Empires can come and go very quickly, with fiscal crises often doing them in, says Harvard economic historian Niall Ferguson.
That’s bad news for the United States, because it’s running a budget deficit of about 10 percent of GDP and a debt burden of about 60 percent of GDP.
“The U.S. is on a completely unsustainable fiscal course, with no apparent political means of self-correcting,” Ferguson writes in The Australian newspaper.
And that puts the American empire at risk, he says.
“The most obvious point is that imperial falls are associated with fiscal crises: sharp imbalances between revenues and expenditures, and the mounting cost of servicing a mountain of public debt.”
Our debt burden puts our fate in the hands of strangers, with half of it owed to foreigners, Ferguson points out.
And China accounted for 22 percent of the Treasury bonds held by foreigners as of May, down from 27 percent last July.
“Quietly, discreetly, the Chinese are reducing their exposure to U.S. Treasuries,” Ferguson writes. “Perhaps they have noticed what the rest of the world's investors pretend not to see.”
Doug Elmendorf, director of the Congressional Budget Office (CBO), says it’s possible that most investors will remain patient.
“It is also possible, however, that investors would lose confidence abruptly, and interest rates on government debt would rise sharply, as evidenced by the experiences of other countries,” he wrote on the CBO’s website.
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