The Weakening American Colossus
May 15, 2012

As the 21st century began, the United States was the world’s sole superpower – an economic and military colossus at the peak of its potency. Between the end of the Second World War and 2007, the U.S. economy grew at an average of $207 billion per year, equal to the cost of two dozen nuclear-powered aircraft carriers today. After the U.S. military left Vietnam (1973-1975), the next four administrations (Carter to Clinton) kept the nation from getting bogged down in any prolonged, resource-draining war. By 2000, U.S. federal finances were in good shape and improving as the ­manageable national debt continued to be paid down. Lamentably, all that has changed for the worse during the past dozen years.

Today, with a federal debt of $15.7 trillion ($10 trillion more than a decade ago), and the Treasury ­borrowing $28.4 billion weekly (enough to buy 208 F-35 Joint Strike Fighters or 2,700 M1A2 Abrams tanks) the U.S. government is technically bankrupt and sinking ever deeper into its debt abyss.
Over the next decade alone, its projected borrowing requirement is between $1.7 and $3.6 billion daily.

These grim facts and what lies ahead will negatively impact the USA for at least the rest of this century – and Canada and her armed forces, by extension.

Ultra-Expensive Wars
In June 2011, a group of 20 American economists, political scientists, and other experts at Brown University, Rhode Island, released a report about the total estimated cost of U.S. wars since 9/11. Their report included these findings:

  • The wars will cost $3.2 to $4 trillion, including medical care and disability for current and future veterans. This figure does not include substantial probable future interest on war-related debt. In early 2003, the Bush Jr. Administration said the cost of the Iraq War would be $50-$60 billion. When the last American forces left Iraq in December 2011, the bill had surpassed $805 billion, not including war debt servicing and veteran healthcare expenses.
  • U.S. wars have been financed almost entirely with borrowed cash. $185B in interest has already been paid on war spending, and another $1 trillion could accrue in interest alone through 2020.
  • Federal obligations to care for past and future veterans of the post-9/11 wars will likely total $600-$950 billion. This number is not included in most analyses of the costs of war and will not peak until mid-century.

‘Inconvenient’ Truths
Under the headline “U.S. funding for future promises lags by trillions”, a USA Today report in June 2011 said: “The [U.S.] government added $5.3 trillion in new financial obligations in 2010, largely for retirement programs such as Medicare and Social Security. That brings to a record $61.6 trillion the total of financial promises not paid for.” The fiscal situation has deteriorated sig­nificantly since March 2007, when U.S. Comptroller General David Walker told CNN: “We’re underwater to the tune of $50 trillion, and that number is going up three to four trillion a year on autopilot.”

In December 2009, “Trillions of Troubles Ahead” – a financial article published on – reported that U.S. government (all levels), corporate, and household debt totalled $82 trillion, five and a half times the value of the U.S. economy.

On April 21, 2012, the Washington Post reported that the International Monetary Fund had determined that “the United States and Europe face several years of ­economic pain to become competitive in a global economy where growth and financial clout are shifting to Asia and other emerging nations.”

Because the U.S. and Europe are Canada’s largest trading partners by far, the effects of “economic pain” south of the border and across the Atlantic will be felt in this country for the foreseeable future – with undesirable effects on Ottawa’s revenues.

Due to the U.S. government’s grave debt situation, Defense Department spending cuts of $487 billion over a decade began this year, and a further $500 billion in cuts – “sequestration” – for 2013 to 2022 are currently federal law. If left unchanged, America’s armed forces will shrink to the smallest size in nearly a century.

$16T in Secret Loans
In July 2011, Senator Bernie Sanders of ­Vermont dropped a bombshell via his website: “The first top-to-bottom audit of the Federal Reserve uncovered eye-popping new details about how the U.S. provided a whopping $16 trillion in secret loans to bail out American and foreign banks and businesses during the worst economic crisis since the Great Depression.” An amendment by Sanders to the Wall Street reform law of 2010 directed the U.S. Government Accountability Office to conduct the study.

