into the system. And they did. The Americans,
S2: together with the other members of the WTO, admitted China.
S2: That was the take off point for the Chinese economy.
S2: Access to essentially free trade throughout that system by admitting
S2: China allowed China to trade its way. The Chinese did
S2: the hard work, but it got access to a system
S2: it had been shut out of. And it's that turbocharged
S2: the Chinese economy. So there's another example of a system
S2: that that only the US was able to create and maintain.
S2: And now Trump, of course, is vandalizing it.
S1: Okay. Well, let's turn to recent events then, which, as
S1: you've written, show that Donald Trump is vandalizing this, that
S1: America's superpower status is on the wane because a main
S1: part of it is based in economics. So explain this
S1: to us.
S2: Well, the essence of it is that quite apart from
S2: the trade madness and eroticism which has unnerved markets and
S2: governments all around the world, we now come up to
S2: a different problem, which is that the Americans are borrowing
S2: so much money to finance their government deficits that world
S2: markets have come to the point where they're wondering if
S2: that debt will ever be repaid. And that's a big problem.
S2: It's a big problem, not just for the Americans, of course.
S2: If they're forced into a default, that would be nothing
S2: new in the world because dozens of countries have. But
S2: if you are the center of the global financial system
S2: and you default, Then we all have a problem. The
S2: US Treasury bond is the risk free asset that the
S2: whole global financial system depends on and trades on. If
S2: that's under assault, then you have a global market chaos
S2: with with unpredictable outcomes. But probably none of them very good.
S2: And that's the point where approaching right now, with the
S2: combination of reckless borrowing by successive presidents now fomented and
S2: accelerated by Trump, if he gets his new bill through
S2: the US Senate, as he's hoping to do.
S1: Okay, well, we're going to get into his so-called big,
S1: beautiful bill. I mean, only Trump could call it that, right?
S1: But anyway, we'll get into that in just.
S2: Especially one that's so ugly.
S1: Yeah. That's right, that's right. But first, you've written that
S1: Trump is also on the cusp of surrendering a really
S1: unique source of U.S. power, perhaps the single most. And
S1: that's America's full faith in credit. That is, the ability
S1: to borrow cheaply, to spend lavishly and to enjoy the
S1: exorbitant privilege of issuing the global reserve currency. Now, for
S1: those of us like myself, who don't really know what
S1: the global reserve currency means, like, what is the significance
S1: of America losing that status as the default global reserve currency?
S2: Yeah. Well, it's been really vital to the Americans because
S2: they can do any transaction they want in their own currency.
S2: So at the moment they've got a huge deficit, seven 8%
S2: of GDP, which is just wildly out of kilter for
S2: its annual budget. And that's under threat of going up
S2: even further. And they can finance that readily because they
S2: can do it in their own currency. You don't have
S2: the risk that they won't be able to raise the
S2: funds at their currency will collapse, and they can't attract
S2: enough foreign investment to bulk it up. It's all done
S2: in their own currency. So it reduces a lot of
S2: the risk to them, but it also gives them the
S2: benefit that the whole world is transacting in their currencies,
S2: the entire commodities trade in the world. All of our
S2: iron ore and coal exports and all the rest of
S2: it goes in US dollars. It lubricates the whole system.
S2: So if that's gone, the world will suffer but can adjust.
S2: America would be the big victim.
S1: But why? What would happen to America if the, you know,
S1: the default currency was no longer the American dollar?
S2: They would have trouble funding their deficit. In fact, it
S2: would probably provoke. If they can't finance their existing levels
S2: of consumption, it would provoke, at the very least, a recession,
S2: but quite possibly a more disorderly and deeper economic disruption
S2: to that whole country. And the risk is that that
S2: would suck much of the world's economic and financial activity
S2: down with it. If we take a step back from
S2: all of this, Samantha, the really big significance of what
S2: we're talking about here is we are witnessing in the
S2: Daily News the implosion of an empire. We are witnessing
S2: the end of the American empire that has stood like
S2: like a colossus across the globe since since World War two.
S2: It's coming to an end. Donald Trump is accelerating it.
S2: And day by day by day, these developments we're talking
S2: about are all details in that larger pattern of decline.
S2: Like Mark Twain's death. It's often been the death of
S2: the American empire has been exaggerated. It's often been pronounced
S2: in the last 30 years, and it's never, never come about.
S2: But it's pretty hard to find anybody who will argue
S2: that now.
S1: We'll be right back. Okay, so you did mention the
S1: bill that might pass through Senate. It hasn't yet. So
S1: tell us about Trump's so-called big beautiful bill and why
S1: if it does get passed by the Senate, this would
S1: be a case of fiscal vandalism that is either contributing
S1: to what we're talking about or maybe even worsens it.
S1: I don't know, you tell me.
S2: No it does. It would worsen it. So the domestic
S2: politics of it are ugly enough. This big, ugly bill
S2: and that is that the poor, the poorest, would have
S2: about $1 trillion cut from their government entitlements over the
S2: next ten years. They are principally food stamps. Food stamps
S2: are for people who can't afford to buy food, obviously.
S2: And the other is Medicaid, which is a program of
S2: free health insurance to the poorest. About 80, 85 million
S2: Americans and about 9 million of those would lose their
S2: eligibility under this bill. And now, combined all of the
S2: cuts to these very basic assistance programs to the poorest
S2: of the poor would save the budget a trillion. And
S2: then Trump is saying and the the House of reps
S2: that's put this bill together has said, but we want
S2: to spend 3 trillion on stuff for things that we
S2: actually care about. So don't worry about the poor. Don't
S2: worry about our fellow citizens. We want to spend this
S2: money principally on extending the tax cuts that Trump put
S2: in place in 2017, because they're about to expire, and
S2: they are for people with high incomes and corporations. So
S2: that's pretty ugly. That redistribution away from the poor and
S2: in favor of the rich. And it might come as
S2: a surprise to some of the people who voted for Trump,
S2: the MAGA crowd who thought he was going to look
S2: after the the little guy.
