American debt and a stronger dollar— a national security problem

The American national government is headed down the path of achieving an accumulated record amount of debt surpassing $31 trillion. This unit of measure signals an America in decline. Our imperial nation is arguably in decline in part because we are borrowing way above our capacity to pay back accrued credit taken out. 

As total national debt levels increase, the United States will continue to both retire existing debt and then issue new debt in order to help fully fund governmental operations. 

It is expected that, as interest rates continue to rise, other nations will find incentives to purchase American government debt because of higher interest rate returns for bond holders. However, for the United States, this means it will be even more expensive to borrow money to help run the federal regime. 

As our nation enters new territory, the United States government is also operating on a temporary funding basis through the congressional passage of a continual resolution for the next couple of months. These developments signal a weakened nation, not disciplined enough to be more fiscally accountable. 

Interest rates—another national security problem
The Federal Reserve, which is the central bank of the United States in charge of ensuring the financial stability of the nation, continues to raise interest rates because there are tremendous pressures to slow down inflation. The Federal Reserve is also the entity that prints new electronic money and floods total dollars for public circulation. 

Now higher interest rates make it more expensive for potential homebuyers to purchase a house. The outcome is that potential home purchasers will be priced out of the market in part because the cost of borrowing money becomes too high. 

Higher interest rates also dissuade businesses and consumers who want to buy cars and take out car loans to think twice before pulling the decision-trigger. The point here is that higher costs of living are directly tied to the security of our national and home island populations, which in turn, contribute to the nature of the health of our American national security. 

Cost of oil
As inflationary pressures grow and as the American national debt situation worsens, oil prices may increase once again, which is not good for the country and our Marianas. Oil prices have spiked and dropped since the war in Ukraine started, but OPEC member nations have now decided to cut net production of oil by about two million barrels per day or roughly 2% of total worldwide daily production. 

Should net oil supply availability shrink, oil and oil futures may rise, which may hurt Guam and Northern Marianas residents in the pocketbook. Currently, the United States continues to rely on tapping the national strategic petroleum reserves to help meet daily national demand, but this does not impact the cost of oil for the Marianas. 

What might happen after the elections are over and we move into 2023
After the elections are over later this year and we move into 2023, it is expected that if inflationary pressures persist, if oil prices rise, and if new job hires slow down to a halt, worldwide business activity may decline. If this happens it would be driven by people, businesses, and governments cutting back on spending and trading. The consequences of this happening have practical outcomes that affect us all. 

For the Mariana Islands, constant externally generated pressures to contend with
If inflation persists, and the dollar holds ground, a strong American dollar may make it more expensive for Asian tourists to visit Guam and the Northern Marianas because of exchange rate pressures. If interest rates and inflation spiral too high to new and consistent levels, net overall tourism in the region may simply drop even more and the Marianas will continue to feel the pain. People will simply delay or cancel travel plans. Airline prices, however, may increase due to captive market forces and the cost of fuel and performing commercial air business operations.

In addition, if oil prices concurrently spike, the Marianas may feel the stress associated with paying higher energy bills just as tourism arrivals lag and our island chain continues to focus on military-related spending to help prop up the local island economies. 

The challenge with this situation is that the Marianas governments may also find themselves without federal funding tied to COVID-19, placing new and added pressures on our insular economies. 

The limits of military spending, however, include the fact that it is heavily a pass-through endeavor.

Much of the money simply doesn’t stay in Guam and get recirculated the same way it does with tourism dollars. Even if Department of Defense contractors are taxed, it doesn’t mean that they are really paying their fair share of what they should be paying into the local economy. Guam and the NMI miss out as a result. There is also a myriad of environmental and Chamorro cultural costs associated with the transformation of Guam and the NMI into becoming a worldwide military training destination. 

Another aspect of military spending that continues to displace our Chamorro people and other islanders who are effectively working poor is the public subsidies that military personnel get for cost of living and housing overseas. This kind of federal government handout and dependency is antithetical to free market forces and constitutes big government spending throughout our island chain that advantages federal employees of all kinds, while disadvantaging the vast majority of poor or working-class Pacific Islanders. 

Let’s hope inflation tanks and that OPEC decides sooner than later to reverse production cuts recently announced. Let’s also hope that the dollar loses its strength a bit and that military housing spending doesn’t continue to dislocate islanders throughout the Marianas.