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Debt Extensions

Federal debt spurs sudden fiscal crisis – empirics and most recent academic research


Boccia 13 [Romina, Research Coordinator in the Thomas A. Roe Institute for Economic Policy Studies at Heritage, “How the United States’ High Debt Will Weaken the Economy and Hurt Americans,” Backgrounder #2768 on Budget and Spending, 2/12, http://www.heritage.org/research/reports/2013/02/how-the-united-states-high-debt-will-weaken-the-economy-and-hurt-americans]
America is on a dangerous budget path. Current spending and debt are dangerously high, and future spending and debt are on track to rise even higher in large part due to increasing entitlement spending. Academic research shows that advanced economies like the United States are at risk of significant and prolonged reductions in economic growth when public debt reaches levels of 90 percent of GDP. High public debt threatens to drive interest rates up, to crowd out private investment, and to raise price inflation. The implications would be severe and pronounced for all Americans, but most especially for the poor, the elderly, and the middle class. U.S. policymakers should learn from Greece and Japan and avoid a fiscal crisis and economic stagnation brought about by public debt overhang. Growing federal debt also would increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government’s ability to manage the budget and the government would thereby lose its ability to borrow at affordable rates. Such a crisis would…probably have a very significant negative impact on the country.

Debt rise decrease growth, hiders responses and spurs collapse


Boccia 13 [Romina, Research Coordinator in the Thomas A. Roe Institute for Economic Policy Studies at Heritage, “How the United States’ High Debt Will Weaken the Economy and Hurt Americans,” Backgrounder #2768 on Budget and Spending, 2/12, http://www.heritage.org/research/reports/2013/02/how-the-united-states-high-debt-will-weaken-the-economy-and-hurt-americans]
U.S. federal spending in 2013, combined with depressed receipts from a weak economy, is on track to result in a deficit of $850 billion. Publicly held debt in the United States will exceed 76 percent of gross domestic product (GDP) in 2013, and chronic deficits are projected to push U.S. debt to 87 percent of the economy in 10 years.[1] Debt is projected to grow even more rapidly after 2023. Recent economic research, especially the work of Carmen Reinhart, Vincent Reinhart, and Kenneth Rogoff, confirms that federal debt at such high levels puts the United States at risk for a number of harmful economic consequences, including slower economic growth, a weakened ability to respond to unexpected challenges, and quite possibly a debt-driven financial crisis.

Inflation

Debt spurs inflation – tanks economy, collapses dollar, trashes biz con and spikes poverty


Boccia 13[Romina, Research Coordinator in the Thomas A. Roe Institute for Economic Policy Studies at Heritage, “How the United States’ High Debt Will Weaken the Economy and Hurt Americans,” Backgrounder #2768 on Budget and Spending, 2/12, http://www.heritage.org/research/reports/2013/02/how-the-united-states-high-debt-will-weaken-the-economy-and-hurt-americans]
Higher Inflation. The United States has, as do other countries with independent currencies, an additional option to monetize its debts: replacing a substantial portion of outstanding debt with another form of federal liability—currency. The government could, through the Federal Reserve, inflate the money supply. The resulting increase in the rate of price inflation would devalue the principal of the remaining public debt. The resulting inflation would also destabilize the private economy, increase uncertainty, increase real interest rates, and slow economic growth markedly. Inflation is particularly harmful for those Americans on fixed incomes, such as the elderly who rely on Social Security checks, pensions, and their own savings in retirement. By raising the cost of essential goods and services, like food and medical care, inflation can push seniors into poverty. Inflation and longer life expectancies can mean that some seniors run out of their savings sooner than anticipated, then becoming completely dependent on Social Security. Inflation inflicts the most pain on the poor and middle class by reducing the purchasing power of the cash savings of American families. Inflation also means that everyone has to pay more for goods and services, including essentials like food and clothing. Moreover, severe inflation could dethrone the U.S. dollar as the world’s primary reserve currency. Thus far, a major saving grace for the U.S. government has been that, in comparison with other advanced nations with major currencies, such as Europe and China, the U.S. dollar has retained its status as the best currency option for finance and commerce.[16] If Washington policies continue on their current path of ever-higher sovereign debt and a risky Federal Reserve policy, both of which lack a credible crisis coping strategy, confidence in the U.S. economy and monetary policy regime could erode. Such a development would be unprecedented in size and magnitude and the impact on Americans and the economy would be massive and severe.

