This seems to be the same rhetoric that every Defense Secretary dishes out, but this time I am going to speculate that there is something a little different about this time. Saving pennies is now in the vocabulary of the leaders of this war, because they have no other choice. There is just too much going on out there, for the sacred cow called defense spending to not be impacted.
I kind of look at it like this. If the US is part of this massive globalized economy, then things that happen in the global economy will impact the US economy. A case in point is the Greek debt crisis. The volcano in Iceland is another, as is the current recession in the US. The oil disaster in the Gulf of Mexico is another. And of course the two wars we are fighting is costing us billions of dollars every year. Eventually all of that debt and chaos will catch up, and I am sure the administration has given the call to Secretary Gates that it is time to cinch up the belt. Who knows what the conversations at the top entail, and all I can focus on right now is actions.
Below I have posted three stories. The first is how Gates’ new mission to curb spending will impact war plans. If soldiers are costing a million a day in places like Afghanistan, then money for fancy new military equipment that is only marginally better than the current piece of equipment might be axed. Actually, it will be axed and that is the whole point. Cost effective war fighting measures will come more into play, and the military will be asked to do more with less. That is what happens when we go into ‘saving pennies’ mode.
The next story is about the Greek debt crisis. My question on this, is what will happen to the rest of Europe do to these issues? And how that impacts the war effort, is if a country is in debt, then paying for troop deployments in the war might be a little much for the citizenry to stomach. After all, if our Secretary of Defense is talking this kind of talk, what are the secretaries of defense of other countries saying, who are involved in this war? Could we expect more last minute pull outs where vacuums are created that must be filled by either US troops or ….. contractors? Something to ponder I guess.
The final story is about the cost of the war. It is staggering, and the one figure I keep going back to is the cost per soldier for a year in Afghanistan. $500,000 to a million for one soldier, for the year is a lot of money. –Matt
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Gates: Runaway Military Spending May Affect War Plans
May 8, 2010
ABILENE, Kansas (Reuters) – Defence Secretary Robert Gates told the U.S. military on Saturday it must rein in spending that he called out of sync with today’s tough economic times, and said budget woes could be a factor in deciding whether to use force against Iran and others.
Promising to play a hands-on role in wringing out savings, Gates held out the possibility of axing headquarters, merging whole agencies and culling the officer corps, taking on entrenched interests sure to put up a fight.
Sticker shock from wars in Afghanistan and Iraq also mean President Barack Obama and Congress may be more cautious about committing U.S. forces to another costly military engagement, he said.
“I do think that as we look to the future, particularly for the next couple of years or so while we’re in Iraq and Afghanistan, I think the Congress and the president would look long and hard at another military operation that would cost us $100 billion (67.6 billion pounds) a year,” Gates told reporters.
“If there’s a real threat out there, the president and Congress will spend whatever it takes to protect the nation. But in situations where there are real choices, I think this would be a factor,” he added.
Asked if Iran fell into the category where costs would be a factor in deciding whether to strike over its nuclear program, Gates said it was unclear. “It depends on developments over the next year or two,” he said.
Gates said his goal was to cut overhead in the Defence Department’s nearly $550 billion baseline budget between two to three percent, or $10 billion to $15 billion per year, starting in fiscal 2012. The savings would allow the Pentagon to sustain force levels and free up funds for modernization programs.
Without such savings, Gates said, “it is highly unlikely that we will achieve the real growth rates necessary to sustain the current force structure.”
The budget warning was widely seen as part of stepped up efforts by Gates to define his legacy as Pentagon chief.
The venue Gates chose to deliver his message was the presidential library of Dwight D. Eisenhower, who warned about a “military-industrial complex” in a January 17, 1961, farewell speech.
‘ROOT-AND-BRANCH’ CHANGES
High unemployment and a record $1.4 trillion budget deficit are among the toughest domestic challenges Obama faces and could dim prospects for his Democratic Party in congressional elections in November.
Gates said the military spending “gusher” sparked by the September 11, 2001 attacks on the United States “has been turned off.” He cited America’s “difficult economic circumstances and parlous fiscal condition.”
Gates’s call for “root-and-branch” changes and his questioning of whether the current number of headquarters, flag-officers and commands were necessary could trigger a struggle with groups that have major clout in Congress.
Jacques Gansler, who served as the Pentagon’s chief weapons buyer from 1997 until 2001, said Gates’ biggest hurdle may be winning over members of Congress who are liable to say: “‘We all want to make savings but not in my district.'”
Gansler said the secretary’s goal of saving 3 percent was doable through efficiencies such as greater competition for contracts, streamlining computer systems and easing requirements that half of all maintenance work on U.S. weapons systems be done at U.S. government depots.
“We’ll get this done,” Gates said, promising to spearhead a review to reduce wasteful spending and slash bureaucratic overhead. But it is unclear how long Gates will remain in the job to follow through on what he acknowledged would be a “long-term process.”
Gates already has angered some vested interests by persuading Congress to cut, kill or limit a number of big-ticket military programs, including Lockheed Martin Corp’s premier F-22 fighter. On Monday, he again questioned the need for a projected $13.2 billion landing-craft program for the Marine Corps. The so-called Expeditionary Fighting Vehicle is to be built by General Dynamics.
