U.S. Intel Experts: Bailout Weakens U.S. Power

The White House plan to bail out the U.S. financial sector is likely the first blow in what U.S. intelligence experts say will be a decline in American prestige and power over the next two decades.

Even before the revelations of the true scale of the banking bust last week, the National Intelligence Council was readying a report for the next president that predicted a rapid reduction in U.S. global dominance.

Thomas Fingar, the council’s chairman, told a group of intelligence professionals gathered in Orlando in early September that factors like the rise of China and the military resurgence of Russia is likely to tax U.S. strength.

“The overwhelming dominance that the United States has enjoyed in the international system in military, political, economic, and arguably, cultural arenas is eroding and will erode at an accelerating pace,” said Fingar, who is finishing up a major report, "Global Trends 2025," that represents a consensus estimate of U.S. intelligence agencies.

China already holds more than $1 trillion worth of dollar assets. If the U.S. government is to come up with $700 billion quickly, it will most likely need to sell more Treasury securities to China and other countries like Saudi Arabia.

Likewise, if the price of oil and natural gas continue to rise, Russia will increasingly use it as a weapon against Western Europe along with military threats to smaller Eastern European countries like Georgia and Ukraine. This has already begun to happen.

Now U.S. financial expertise — long respected by countries around the world — has been found wanting. Wall Street’s reputation as the global center of finance is now in question, and may be ceded to places like Hong Kong, Shanghai, or Dubai.

"The financial sector was the flagship sector, or one of the flagship sectors, of the American economy — the envy of the whole world — and people didn't just say they believed in it. They were pouring money into it," Kenneth Rogoff, a former chief economist at the International Monetary Fund, told National Public Radio Wednesday.

"And now that they see it melting down, they're nervous about its future,’’ Rogoff added. “I mean, it's not something that is going to lead to the United States not being No. 1 anymore all of a sudden. But it undermines and weakens our position. It's very important that we try to rebuild it so that we can re-establish our pre-eminence in the area."

The one saving grace may be that China and other lenders to the United States cannot afford to let Wall Street collapse — it would devastate their own economies.

"We will need not only Chinese, but Saudi and to some extent Russian money to fund some of this," said George Friedman, chief executive of Stratfor.com, an intelligence analysis firm. "But it is in the national interest of all these countries to see the American markets come through it, and the only way the Chinese could really hurt us is by cutting their own throats."