Impact

Econ Decline = War

Economic decline causes global war


Royal 10 (Jedediah, Director of Cooperative Threat Reduction – U.S. Department of Defense, “Economic Integration, Economic Signaling and the Problem of Economic Crises”, Economics of War and Peace: Economic, Legal and Political Perspectives, Ed. Goldsmith and Brauer, p. 213-215)
Less intuitive is how periods of economic decline may increase the likelihood of external conflict. Political science literature has contributed a moderate degree of attention to the impact of economic decline and the security and defence behaviour of interdependent states. Research in this vein has been considered at systemic, dyadic and national levels. Several notable contributions follow. First, on the systemic level, Pollins (2008) advances Modelski and Thompson's (1996) work on leadership cycle theory, finding that rhythms in the global economy are associated with the rise and fall of a pre-eminent power and the often bloody transition from one pre-eminent leader to the next. As such, exogenous shocks such as economic crises could usher in a redistribution of relative power (see also Gilpin. 1981) that leads to uncertainty about power balances, increasing the risk of miscalculation (Feaver, 1995). Alternatively, even a relatively certain redistribution of power could lead to a permissive environment for conflict as a rising power may seek to challenge a declining power (Werner. 1999). Separately, Pollins (1996) also shows that global economic cycles combined with parallel leadership cycles impact the likelihood of conflict among major, medium and small powers, although he suggests that the causes and connections between global economic conditions and security conditions remain unknown. Second, on a dyadic level, Copeland's (1996, 2000) theory of trade expectations suggests that 'future expectation of trade' is a significant variable in understanding economic conditions and security behaviour of states. He argues that interdependent states are likely to gain pacific benefits from trade so long as they have an optimistic view of future trade relations. However, if the expectations of future trade decline, particularly for difficult to replace items such as energy resources, the likelihood for conflict increases, as states will be inclined to use force to gain access to those resources. Crises could potentially be the trigger for decreased trade expectations either on its own or because it triggers protectionist moves by interdependent states.4 Third, others have considered the link between economic decline and external armed conflict at a national level. Blomberg and Hess (2002) find a strong correlation between internal conflict and external conflict, particularly during periods of economic downturn. They write: The linkages between internal and external conflict and prosperity are strong and mutually reinforcing. Economic conflict tends to spawn internal conflict, which in turn returns the favour. Moreover, the presence of a recession tends to amplify the extent to which international and external conflicts self-reinforce each other. (Blomberg & Hess, 2002. p. 89) Economic decline has also been linked with an increase in the likelihood of terrorism (Blomberg, Hess, & Weerapana, 2004), which has the capacity to spill across borders and lead to external tensions. Furthermore, crises generally reduce the popularity of a sitting government. "Diversionary theory" suggests that, when facing unpopularity arising from economic decline, sitting governments have increased incentives to fabricate external military conflicts to create a 'rally around the flag' effect. Wang (1996), DeRouen (1995). and Blomberg, Hess, and Thacker (2006) find supporting evidence showing that economic decline and use of force are at least indirectly correlated. Gelpi (1997), Miller (1999), and Kisangani and Pickering (2009) suggest that the tendency towards diversionary tactics are greater for democratic states than autocratic states, due to the fact that democratic leaders are generally more susceptible to being removed from office due to lack of domestic support. DeRouen (2000) has provided evidence showing that periods of weak economic performance in the United States, and thus weak Presidential popularity, are statistically linked to an increase in the use of force. In summary, recent economic scholarship positively correlates economic integration with an increase in the frequency of economic crises, whereas political science scholarship links economic decline with external conflict at systemic, dyadic and national levels.5 This implied connection between integration, crises and armed conflict has not featured prominently in the economic-security debate and deserves more attention.

Economic decline turns every impact and causes nuclear war.


Harris and Burrows, 9 – *counselor in the National Intelligence Council, the principal drafter of Global Trends 2025, **member of the NIC’s Long Range Analysis Unit “Revisiting the Future: Geopolitical Effects of the Financial Crisis”, Washington Quarterly, http://www.twq.com/09april/docs/09apr_burrows.pdf)
Increased Potential for Global Conflict

Of course, the report encompasses more than economics and indeed believes the future is likely to be the result of a number of intersecting and interlocking forces. With so many possible permutations of outcomes, each with ample opportunity for unintended consequences, there is a growing sense of insecurity. Even so, history may be more instructive than ever. While we continue to believe that the Great Depression is not likely to be repeated, the lessons to be drawn from that period include the harmful effects on fledgling democracies and multiethnic societies (think Central Europe in 1920s and 1930s) and on the sustainability of multilateral institutions (think League of Nations in the same period). There is no reason to think that this would not be true in the twenty-first as much as in the twentieth century. For that reason, the ways in which the potential for greater conflict could grow would seem to be even more apt in a constantly volatile economic environment as they would be if change would be steadier.



