China Redux

China will have to manage substantial risk factors if it is to sustain its unprecedented economic development and growth into a major global power. But the United States also faces its fair share of daunting problems as it seeks to retain global leadership.

America’s finances are a mounting concern. Take the bulging US national debt, which stands at over $8 trillion and is 64% the size of the gross domestic product (GDP). The recently released $2.9 trillion fiscal year 2008 Budget of the United States (more info from NPR) includes $260 billion, or nearly 10% of the budget, to cover debt service to our creditors. Much of that debt service goes into the coffers of China’s central bank, which holds billions in US bonds.

Then there’s the tremendous rise in US defense spending. The FY 2008 budget seeks over $500 billion for defense-related programs: $481 billion for the Pentagon’s base budget and at least another $50 billion to fight the wars in Iraq and Afghanistan (a very conservative estimate). The defenset total represents an increase of over 11% from the previous year. The opportunity costs of increased defense spending are high: more money for the Pentagon translates into less funding for education, health, infrastructure and other programs that are critical for strengthening America’s competitiveness in the global economy. Read the rest of this entry »