I am quite sure you will not agree. But you will agree to the fact that the empire that had the strongest military always ruled the world both economically and politically and thus achieved the world domination. If one scroll back through the pages of history, British defence share of government expenditures during the 17th, 18th and 19th century were up to 75 % of GDP, never dropping below 55 %. The predecessors for British were the Dutch who had even larger numbers to boast.
If you look at the spending pattern of US on defence, it was less than 1% during the Renaissance, grew to around 12% of GDP during the Civil War of the 1860s, 22% during World War I and culminated to staggering 41% during the WWII – the time of the universal call by Uncle Sam for the Armageddon. Even today, U.S. military accounts for a staggering 40% of global military spending. More of a fact, US annual spending on the military is higher than the next 13 nations combined. To give you a perspective the constitutional democracies build by the people, for the people (I am not so sure about that) and of the people, as the Uncle Sam says, the allies of US account for over 80% of military spending of the world. Wow, that’s quite a large number!
But have you really thought why this country and its allies alone are spending so much money on defence? At least for a few of us, when we speak of value, the ‘Dollar’ term creeps in. Why are we speaking so much about the Dollar?
Even though there are over 180 currencies in the world, the cost of crude, an investment made by IMF, the debt of countries and even the Big Mac Index is always measured in Dollars. If we look at global forex transactions, there is a 44% chance that one of the currencies in the transaction is the greenback and hence it enjoys the status of world reserve currency. Are we reading about completely unrelated topics?
Not really. This insatiable “recall” / “demand” / “a belief” in dollars has handed the U.S. government a virtually unlimited credit card and a perfected money minting machinery. U.S., with a debt of about $60 trillion, is currently the world’s biggest debtor nation. Due to dollar’s role at the centre of the international monetary system, US has the largest domestic debt securities market ($30 trillion) which is more than double the size of the next largest domestic market Japan ($1 trillion). The defence superiority also enables the country to forge international economic and military partnerships, a trend which points to the country’s strategic clout. This is what the US achieves by retaining its first rank in the defence and military spending, which otherwise would be difficult to maintain in competition for a global superpower. Although China is trying hard to crack to this by making its presence felt, Grand Old Uncle knows that Military prowess and economic prosperity are not zero-sum games. Although “democratic countries” know that they have the potential to realise $1.30 of extra private spending over a period of 5 years for each $1.00 reduction in defence spending (study by Mercatus Center), will our Grand Old Uncle change its military and geopolitical strategy in Emerging markets for such a silly gain?
Let’s wait and see how Uncle tames the dragon… !!!