In surveying those risks, the report stressed the likelihood that terrorism and nonproliferation will remain priorities even as resource issues move up on the international agenda. Terrorism’s appeal will decline if economic growth continues in the Middle East and youth unemployment is reduced. For those terrorist groups that remain active in 2025, however, the diffusion of technologies and scientific knowledge will place some of the world’s most dangerous capabilities within their reach. Terrorist groups in 2025 will likely be a combination of descendants of long established groupsinheriting organizational structures, command and control processes, and training procedures necessary to conduct sophisticated attacksand newly emergent collections of the angry and disenfranchised that become self-radicalized, particularly in the absence of economic outlets that would become narrower in an economic downturn.

The most dangerous casualty of any economically-induced drawdown of U.S. military presence would almost certainly be the Middle East. Although Iran’s acquisition of nuclear weapons is not inevitable, worries about a nuclear-armed Iran could lead states in the region to develop new security arrangements with external powers, acquire additional weapons, and consider pursuing their own nuclear ambitions. It is not clear that the type of stable deterrent relationship that existed between the great powers for most of the Cold War would emerge naturally in the Middle East with a nuclear Iran. Episodes of low intensity conflict and terrorism taking place under a nuclear umbrella could lead to an unintended escalation and broader conflict if clear red lines between those states involved are not well established. The close proximity of potential nuclear rivals combined with underdeveloped surveillance capabilities and mobile dual-capable Iranian missile systems also will produce inherent difficulties in achieving reliable indications and warning of an impending nuclear attack. The lack of strategic depth in neighboring states like Israel, short warning and missile flight times, and uncertainty of Iranian intentions may place more focus on preemption rather than defense, potentially leading to escalating crises.

Types of conflict that the world continues to experience, such as over resources, could reemerge, particularly if protectionism grows and there is a resort to neo-mercantilist practices. Perceptions of renewed energy scarcity will drive countries to take actions to assure their future access to energy supplies. In the worst case, this could result in interstate conflicts if government leaders deem assured access to energy resources, for example, to be essential for maintaining domestic stability and the survival of their regime. Even actions short of war, however, will have important geopolitical implications. Maritime security concerns are providing a rationale for naval buildups and modernization efforts, such as China’s and India’s development of blue water naval capabilities. If the fiscal stimulus focus for these countries indeed turns inward, one of the most obvious funding targets may be military. Buildup of regional naval capabilities could lead to increased tensions, rivalries, and counterbalancing moves, but it also will create opportunities for multinational cooperation in protecting critical sea lanes. With water also becoming scarcer in Asia and the Middle East, cooperation to manage changing water resources is likely to be increasingly difficult both within and between states in a more dog-eat-dog world.

Economic decline causes global nuclear war – increases tension
Auslin & Lachman 9 [Michael Auslin is a resident scholar and Desmond Lachman is a resident fellow at AEI, “The Global Economy Unravels,” March 6, http://aei.org/publications/pubID.29502,filter.all/pub_detail.asp]