Story here.
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Greek Debt Woes Ripple Outward, From Asia to U.S.
May 8, 2010
By NELSON D. SCHWARTZ and ERIC DASH
The fear that began in Athens, raced through Europe and finally shook the stock market in the United States is now affecting the broader global economy, from the ability of Asian corporations to raise money to the outlook for money-market funds where American savers park their cash.
What was once a local worry about the debt burden of one of Europe’s smallest economies has quickly gone global. Already, jittery investors have forced Brazil to scale back bond sales as interest rates soared and caused currencies in Asia like the Korean won to weaken. Ten companies around the world that had planned to issue stock delayed their offerings, the most in a single week since October 2008.
The increased global anxiety threatens to slow the recovery in the United States, where job growth has finally picked up after the deepest recession since the Great Depression. It could also inhibit consumer spending as stock portfolios shrink and loans are harder to come by.
“It’s not just a European problem, it’s the U.S., Japan and the U.K. right now,” said Ian Kelson, a bond fund manager in London with T. Rowe Price. “It’s across the board.”
The crisis is so perilous for Europe that the leaders of the 16 countries that use the euro worked into the early morning Saturday on a proposal to create a so-called stabilization mechanism intended to reassure the markets. On Sunday, finance ministers from all 27 European Union states are expected to gather in Brussels to discuss and possibly approve the proposal.
The mechanism would probably be a way for the states to guarantee loans taken out by the European Commission, the bloc’s executive body, to support ailing economies. European leaders including the French president, Nicolas Sarkozy, said Saturday morning that the union should be ready to activate the mechanism by Monday morning if needed.
In Spain Saturday, Vice President Joseph R. Biden Jr. underscored the importance of the issue after meeting with Prime Minister José Luis Rodríguez Zapatero. “We agreed on the importance of a resolute European action to strengthen the European economy and to build confidence in the markets,” Mr. Biden said. “And I conveyed the support of the United States of America toward those efforts.”
Beyond Europe, the crisis has sent waves of fear through global stock exchanges.
A decade ago, it took more than a year for the chain reaction that began with the devaluation of the Thai currency to spread beyond Asia to Russia, which defaulted on its debt, and eventually caused the near-collapse of a giant American hedge fund, Long-Term Capital Management.
This crisis, by contrast, seemed to ricochet from country to country in seconds, as traders simultaneously abandoned everything from Portuguese bonds to American blue chips. On Wall Street on Thursday afternoon, televised images of rioting in Athens to protest austerity measures only amplified the anxiety as the stock market briefly plunged nearly 1,000 points.
“Up until last week there was this confidence that nothing could upset the apple cart as long as the economy and jobs growth was positive,” said William H. Gross, managing director of Pimco, the bond manager. “Now, fear is back in play.”
While the immediate causes for worry are Greece’s ballooning budget deficit and the risk that other fragile countries like Spain and Portugal might default, the turmoil also exposed deeper fears that government borrowing in bigger nations like Britain, Germany and even the United States is unsustainable.
“Greece may just be an early warning signal,” said Byron Wien, a prominent Wall Street strategist who is vice chairman of Blackstone Advisory Partners. “The U.S. is a long way from being where Greece is, but the developed world has been living beyond its means and is now being called to account.”
If the anxiety spreads, American banks could return to the posture they adopted after the collapse of Lehman Brothers in the fall of 2008, when they cut back sharply on mortgages, auto financing, credit card lending and small business loans. That could stymie job growth and halt the recovery now gaining traction.
Some American companies are facing higher costs to finance their debt, while big exporters are seeing their edge over European rivals shrink as the dollar strengthens. Riskier assets, like stocks, are suddenly out of favor, while cash has streamed into the safest of all investments, gold.
Just as Greece is being forced to pay more to borrow, more risky American companies are being forced to pay up, too. Some issuers of new junk bonds in the consumer sector are likely to have to pay roughly 9 percent on new bonds, up from about 8.5 percent before this week’s volatility, said Kevin Cassidy, senior credit officer with Moody’s.
To be sure, not all of the consequences are negative. Though the situation is perilous for Europe, the United States economy does still enjoy some favorable tailwinds. Interest rates have dropped, benefiting homebuyers seeking mortgages and other borrowers. New data released Friday showed the economy added 290,000 jobs in April, the best monthly showing in four years.
Further, crude oil prices fell last week on fears of a slowdown, which should bring lower prices at the pump within weeks. Meanwhile, the dollar gained ground against the euro, reaching its highest level in 14 months.
While that makes European vacations more affordable for American tourists and could improve the fortunes of European companies, it could hurt profits at their American rivals. A stronger dollar makes American goods less affordable for buyers overseas, a one-two punch for American exporters if Europe falls back into recession. Excluding oil, the 16 countries that make up the euro zone buy about 14 percent of American exports.
