There will be nothing "gradual" about it. Capital is extremely fungible. Three Fourths of US dollars are held overseas. When it becomes obvious that the US intends to monetize it's debt (aside from all the other problems that will cause), most of those will come crashing home, and they will do so very quickly. The dollar is the note of the Federal Reserve, and there will be a world-wide run on the bank. US Borrowing Rates will soar, and the United States will be caught in an interest rate spiral, meaning that we will have to inflate the monetary supply by 10% of GDP every year just to be able to spend all the money we have promised, and that is before the world dumps the dollar as the reserve and oil currency. We will shift into hyperinflation, and for a short time annualized rates could rise to the triple digits. With no domestic demand for Treasury Bonds that now pay far below inflation, the abilities of the Fed to combat that will be roughly nil. Japan will probably not last as we know her for another 5 years - even at the ridiculously low interest rates provided by her massive domestic savings rate (which we lack), too many are retiring and being replaced by too few workers. That means that there won't be any net domestic savings to keep that rate low. The money will flee from Europe to Japan and the US, and then when it realizes that Japan is a doomed ship, it will flee to the US, and then investors (who no longer trust sovereign debt) will look with a jaundiced eye to see if our downgraded bonds are trustworthy... just as it is becoming obvious that we intend to monetize the debt.
If investors were at all worried about that doomsday possibility - for either the US or Japan - it isn't being reflected in the markets. Furthermore, it has been obvious for over 100 years that the US intends to "monetize the debt" (if you mean not pay it back). The US hasn't actually paid back its debts since Andrew Jackson was president, it just pays the interest and attempts to grow the economy faster than it grows the debt...and that arrangement is OK.
Same goes for Japan. Japan has one of the highest debt-to-GDP rates in the world, yet it can borrow money for less than 1%. Investors are not at all concerned about the security of their investment.
The CBO says that the US Economy will functionally cease to exist in the 2030's under our current path. Frankly, I suspect that is wildly optimistic, as it assumes international stability, strong growth, permanent low treasury rates, and current law reductions in spending. If President Romney serves two terms and fails to structurally change our entitlements, the President that follows him will preside over destruction of the level not wrecked on this nation since the 1860's. I'll be alright - I know how to kill people (with all due respect to Ms Streisand: people who kill people are the most employable people in the world). Many of our fellow Americans whose livelihoods are dependent upon a highly integrated (and frankly fragile) global supply chain and extreme division of labor may find themselves in for a rude surprise.
I think you're grossly overestimating the demographic problems the US faces, and grossly underestimating the role of technology, migration, and economics in solving those problems relatively smoothly.
Forming a United States of Europe would lead to nigh open revolt at home, and impossible economics abroad for the European nations. The last Constitution required enough obvious ignoring-the-peasantry, and sparked enough of a backlash. Attempts to create an USE will not so much pour gasoline as nitroglycerin on the current fires of nationalism/fascism that are starting to smolder on that continent. As far as fiscal integration and carrying everyone else's burden, Germans have been pushed about as far as they are probably willing to go. Splitting up the EU and letting the southern states restructure their debt (read: declare bankruptcy) will happen, and when it does massive amounts of "wealth" will disappear and Europe will be in the mother of all liquidity crises at the same time that she is trying to perform massive structural changes to her currency. Good luck with that. Everyone thinks that the losers will be Greece, maybe Spain and Portugal. In reality, it's going to be Greece, Italy, Spain, Portugal, probably Ireland, and quite possibly France.
I agree that a USE is certainly not politically possible right now. However, if the current financial crisis gets worse - or if Europe manages to muddle through only to get hit by another financial crisis in 10 years - who knows what will be politically possible? Stranger things have happened.
In any case, I agree that Europe is in a worse economic situation. But this is mostly due to the mismatch between who sets fiscal policy and who sets monetary policy, rather than demographic patterns. True, Europe would be better off with higher birth rates...but this problem is solvable if European nations are willing to allow more immigration and abandon the outdated idea that nations are defined by a shared ethnicity.
Which problem would that be? the problem isn't just that we are shrinking in our populace, it is that our welfare states are built upon a pyramid scheme model, and require steady influx of ever increasing numbers of people paying into the system. But floods of immigrants into a nation with a welfare state don't pay into the system as much as the natives - they disproportionately cost the system. Letting in floods of third-world immigrants without welfare state reform to keep them from becoming net fiscal burdens will exacerbate rather than solve the problem.
There are millions of well-educated people who want to immigrate to the United States, who are turned away every year. And there are hundreds of millions of uneducated but intelligent people who want to immigrate to the United States, who are turned away every year. I'm not saying we need to accept them all, but accepting a great deal more of highly-skilled or highly-intelligent people would be a good place to start. We could even pay for their educations like we do for our own children, in order to produce more qualified American workers and taxpayers.
Ultimately I think that the demographic problems in developed countries are highly exaggerated, in terms of their effect on the global economy (although they'll be bad for some individual nations if no steps are taken to reverse the trend). More people than ever are attaining a level of affluence at which they can help solve global problems, and this trend is unlikely to reverse IMO.