What do these trends mean in the short and medium term? The Great Depression showed how social and global chaos followed hard on economic collapse. The mere fact that parliaments across the globe, from America to Japan, are unable to make responsible, economically sound recovery plans suggests that they do not know what to do and are simply hoping for the least disruption. Equally worrisome is the adoption of more statist economic programs around the globe, and the concurrent decline of trust in free-market systems. The threat of instability is a pressing concern. China, until last year the world's fastest growing economy, just reported that 20 million migrant laborers lost their jobs. Even in the flush times of recent years, China faced upward of 70,000 labor uprisings a year. A sustained downturn poses grave and possibly immediate threats to Chinese internal stability. The regime in Beijing may be faced with a choice of repressing its own people or diverting their energies outward, leading to conflict with China's neighbors. Russia, an oil state completely dependent on energy sales, has had to put down riots in its Far East as well as in downtown Moscow. Vladimir Putin's rule has been predicated on squeezing civil liberties while providing economic largesse. If that devil's bargain falls apart, then wide-scale repression inside Russia, along with a continuing threatening posture toward Russia's neighbors, is likely. Even apparently stable societies face increasing risk and the threat of internal or possibly external conflict. As Japan's exports have plummeted by nearly 50%, one-third of the country's prefectures have passed emergency economic stabilization plans. Hundreds of thousands of temporary employees hired during the first part of this decade are being laid off. Spain's unemployment rate is expected to climb to nearly 20% by the end of 2010; Spanish unions are already protesting the lack of jobs, and the specter of violence, as occurred in the 1980s, is haunting the country. Meanwhile, in Greece, workers have already taken to the streets. Europe as a whole will face dangerously increasing tensions between native citizens and immigrants, largely from poorer Muslim nations, who have increased the labor pool in the past several decades. Spain has absorbed five million immigrants since 1999, while nearly 9% of Germany's residents have foreign citizenship, including almost 2 million Turks. The xenophobic labor strikes in the U.K. do not bode well for the rest of Europe. A prolonged global downturn, let alone a collapse, would dramatically raise tensions inside these countries. Couple that with possible protectionist legislation in the United States, unresolved ethnic and territorial disputes in all regions of the globe and a loss of confidence that world leaders actually know what they are doing. The result may be a series of small explosions that coalesce into a big bang.

Economic decline turns every impact – collapses hegemony and creates a world of nuclear chaos


Friedberg and Schoenfeld 2008 – *Professor of politics and IR at Princeton’s Woodrow Wilson School, **senior editor of Commentary and visiting scholar at the Witherspoon Institute at Princeton (10/21, Aaron and Gabriel, Wall Street Journal, “The dangers of a diminished America”, http://online.wsj.com/article/SB122455074012352571.html)

With the global financial system in serious trouble, is America's geostrategic dominance likely to diminish? If so, what would that mean? One immediate implication of the crisis that began on Wall Street and spread across the world is that the primary instruments of U.S. foreign policy will be crimped. The next president will face an entirely new and adverse fiscal position. Estimates of this year's federal budget deficit already show that it has jumped $237 billion from last year, to $407 billion. With families and businesses hurting, there will be calls for various and expensive domestic relief programs. In the face of this onrushing river of red ink, both Barack Obama and John McCain have been reluctant to lay out what portions of their programmatic wish list they might defer or delete. Only Joe Biden has suggested a possible reduction -- foreign aid. This would be one of the few popular cuts, but in budgetary terms it is a mere grain of sand. Still, Sen. Biden's comment hints at where we may be headed: toward a major reduction in America's world role, and perhaps even a new era of financially-induced isolationism.

Pressures to cut defense spending, and to dodge the cost of waging two wars, already intense before this crisis, are likely to mount. Despite the success of the surge, the war in Iraq remains deeply unpopular. Precipitous withdrawal -- attractive to a sizable swath of the electorate before the financial implosion -- might well become even more popular with annual war bills running in the hundreds of billions. Protectionist sentiments are sure to grow stronger as jobs disappear in the coming slowdown. Even before our current woes, calls to save jobs by restricting imports had begun to gather support among many Democrats and some Republicans. In a prolonged recession, gale-force winds of protectionism will blow. Then there are the dolorous consequences of a potential collapse of the world's financial architecture. For decades now, Americans have enjoyed the advantages of being at the center of that system. The worldwide use of the dollar, and the stability of our economy, among other things, made it easier for us to run huge budget deficits, as we counted on foreigners to pick up the tab by buying dollar-denominated assets as a safe haven. Will this be possible in the future?

