The Milken Institute Review
by leonard e. burman
It's 2030. China has just invaded Taiwan, and things do not look good for
the island. Taiwan's longtime protector, the United States, has responded
with passionate rhetoric and a barrage of UN Security Council resolutions
which China has vetoed. But a military response is out of the question. China
might counter by cutting off America's lifeline of foreign capital, tanking the
dollar and crippling the economy. And, truth be told, it is not clear that the
U.S. Navy, much diminished by decades of penny-pinching, could put up
much of a fight against the world's pre-eminent superpower.
I'm not saying that's our future; there are alternative (though equally ugly)
possibilities. When America's ballooning federal debt becomes unmanage-
able, we might simply refuse to honor our obligations, triggering a world-
wide financial collapse and an economic downturn that would make the
recent unpleasantness seem like a walk in the park. Or we might create
enough money to pay back our creditors, domestic and foreign, triggering
a hyperinflation reminiscent of failed states like the Weimar Republic in the
1930s (or, more recently, Zimbabwe) that would wipe out the savings of any-
one caught holding wealth in dollars.
The bottom line here (and I do mean bottom): while nobody knows
exactly how or when catastrophic budget failure will play out, disaster is
assured unless the federal government reins in its profligate ways.