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Dear SEA STATE Reader,

On Thursday of this week, the U.S. Senate potentially averted a global financial disaster by reaching a deal to extend the debt ceiling limit until December. But this financial policy issue isn’t going away anytime soon. As junior officers, we may need to answer questions from our Sailors, Marines, and Coast Guardsmen about this mysterious and controversial “debt ceiling” -- or we might have questions about it ourselves.

Debt ceiling drama is a uniquely American phenomenon, dating back more than a century. When the Framers drafted our Constitution, they granted Congress the “power of the purse” or the ability to decide how to levy and spend tax dollars. Alexander Hamilton advocated that the federal government carry a national debt in order to demonstrate to foreign governments our reliability as a debtor, which would motivate them to lend us more money. In practice, this meant that the federal government would always spend more than it taxed. In order to close the spending gap, the U.S. Treasury would sell bonds to any investor who wanted them. This practice continues mostly in the same way today.

Over the years, the U.S. Treasury bond became the bedrock for the global financial system. The assumption is that a treasury bond is the safest investment in the world because the U.S. government is the world’s most stable creditor. It’s highly likely that you own Treasury bonds right now whether you know it or not. Nearly every mutual fund, IRA, or TSP owns some U.S. debt.

While a national debt has existed since the dawn of our Constitutional democracy, the debt ceiling is a more recent invention. Until the early 1900s, members of Congress decided every year how each tax dollar was to be levied and spent, and directed the Treasury department on exactly how much debt to raise to close the gap. By 1917 however, Congress decided that it had bigger things to worry about than the monotony of budgets. It passed the Second Liberty Bond Act, which created a national debt “ceiling,” or maximum. This act maintained that Congress would determine how much to tax and spend, but the issuance of debt would fall squarely on the shoulders of the U.S. Treasury, so long as the debt stayed below the predetermined debt ceiling.

Since that time, Congress has needed to raise the debt ceiling many times in order to facilitate robust spending programs. These included relief efforts during the Great Depression and military spending during WWI, WWII, and the Cold War. Each time the gap between taxes and spending exceeded the debt ceiling, Congress has needed to raise the debt ceiling.

In the past few weeks, negotiations around the debt ceiling have been complicated by efforts to simultaneously pass a budget to continue to fund the federal government. In the end, the two efforts were separated and a “continuing resolution” was passed to continue to fund the government at last year’s levels through December, averting a government shutdown. On Thursday night, the Senate approved an extension of the debt ceiling through early December as well; the House is expected to vote on the bill on Tuesday.

If Congress had failed to act in time, the U.S. would have defaulted on its debt, as Secretary of the Treasury Janet Yellen warned prior to Thursday’s compromise. The ramifications would certainly have been dire for the global financial system, but the exact effects are unknown since the U.S. has never before defaulted on its debt. In 2011, a similar debt ceiling debate resulted in America’s credit rating being reduced for the first time in history. Because financial markets are predicated on trust, and the U.S. government serves as a lynchpin as the most trusted debtor in the global system, any indications of insolvency erodes faith in the markets and can lead to economic downturns. On a very practical level, Secretary of Defense Lloyd Austin told lawmakers that he could not guarantee continuity of military pay if a default occurred.

Since the onset of the pandemic, federal spending has once again reached unprecedented levels, and the national debt is likely to remain a hot topic for the foreseeable future. Thankfully this week, Congress granted themselves more time and a financial crisis was averted... at least for now.

Sincerely,

Bryce McClelland
SEA STATE Team Member

NEWS THIS WEEK

“China Would Be Able to Launch Attack on Taiwan by 2025, Island’s Defense Minister Warns” (The Wall Street Journal): The Chinese government under Xi Jinping has made the unification of Taiwan with mainland China, by force if necessary, a national goal. In recent days, China has sent over 150 aircraft into Taiwan’s Air Defense Identification Zone. According to China’s ambassador to the Association of Southeast Asian Nations (ASEAN), Deng Xijun, the intrusions send a “strong warning to the Taiwan secessionists and their foreign supporters.” The United States has called on Beijing to end the sorties, while France has expressed support for Taiwan by sending a delegation led by their defense minister to the island. Meanwhile, Taiwan’s defense minister, Chiu Kuo-cheng, has warned that China may be able to take the island with minimal losses by 2025.