Meanwhile, traditional foreign-policy challenges are multiplying. The threat from al Qaeda and Islamic terrorist affiliates has not been extinguished. Iran and North Korea are continuing on their bellicose paths, while Pakistan and Afghanistan are progressing smartly down the road to chaos. Russia's new militancy and China's seemingly relentless rise also give cause for concern. If America now tries to pull back from the world stage, it will leave a dangerous power vacuum. The stabilizing effects of our presence in Asia, our continuing commitment to Europe, and our position as defender of last resort for Middle East energy sources and supply lines could all be placed at risk. In such a scenario there are shades of the 1930s, when global trade and finance ground nearly to a halt, the peaceful democracies failed to cooperate, and aggressive powers led by the remorseless fanatics who rose up on the crest of economic disaster exploited their divisions. Today we run the risk that rogue states may choose to become ever more reckless with their nuclear toys, just at our moment of maximum vulnerability. The aftershocks of the financial crisis will almost certainly rock our principal strategic competitors even harder than they will rock us. The dramatic free fall of the Russian stock market has demonstrated the fragility of a state whose economic performance hinges on high oil prices, now driven down by the global slowdown. China is perhaps even more fragile, its economic growth depending heavily on foreign investment and access to foreign markets. Both will now be constricted, inflicting economic pain and perhaps even sparking unrest in a country where political legitimacy rests on progress in the long march to prosperity. None of this is good news if the authoritarian leaders of these countries seek to divert attention from internal travails with external adventures. As for our democratic friends, the present crisis comes when many European nations are struggling to deal with decades of anemic growth, sclerotic governance and an impending demographic crisis. Despite its past dynamism, Japan faces similar challenges. India is still in the early stages of its emergence as a world economic and geopolitical power. What does this all mean? There is no substitute for America on the world stage. The choice we have before us is between the potentially disastrous effects of disengagement and the stiff price tag of continued American leadership.


Free Trade

Loss of economic stability leads to the demise of global trade and free markets


Brustein 11 – (Joshua, Senior Producer, Business/Technology at The New York Times, The New York Times, “U.S. and China Data Highlight Weakness in Global Economy”, http://www.nytimes.com/2011/10/14/business/economy/us-and-china-data-highlight-weakness-in-global-economy.html?_r=1//AS)
The weakness in the global economy was underscored by reports published Thursday about the balance of trade in the United States and China. The United States trade deficit was essentially unchanged in August at $45.6 billion, its lowest level since April and $100 million narrower than a year earlier. Exports and imports both slipped by $100 million, to $177.6 billion and $233.2 billion, respectively. The trade deficit was slightly narrower than analysts’ expectations. The level for July was revised downward from $44.8 billion. A narrower trade deficit could lead to a slightly higher level for the gross domestic product, said Clark Yingst, the chief market analyst for the investment firm Joseph Gunnar, “but not exactly for the reasons that we’d like.” Slipping imports are a bad sign for the United States economy, since it shows weakness in consumer demand. “In an ideal world we would like to see exports and imports growing at relatively strong rates, but with exports growing even faster than imports,” said Mr. Yingst. Economists have also expressed concern that Europe’s slowing economy is leading to a reduction in demand for American exports. Alcoa, the aluminum producer, said its lower profit, reported earlier this week, was a result in part to weak demand there. The American trade deficit with China grew to $29 billion, its largest level ever, at a time when American officials have focused on the role of China’s government in the global economy. On Tuesday, the United States Senate passed a bill that would impose tariffs on certain Chinese goods if the Treasury Department determined that China was undervaluing its currency to its advantage. But trade data from China for September showed that the country’s trade surplus narrowed to $14.5 billion in September, from $17.8 billion in August. The slimmer surplus was unlikely to defuse fully the criticism of American lawmakers, who argue that Beijing is keeping its currency unfairly low against the dollar. The report from China also showed that its booming pace of export growth had begun to ease, as the global upheaval and a gradual rise in the value of the renminbi took their toll. Economists are concerned that the American economy could be further damaged if this trend continues, especially if European demand remains weak. John Canally, an economist for LPL Financial, said that Chinese officials faced a balancing act, as they weighed the dangers of inflation against concerns that tighter monetary policy in China could put further strain on a weakened economies in the United States and Europe. “China doesn’t want to see Europe collapse,” he said. “They’re kind of walking a tightrope here.” There were some bright spots in other data released Thursday, however. First-time jobless claims in the United States remained essentially unchanged this week, at 404,000, the Labor Department said. The four-week moving average, seen as a better barometer of the labor market, was down for the third consecutive week, to 408,000. Rates for 30-year mortgages increased, after dipping below 4 percent for the first time on record, according to a survey by Freddie Mac. The rate rose to 4.12 percent this week, up from 3.94 percent the week before. In a statement, Frank E. Nothaft, the vice president and chief economist of Freddie Mac, attributed the gain to last week’s employment report, which was better than expected. Economists also pointed to the stock market, which has been gaining in recent days. Low mortgage rates have not been enough to lift the anemic housing market, however, because many potential consumers cannot qualify for loans and many others do not feel comfortable making large financial commitments in such a weak labor market, said Patrick Newmark, United States economist for IHS Global Insight. “The demand out there isn’t very strong,” he said. “People aren’t applying.”The International Monetary Fund also warned Thursday that Asia could suffer “clear” financial and economic spillovers from continued problems elsewhere. The fund forecast relatively robust growth of 6.3 percent for the region this year and 6.7 percent in 2012 on average, slightly below a previous forecast of 6.8 percent for 2011 and 6.9 percent for 2012 made in April. The fund’s worries were tempered by a degree of confidence about Asian domestic demand cushioning the region from global upheaval. “Domestic demand is still resilient, and it should continue to sustain activity across the region,” the I.M.F. said.


