For this week’s AIP column, I allowed my imagination to run after seeing multiple warnings this past week about the credit rating for US Treasuries.  The rapid increase in deficit spending by the Obama administration has analysts worried, and investment rating systems — stung by accusations of inaction during the housing bubble — have begun raising red flags about US debt.  Standard and Poors has already issued a specific warning to the UK that they may get rating a “negative” risk, which will make it much harder and costlier to cover their own deficit spending, and the US will probably be next.

If the US can no longer sell enough Treasuries to cover the deficit, what happens to the American currency?  What happens to American credibility in global financial markets?  We could lose a lot more than people realize if we have to start printing money to cover the gap, and the worst part is who might fill the vacuum:

What would a world with the United States in the second financial tier of nations mean? We would have significantly less foreign investment, to start, and that has other implications besides just the impact to our economy. We rely on economic engagement with other nations as a not-inconsequential portion of our national security and foreign policies. …

Without a strong military presence around the world, which would almost certainly disappear just as Great Britain’s did after World War I, the world would be a much different – and more dangerous – place. No nation could guarantee trade security to the extent the American Navy does. Piracy has already become a problem, and without either a massive British or American Navy to suppress it, it would expand enormously. That will aggravate the problems an American return to second-tier status would create in the global economy.

Perhaps another nation could fill the vacuum left by an American collapse, but which nation? What kind of world would global dominance by China, India, or Russia bring, assuming any of these could take that role? How about a coalition of oil producers like OPEC, who have the means to fund it?

Once in a while, I like to engage in a little speculative thinking.  Believe me, this is a scenario I’d love to see remain hypothetical, but right now, we’re squandering the very basis of our power, and in ten years, it may be far too late to correct our course.