• Taiwan’s current vulnerability to an invasion from the mainland follows decades of decline in global importance compared to China. The Taiwanese government was once seen as the legitimate government of China, with a seat on the U.N. Security Council. However, Beijing’s rise as an economic power eclipsed Taipei’s influence on the world stage, and nations around the world began to sever relations with Taiwan, including the United States. Taiwan was expelled from the U.N. in 1971, and fewer than 20 countries recognize Taiwan today.

• If China moves to take Taiwan, the Navy will experience an immense shift in its operations in the Pacific. Some Americans have called for the U.S. to pledge to defend Taiwan against a military invasion, while others have argued that the island is not worth U.S. efforts to defend it. The island is strategically located, and capturing Taiwan would allow China to expand into the Pacific, easily threaten bases in Japan, and seize important Taiwanese semiconductor technology.

• Because of China’s intrusions, a parliamentary committee in Taipei is considering a multi-billion dollar defense spending bill that would greatly bolster the island’s military aircraft, ships, and defense systems.
  

• With a potential shift in operations on the horizon, junior officers must prepare for any eventuality. There are many likely changes to come for operations in the Pacific. From more dangerous freedom of navigation operations (FONOPS), increased exercises with security partners like Taiwan, or even the use of military force to defend the island, relations across the Taiwan strait will shape the responsibilities of junior officers for years to come.

“Two Teachers are Killed in Kashmir, Where Militant Attacks are Surging” (New York Times): On Thursday, militants in India’s Kashmir region launched a brutal attack at a local school, the latest of a series of attacks targeting Hindu and Sikh civilians in India’s only Muslim-majority region. So far this year, suspected militants have killed 27 civilians in Kashmir, seven in the past 10 days alone. Militant attacks have been on the rise following the Indian government’s decision in 2019 to limit civil liberties in Kashmir and strip it of its semi-autonomous status. Kashmiris fear this move is aimed at altering the demography of the region by bringing in more people, especially Hindus from other parts of India. The Kashmir region has long been a conflict zone between India and Pakistan which claims the region in full. India accused Pakistan of orchestrating the recent violence by trying to destabilize the region and drive a wedge between Hindus and Muslims, but Pakistan has denied those accusations.

“Afghanistan Asks UN to Pay Power Bills Before Country Goes Dark” (Bloomberg): Afghanistan owes over $60 million to power companies in neighboring Uzbekistan, Tajikistan, Turkmenistan and Iran. Since the Taliban took over the Afghan government, energy bills have gone unpaid to the tune of over $20 million per month. This week, the Taliban government requested $90 million from the United Nations Assistance Mission in Afghanistan (UNAMA) to cover debts, signaling fears that the country could face widespread power outages if electricity providers decide to cut off service. The Taliban have been plagued with financial woes since taking control of the government in mid-August.

IN DEFENSE NEWS

“Attack Submarine USS Connecticut Suffers Underwater Collision in South China Sea” (USNI): On October 2nd, the Seawolf-class fast attack submarine USS CONNECTICUT (SSN-22) “struck an object while submerged,” according to an official statement from the U.S. Pacific Fleet. No one was killed or seriously wounded in the accident, but 11 did sustain “minor to moderate” injuries. The incident recalls previous submarine accidents, notably the collision of USS SAN FRANCISCO (SSN-711) with an underwater seamount in 2005. Seawolf-class submarines are the U.S. fleet’s most expensive, capable, and well-resourced submarines, and while the damage has not been fully assessed, it is certain that restoring CONNECTICUT to mission readiness will require a significant investment of time and money. As more information about the accident becomes public, junior officers must internalize the “lessons learned” and work to prevent similar instances in the future.