Reduced free markets and global trade leads to terrorism


Fandl ‘3 – (Kevin, American University Law Review Volume 19, Issue 3, “Terrorism, Development and Trade: Winning the War on Terror without the War”, http://digitalcommons.wcl.american.edu/cgi/viewcontent.cgi?article=1169&context=auilr//AS)
Terrorism, especially of late, impacts our lives routinely and took much of the world by surprise in recent years with its effect on political and social relations. Recent terrorist attacks have been hailed as representative of a policy of hatred toward the West, hatred toward capitalism, and hatred toward globalization. Many argue that the beginnings of modem terrorism are found in poverty, religion, and envy. And like globalization, one cannot ignore terrorism. The aftermath of the September 11, 2001 events created a new atmosphere of fear and vengeance, imposed upon the world primarily by the United States and Britain. Hidden in this fear is a severe misunderstanding about the cause of terrorism, its remarkable ties to globalization, and the painfully underutilized solution to eradicating it as a means of political or social expression. In this essay, I argue that the roots of recent forms of international terrorism, primarily those based in the Middle East, are planted in an impoverished and ill-nurtured soil. By examining the market structure and economic development of countries where recent terrorist activity has greatly increased, I contend that we will uncover a region poisoned with incomplete or inadequate development, limited employment opportunities, and infrequent interaction with both people from other cultures and potential trading partners. I suggest that much of this lack of development is caused by the absence of real markets, and the inability to sustain trade with commodities other than oil and, in effect, a failure to effectively globalize.

Trade prevents war. The best and most recent research proves


Hegre et al 9 – Professor of Political Science @University of Oslo [Havard Hegre, John R. Oneal (Professor of Political Science @ The University of Alabama) Bruce Russett (Professor of Political Science @ Yale University) Trade Does Promote Peace: New Simultaneous Estimates of the Reciprocal Effects of Trade and Conflict, August 25, 2009, pg. http://www.yale-university.com/leitner/resources/docs/HORJune09.pdf]
Liberals expect economically important trade to reduce conflict because interstate violence adversely affects commerce, prospectively or contemporaneously. Keshk, Reuveny, & Pollins (2004) and Kim & Rousseau (2005) report on the basis of simultaneous analyses of these reciprocal relations that conflict impedes trade but trade does not deter conflict. Using refined measures of geographic proximity and size—the key elements in the gravity model of international interactions—reestablishes support for the liberal peace, however. Without careful specification, trade becomes a proxy for these fundamental exogenous factors, which are also important influences on dyadic conflict. KPR‘s and KR‘s results are spurious. Large, proximate states fight more and trade more. Our re-analyses show that, as liberals would expect, commerce reduces the risk of interstate conflict when proximity and size are properly modeled in both the conflict and trade equations.¶ We provided new simultaneous estimates of liberal theory using Oneal & Russett‘s (2005) data and conflict equation and a trade model derived from Long (2008). These tests confirm the pacific benefit of trade. Trade reduces the likelihood of a fatal militarized dispute, 1950–2000 in our most comprehensive analysis, as it does in the years 1984-97 when additional measures of traders‘ expectations of domestic and interstate conflict are incorporated (Long, 2008) and in the period 1885-2000. This strong support for liberal theory is consistent with Kim‘s (1998) early simultaneous estimates, Oneal, Russett & Berbaum‘s (2003) Granger-style causality tests, and recent research by Robst, Polachek & Chang (2007). Reuveny & Kang (1998) and Reuveny (2001) report mixed results. ¶ It is particularly encouraging that, when simultaneously estimated, the coefficient of trade in the conflict equation is larger in absolute value than the corresponding value in a simple probit analysis. Thus, the dozens of published articles that have addressed the endogeneity of trade by controlling for the years of peace—as virtually all have done since 1999—have not overstated the benefit of interdependence. Admittedly, our instrumental variables are not optimal. In some cases, for example, in violation of the identification rule, the creation or end of a PTA may be a casus belli. More importantly, neither of our instruments explains a large amount of variance. Thus, future research should be directed to identifying better instruments. ¶ Our confidence in the commercial peace does not depend entirely on the empirical evidence, however; it also rests on the logic of liberal theory. Our new simultaneous estimates—as well as our re-analyses of KPR and KR—indicate that fatal disputes reduce trade. Even with extensive controls for on-going domestic conflict, militarized disputes with third parties, and expert estimates of the risks of such violence, interstate conflict has an adverse contemporaneous effect on bilateral trade. This is hardly surprising (Anderton & Carter, 2001; Reuveny, 2001; Li& Sacko, 2002; Oneal, Russett & Berbaum, 2003; Glick & Taylor, 2005; Kastner, 2007; Long, 2008; Findlay & O‘Rourke, 2007; cf. Barbieri & Levy, 1999; Blomberg & Hess, 2006; and Ward & Hoff, 2007). If conflict did not impede trade, economic agents would be indifferent to risk and the maximization of profit. Because conflict is costly, trade should reduce interstate violence. Otherwise, national leaders would be insensitive to economic loss and the preferences of powerful domestic actors. Whether paid prospectively or contemporaneously, the economic cost of conflict should reduce the likelihood of military conflict, ceteris paribus, if national leaders are rational.¶ ¶