For the largest American companies, which have benefited from the weak dollar in recent years, the pain could be more acute. More than a quarter of the profits of companies in the Standard & Poor’s 500-stock index come from abroad, with Europe forming the largest component, according to Tobias Levkovich, Citigroup’s chief United States equity strategist. All this could mean the difference between an economy that grows fast enough to bring down unemployment, and one that is more stagnant.
The direct exposure of American banks to Greece is small, but below the surface, there are signs of other fissures. Even the strongest banks in Germany and France have heavy exposure to more troubled economies on the periphery of the Continent, and these big banks in turn are closely intertwined with their American counterparts.
Over all, United States banks have $3.6 trillion in exposure to European banks, according to the Bank for International Settlements. That includes more than a trillion dollars in loans to France and Germany, and nearly $200 billion to Spain.
What is more, American money-market investors are already feeling nervous about hundreds of billions of dollars in short-term loans to big European banks and other financial institutions. “Apparently systemic risk is still alive and well,” wrote Alex Roever, a J.P. Morgan credit analyst in a research note published Friday. With so much uncertainty about Europe and the euro, managers of these ultra-safe investment vehicles are demanding that European borrowers pay higher rates.
These funds provide the lifeblood of the international banking system. If worries about the safety of European banks intensify, they could push up their borrowing costs and push down the value of more than $500 billion in short-term debt held by American money-market funds.
Uncertainty about the stability of assets in money market funds signaled a tipping point that accelerated the downward spiral of the credit crisis in 2008, and ultimately prompted banks to briefly halt lending to one other.
Now, as Europe teeters, the dangers to the American economy — and the broader financial system — are becoming increasingly evident. “It seems like only yesterday that European policy makers were gleefully watching the U.S. get its economic comeuppance, not appreciating the massive tidal wave coming at them across the Atlantic,” said Kenneth Rogoff, a Harvard professor of international finance who also served as the chief economist of the International Monetary Fund. “We should not make the same mistake.”
Story here.
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Factbox: A look at costs of Afghan war to U.S. taxpayers
Mon May 10, 2010
WASHINGTON (Reuters) – President Barack Obama’s request in February for more money to pay for the war in Afghanistan is still snarled in Congress as lawmakers work on other priorities and deal with scarce budget resources.
Barack Obama
When Afghan President Hamid Karzai meets lawmakers this week as part of his four-day trip to Washington, they will want reassurances from him that he is committed to tackling corruption and ensuring U.S. taxpayer funds are not wasted.
Obama has asked for $33 billion more to help fund 30,000 extra U.S. soldiers being sent to Afghanistan this year. He wants $4.5 billion more for beefed-up foreign aid and civilian operations in Iraq and Afghanistan this year; about $2 billion of that amount is dedicated to Afghanistan.
Congress is expected to approve the new money but appears to be in no hurry. Following are the costs to U.S. taxpayers so far, as well as some of the future funding needed.
COSTS SO FAR
Congress has approved $345 billion so far for the war in Afghanistan, where the United States invaded to fight al Qaeda and topple the Taliban after the September 11 attacks in 2001. This figure is from the nonpartisan Congressional Budget Office, which says that about $22 billion has gone for Afghan-war-related activities in other countries.
COMPARISON WITH IRAQ
About twice as much money — $708 billion — has gone to the war in Iraq so far, CBO says.
But Afghanistan is becoming the more expensive battleground, as the pace of U.S. military operations slows in Iraq and quickens in Afghanistan.
The current fiscal year, which ends September 30, is the first year that more money has been allocated to Afghanistan ($72.3 billion) than Iraq ($64.5 billion), according to the National Priorities Project, a nonpartisan budget research group that examines congressional appropriations.
MONEY FOR AFGHANISTAN’S MILITARY AND POLICE FORCES
Included in the money spent on Afghanistan so far is more than $25 billion for training and equipping the Afghan National Security Forces — the army and police, according to the Special Inspector General for Afghanistan Reconstruction. Obama wants another $14.2 billion for this purpose for the rest of this year and next; the idea is to leave behind security forces that can take on the responsibility of fighting the Taliban as U.S. forces start to leave.
FUTURE MILITARY COSTS
Future expenses are a question mark, partly because troop levels are uncertain. Obama says he wants to start withdrawing forces from Afghanistan in mid-2011, but that will depend, in part, on conditions on the ground. No departure deadline has been set.
Estimates of the cost per troop per year in Afghanistan vary from $500,000 to $1 million depending on whether expenditures on troop housing and equipment are included along with pay, food and fuel. Medical costs for the injured and veterans’ compensation balloon as time goes on.
FOREIGN AID AND CIVILIAN SURGE
Foreign aid, including food and development assistance, to Afghanistan has totaled some $17 billion since 2002, according to Department of State and Congressional Research Service documents.
But future expenses in this area are also a question mark that is expected to linger after the military one. “As President Obama made clear, our civilian engagement in Afghanistan and Pakistan will endure long after our combat troops come home,” the State Department said in its justification for its supplemental budget request this year.
That request includes $2 billion in 2010 to help fund a “civilian stabilization strategy” to deliver more economic assistance to Afghanistan, especially in its agricultural sector. Part of the idea is to create jobs that will draw insurgents off the battlefield in Afghanistan.
Story here.