S1: So it's like an anti Robin Hood scenario. It's exactly
S1: what it sounds.
S2: Yeah, it's the Sheriff of Nottingham.
S1: Yeah it's the Sheriff of Nottingham okay. And great.
S2: And uh that's so that's their country their problem. It's
S2: it's bad. But you know, your problem where it affects
S2: the rest of us is that it would add somewhere
S2: between 3 and 4 trillion, depending on the shape of
S2: the final bill dollars to the federal debt over the
S2: next ten years. And investors have started saying, well, we
S2: think you've already got too much debt, 122% of GDP,
S2: and you're going to do all this and look at
S2: all these crazy erratic policies you're announcing all the time. Um,
S2: you know, the American dollar, and there's been a sell
S2: off of the US dollar and US bonds going on
S2: at a at a fair clip ever since, uh, so-called
S2: Liberation Day, April 2nd.
S1: Okay. What does that mean? A sell off of US bonds.
S2: It means that investors. And it happens. You know, you
S2: get bonds bought heavily one day and sold heavily the next.
S2: The unusual factor is that you're getting bonds sold off
S2: and the US dollar sold off at the same time.
S2: This is a this is a walking away from America
S2: as an investment prospect. That is unusual and usually presages
S2: a crisis.
S1: So tell us what historian Niall Ferguson has said about this,
S1: because he has sort of rung the bell of alarm,
S1: I guess.
S2: Yeah. He published a paper in February proposing what he
S2: calls Ferguson's law. And Ferguson's law states that if you
S2: look back through history, an empire begins to decline When
S2: it is spending more money servicing its debts than it
S2: is spending on its military. And that last year, 2024,
S2: the US crossed that line for the first time in
S2: a century, almost a century. So, according to his logic,
S2: and he goes back to the Habsburg Empire through to
S2: the British Empire. He traces this pattern. You can't an
S2: empire can't cross that line and recover. But if it
S2: stays beyond that line, spending more, just paying for its debts,
S2: then it does for its military. His thesis is that
S2: an empire is finished.
S1: And I believe he also said that it essentially leaves
S1: the power increasingly vulnerable to military challenge.
S2: So, yes, and to internal fragility as well.
S1: So essentially what we could see is America become a
S1: target for enemies, really, for the first time in a
S1: very long time. Like, is that the sort of pointy
S1: end of what we're discussing?
S2: Uh, yes. And you see it already in cyber attack.
S2: You see it in the sort of gray zone warfare
S2: of cyber attack, but also the cutting of undersea cables
S2: that connect the internet around the world, and 95% of
S2: communications around the world Chinese and Russian proxies are doing
S2: this week in and week out. You see it in
S2: the attempts to not only conquer Ukraine but to dismember NATO,
S2: which is a US led, US based alliance. And you'll
S2: see you see it in the Pacific, where Chinese friends
S2: are busy trying to claim, well, are actually successfully claiming
S2: maritime territories from the Philippines, which is a US treaty ally,
S2: while the US does nothing. So you would see that
S2: move from the fringes increasingly to the center because the
S2: US has its has it still has a very powerful military.
S2: It just doesn't seem any longer to have the willpower
S2: or the judgment to use it well or wisely.
S1: So are we seeing this play out with what happened yesterday,
S1: when Donald Trump threatened Russian President Vladimir Putin over social media,
S1: writing that Putin was playing with fire by refusing to
S1: engage in cease fire talks with Kyiv. And then the
S1: Kremlin hit back. Maybe you can just tell us about
S1: that and whether this is sort of, I guess, a
S1: manifestation of what we're talking about, which is this is
S1: not a strong empire anymore, which is going to keep
S1: us safe.
S2: Exactly. This is an exact manifestation of a country that
S2: has no strategic credibility. Vladimir Putin is laughing up his sleeve. Likewise,
S2: Trump announced 145% tariffs on China just a couple of
S2: weeks ago. And China said, well, here's our counter tariff
S2: on you. And five days later, Trump says, okay, okay,
S2: I you know, you be nice, I'll be nice and retreats.
S2: Takes it back again temporarily at least the Chinese haven't budged.
S2: The Chinese have called his bluff and he's back down.
S2: So wherever you look, nobody is taking the US as
S2: seriously as it used to. As I said, Trump's not
S2: uniquely responsible for this. Barack Obama started this. I should
S2: also add that the Americans haven't always used their great
S2: power very wisely. Some of the most atrocious, unjustifiable, and
S2: unjustified wars have been American projects Vietnam, Iraq, terrible misjudgments
S2: with terrible consequences. The difference was then that Samantha, there
S2: were predators in the world. There was Russia. There is
S2: increasingly China. There is also America. America has always been
S2: a predator, but it's been our predator. And it's because
S2: we're its ally. Yes. And that has helped protect our interests.
S2: What's happened now is that there are these predators stalking
S2: the globe, and we don't seem to be able to
S2: trust any of them.
S1: But beyond that, we're looking at possibly the end of
S1: the American empire.
S2: Well, no great empire dies without death throes. And, uh,
S2: that's what you would see.
S1: It really. It sort of leaves you jaw dropping. So
S1: thank you so much, Peter.
S2: Always a pleasure, Samantha.
S1: Today's episode of The Morning Edition was produced by myself
S1: and Josh towers, with technical assistance by Tom Compagnoni. Our
S1: executive producer is Tami Mills. Tom McKendrick is our head
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S1: in the show. Notes. I'm Samantha Selinger. Morris. Thanks for listening.