Hegemony




U.S. debt is unsustainable – continued deficit spending will lead to trade deficits, and the loss of manufacturing and U.S. hegemony


Ensinger 10 – Dustin, Reporter at The Delaware Gazette (“Huge Deficits Altering U.S. Hegemony”, Economy in Crisis, 02/02/10, http://economyincrisis.org/content/huge-deficits-altering-us-hegemony)/CP
The sun may finally be setting on the American Century, according to The New York Times, which claims that America‘s massive and unsustainable debt will be the cause of waning influence around the world in the near future. Not only is the deficit out-of-control – expected to be 1.3 trillion in the 2011 fiscal year – but the nation’s projected long-term debt is even more unsustainable. By the end of the decade, deficits are projected to rise to over five percent of gross domestic product. “[Obama’s] budget draws a picture of a nation that like many American homeowners simply cannot get above water,” The Times writes. Even worse, much of that debt is borrowed from foreign central banks, especially Asian powers Japan and China. As of September 2009, China held $790 billion of U.S. debt while Japan held roughly $752 billion. The problem is exacerbated by the political impasse in America, in which each side is firmly entrenched in an unwavering ideological battle. Republicans refuse to even entertain the idea of any tax increase while Democrats chafe at the though of entitlement cuts. In reality, to put America back on a path of fiscal sanity and ensure that America remains a hegemony, there needs to be a combination of both. Still, others see America’s imminent demise. An extremely low savings rate, the decline of America’s manufacturing base, unsustainable trade deficits and concerns about the strength of the dollar have all caused some experts to question America’s place in the world and suggest that American influence may be rapidly dwindling. “Unless miraculous growth, or miraculous political compromises, creates some unforeseen change over the next decade, there is virtually no room for new domestic initiatives for Mr. Obama or his successors,” The Times writes. “Beyond that lies the possibility that the United States could begin to suffer the same disease that has afflicted Japan over the past decade. As debt grew more rapidly than income, that country’s influence around the world eroded.”

Economic decline collapses hegemony


Zakaria 2008- editor of Newsweek International (Fareed, “The Post-American World: Release 2.0,” http://books.google.com/books?id=G4U8o3FNOS4C&pg=PA197&dq=The+fundamental+point+is+that+Britain+was+undone+as+a+great&hl=en&sa=X&ei=USPmT42kKYHs8wSKmZ3HAQ&ved=0CDMQ6AEwAA#v=onepage&q=The%20fundamental%20point%20is%20that%20Britain%20was%20undone%20as%20a%20great&f=false)//KC
The fundamental point is that Britain was undone as a great global power not because of bad politics but because of bad economics. It had great global influence, but its economy was structurally weak. It had great global influence, but its economy was structurally weak. And it made matters worse by attempting ill- advised fixes—going off and on the gold standard, imposing imperial tariffs, running up huge war debts. After World War II, it adopted a socialist economic program, the Beveridge Plan, which nationalized and tightly regulated large parts of the economy. This may have been understandable as a reaction to the country's battered condition, but by the 1960s and 1970s it had condemned Britain to stagnation—until Margaret Thatcher helped turn the British economy around in the 1980s.