“Changes to federal loan forgiveness program will benefit thousands of troops, vets and DoD workers” (NavyTimes): Changes to the Public Service Loan Forgiveness (PSLF) program announced Wednesday will ease or erase federal loan debts for tens of thousands of service members. The program has been criticized as cumbersome and ineffective, such that many of those who qualify for the program do not receive relief. The changes announced Wednesday are intended to correct this, and aim to reduce the financial burdens of service members and civil servants, hopefully enabling them to continue in public service. There are many sailors and naval officers that have loan debt and would benefit from the changes made to the PSLF program. Junior officers should follow this story and make sure they have the information and resources for themselves and their sailors.

A LONG READ FOR YOUR WEEKEND

“The Largest Autocracy on Earth” (The Atlantic) by Adrienne LaFrance

To be a nation-state requires territory, currency, people, and a philosophy of governance. To be a foreign power hostile to the United States is to be a nation-state that seeks to dismantle democracy. Facebook, according to Adrienne LaFrance, the executive editor of The Atlantic, fits the bill.

Is Facebook a nation-state? Yes, argues LaFrance: its territory exists in the digital realm; it is developing its own currency called “Diem”; and it has over 2.9 billion active users, more people than China and India combined. Moreover, as LaFrance points out, Facebook has long masqueraded as a democratizing platform, a way to allow people to connect and express themselves. Mark Zuckerberg, the company’s founder and leader, even pitched a Facebook Bill of Rights and the establishment of a legislative body for policy making.

But Facebook’s impact has not been one of advancing democratic norms, LaFrance argues. The company suppressed internal research that documented Instagram’s negative effects on teenagers’ mental health. It creates shadow profiles for people who never signed up in order to track potential contacts. And its algorithm is designed to “[guide] users inexorably toward less nuanced, more extreme material, because that’s what most efficiently elicits a reaction.”

As LaFrance points out, the problem is not at the individual level: “Facebook doesn’t just have the capacity to poison the individual; it’s poisoning the world. When 2.9 billion people are involved, what’s needed is moderation in scale, not moderation in personal intake. The freedom to destroy yourself is one thing. The freedom to destroy democratic society is quite another.”

As omnipresent as Facebook’s services are, it is bound to draw the time, attention, and energy of our servicemembers. As leaders in an organization dedicated to the protection and preservation of our constitutional republic, it is perhaps one of our duties to be a check on social media’s impact: to ensure the primary dialogues on the deckplates are nuanced and thoughtful, not extreme and reactive.

PODCAST EPISODE OF THE WEEK

“Jon Jarvis: Absolutely American” - The Oath

Sometimes as service members we forget that there are many other other public sector career paths that require similar sacrifices to military service: duty days away from home, frequent family moves, and the required “D.C. tour” to promote. In this episode, host Chuck Rosenberg - former U.S. Attorney for the Eastern District of Virginia and for the Southern District of Texas - explores Jon Jarvis’ forty-year public service career and his ascension from a Park Ranger to Director of the National Park Service. The Oath series in general, and this episode in particular, showcases the tremendous efforts and sacrifices of individuals across government that help shape and maintain the United States. Hearing these stories from across the public sector will help Junior Officers keep perspective on what and who is vital to maintain the nation we serve.

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We’ll see you next week.

This issue of SEA STATE was written and edited by Christian Hoffman, Julie Stabile, Emma Quinn, Johnathan Falcone, Bryce McClelland, Yash Khatavkar, Viraj Patel, Lauren Hickey, Phoebe Kotlikoff, Madison Sargeant, Nick Paraiso, and Thomas Krasnican.

SEA STATE is not affiliated with the U.S. Navy, Marine Corps, or the Department of Defense. All views expressed or shared in this newsletter are the authors’ own and not necessarily endorsed by the U.S. government or any military entity.