Ripples of 9/11 Continue 8 Years On
Eight years after the 9/11 terrorist attacks we present a selection of content on the lasting legacy on the U.S. finances and American influence in the world.
The cost of conflicts following the attacks on U.S. government finances has been lasting and profound. Spending on the two wars in Afghanistan and Iraq, plus a myriad of smaller operations in the areas of homeland security, intelligence and counterterrorism around the world, contributed to the widening of the U.S. fiscal deficit in recent years. Although the Obama administration’s long-term fiscal plans intend to cut military spending, doing so might be difficult given the need to replace equipment and provide support for the “smart power” approach his administration advocates. Military budgets are notoriously sticky – harder to cut than to increase.
In 2009, stimulus spending and support for the financial system will boost the government’s indebtedness, raising concerns among U.S. creditors. The increase in the U.S. savings rate as consumers pull back also reduces foreign financing needs for now.
Tighter finances, slower growth and ideological challenges to the liberal Anglo-Saxon economic model due to the financial crisis have fed a relative decline in American influence. Recent events suggest that there are an increasing number of veto players in the global economy and geopolitics, and while not all of this can be traced directly to 9/11, the course of events since then has accelerated these dynamics. Countries like China and Russia, somewhat sidelined in the pre-9/11 world of near American hegemony, now have key influence on countries like Iran and North Korea, and on questions like the future of the US dollar as the world’s reserve currency.
This year, the U.S. military presence in Iraq continues to wind down, with U.S. troops having withdrawn from major cities. However, the deterioration of the security conditions, as fatalities rise again, could defer the withdrawal even further and delay reconstruction efforts in Iraq. Meanwhile, Iraqi institutions remain under strain and several key pieces of legislation are still on hold – including the petroleum law.
Many of those U.S. troops have been shifted to Afghanistan, but the new strategy is facing political pressure, particularly as the Obama administration focuses on passing two flagship pieces of legislation on health care and climate change.
What lessons have civic leaders taken from the attacks and our responses?
Have post-9/11 security steps weakened New York’s global financial role? Perhaps not, though, London and other smaller financial centers may siphon off some companies that used to list in the United States. Corporate Governance restrictions and other reporting standards following the Enron, WorldCom and other sagas likely had a greater effect though – as did the local booms in places like Dubai, Mumbai and Shanghai. The political firestorm surrounding Dubai Ports World likely deterred some investment from the Middle East even as it brought to light a previously little known intra-agency process (CFIUS) that assesses national security threats.
However, London seized the lead in one area – Islamic finance – given its proximity to the GCC states looking for higher-yielding and sharia compliant investment vehicles for its petrodollars. Yet, the U.S. dollar pegs have kept the GCC countries from diversifying away from the U.S. dollar. For now the need for USD liquidity, the depth of the U.S. debt market and the general reluctance for stronger currencies are keeping foreign purchases of the U.S. debt relatively high but the U.S. may have to pay more for its future lending.
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