Economic growth is at the center – the future of hegemony balanced on the economy.


Peng 2009 - Dr. Yuan Peng, Director of CICIR’s Institute for American Studies (“The Financial Crisis and US Economic Hegemony,” April 11, 2009, http://www.cicir.ac.cn/english/newsView.aspx?nid=86)
When studying US economic hegemony it is important to not only understand the current US economic situation, but also to grasp fully the US comprehensive strength and the future trend of its hegemony. If we divide the US hegemony into hegemony of military, hegemony of politics, hegemony of economy, hegemony of science and culture, the economic hegemony should be the most changeable and also the most decisive element to the future of the US. The military hegemony will stay unchallenged; the basis for its scientific hegemony is solid to a large extent; and the political hegemony, though facing great challenges, is still far from fully declination. Therefore among the four kinds of hegemony, the future of economic hegemony is the most dimmed one. If the economic hegemony is at risk, it will weaken the military hegemony and science and technological hegemony, which, combined with a declining political hegemony, will cause a decline in the comprehensive hegemony of the US; if it successfully keeps its solid economic hegemony, with the support of its strong military capacity and scientific and cultural hegemony, the US will continue to dominate the world, even if the political hegemony is challenged. All in all, how the US economic hegemony goes will greatly impact the other countries in the world.[1] People have different opinions on the current economic situation and US hegemony. The financial crocodiles George Soros and Warren Buffet, as well as Wallerstain, the master of World System Theory, believe the US is truly declining. Even before the financial crisis, they had claimed that the economic bubble would burst and reckoned that decline is an inevitable trend for the US. On the other hand, strategists like Henry Kissinger, Zbigniew Brzezinski and the Newsweek Editor- Fareed Zakaria, embrace the hope that the US still holds a card to maintain or even revitalize its hegemony, although they admit the advent of “the post-America time” (Fareed Zakaria), or “power shift” (Henry Kissinger). The conclusions come from their deep awareness of the whole international system and the law of history. People in this school have a strong ideology and argue that, given the obvious edges of the US in today’s world, the hegemony of the US is still as solid as a rock. Anne-Marie Slaughter, the former Dean of the Woodrow Wilson School of Public and International Affairs, is a typical representative of this argument.


Economic decline leads to loss of hegemony


Du Boff ‘3 – (Richard, Professor of Economics at Bryn Mawr College, “US Hegemony Continuing Decline Enduring Danger”, The Monthly Review, http://monthlyreview.org/2003/12/01/u-s-hegemony-continuing-decline-enduring-danger//AS)
Ongoing trouble for the U.S. economy comes from the attack on the federal government, starting with the Reagan administration in the 1980s and reaching unprecedented ferocity in the reign of Bush II. Three tax cuts since 2001, loaded toward the rich, have helped to eliminate the federal budget surpluses of 1998–2001 and produce deficits of $374 billion for 2003 and upwards of $450 billion for 2004–2006. The problem is not the deficits themselves: were they spent on education, transportation, the environment, and health care they would not only produce a stronger and more stable economy but vastly improve the well-being of the bottom four-fifths of the income scale. But these are precisely what Bush and company want to destroy: the tax cuts are aimed at starving the federal government of resources and forcing it to slash spending on everything except the military. These policies are feeding into a “perfect fiscal storm.” The exploding budget deficits reduce national saving, deepening the country’s international deficit and increasing its dependence on foreign capital to pay for domestic consumption and investment. The damage at home comes from the fiscal squeeze on state and local government (SLG), the worst since the 1930s. Cutbacks in federal aid to SLGs, on the heels of the end of revenue-sharing in 1986, have come at a time when the federal government is dumping heavier fiscal responsibilities on SLGs, chiefly for Medicaid, Social Security Insurance for low-income households, and new domestic security measures in the wake of 9/11. State governments now face deficits totaling $60 to $85 billion over the next year—13 to 18 percent of state expenditures. Since all states except Vermont are required by constitution or statute to run balanced budgets, the deficits are forcing SLGs to make deep cuts in spending on education, public safety, libraries, and parks and hike taxes in the face of recession—the opposite of what the doctor ordered. Thus, discordant, even contradictory policies are adopted by the different levels of government, resulting in impairment of the functioning of the economic system as a whole. If hegemony runs on economic efficiency, the American system of government leaves something to be desired, and the manipulation of it by the radical right-wing oligarchy now in power amounts to “lunacy,” as one voice of global capital, the Financial Times, calls it.



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