“As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world,” said Sanders. “This is a clear case of socialism for the rich, and rugged, you’re-on-your-own individualism for everyone else.”

Where did the $16 trillion come from, and what if one or more of the financial institutions cannot repay? Nobody in Washington, not even Sanders, has said anything publicly about the secret loans or possible related scenarios since July of last year. Strangely, no major American news organization reported on the astonishing finding by the Government Accountability Office in its report, GAO-11-696 (it’s online).

Connecting the Dots to DND and CF Cuts
“Canadian Forces to close recruiting centres as part of budget cuts,” was a Postmedia News headline in April. The report explained that 10 recruiting centres across the country will be eliminated, 68 professors, assistant professors and other teaching staff at the Royal Military College and the Canadian Forces College “have been put on a list of ‘potentially affected employees’ who could see their jobs disappear”, and “senior defence officials sent a message to all employees [on April 4] confirming that 900 jobs are on the line.”

The number of Class-B reservists (part-time soldiers who have been called in to fill full-time jobs) will be reduced to 4,500 by the spring of 2014. There are now around 8,700 reservists in such roles, say military personnel.

Embassy Magazine also reported in April that military spending cuts in the Conservatives’ March 29 budget “pushes back $3.5 billion in defence procurement spending over seven years.” Two weeks later, a National Post report said “the Canadian Forces will get rid of its air defence equipment, shut down military housing in Toronto, Vancouver and Winnipeg, and cut back on army training … Pilots will also fly less, security units made up of reservists who guard ports will be disbanded, and buildings will be closed in Moncton, N.B.”

Reportedly, the CF will get rid of its TOW 2 missiles and launchers (the $100-million acquisition was approved by the Harper government three years ago), and Special Forces training will also be reduced.

Why the layoffs and other cuts? Because the government has to come up with $10 billion – about half of the military’s budget – of extra cash each year for the foreseeable future. For what? To pay for the increase in the annual federal debt servicing bill. Why is it increasing so much? Because the debt is being expanded by one-third or $164 billion, according to Finance Minister Jim Flaherty’s last few budgets. Why such an expansion of the federal debt? Three main reasons:

  1. The GST was reduced significantly (29%) by the Harper government during its first two years in office and left low despite warnings from economists and financial experts that the previous federal surplus would disappear in an economic downturn and a return to deficit-spending would be required.
  2. The “Great” Recession in the U.S. and other countries hit Canada between 2008 and 2010. The large economic contraction was caused by the $14.4-trillion financial catastrophe triggered by the implosion of the American subprime credit “bubble.” This unprecedented boom-and-bust event had been predicted by industry watchers ­several months before it occurred. Imprudent deregulation of the U.S. financial industry – driven by greed, and facilitated by American politicians swayed by lobbyists – allowed the “bubble” to form and grow for years until its inevitable collapse.
  3. Hedging, a proven revenue protection strategy, was not utilized by Ottawa to protect federal coffers from the inescapable effects of the U.S.-caused financial crisis and economic mauling that wiped out an estimated 31 million jobs worldwide, including nearly half a million Canadian jobs.

More Bad News
According to White House and U.S. ­Congressional Budget Office documents, between FY2012 and FY2022 alone, another $7.7 trillion will be borrowed by the federal government. The trend line shows Washington’s deficits back above $1 trillion by the mid-2020s.

Online U.S. Treasury data points to another debt ceiling crisis emerging by early November 2012. The crisis last year resulted in funding for America’s armed forces being reduced by an extra $37B; the U.S. Department of Defense (DoD) is currently implementing $487 billion in cuts over a decade. However, as things legally stand now, sequestration, an extra $500 billion chopped from DoD budgets for 2013 to 2022 will come into effect in January.

The DoD’s leadership has said programs such as the F-35 are at risk unless sequestration is rolled back. Senator John McCain and his allies want to do so, but it is uncertain at this point whether they will be successful, even partly. Tax-hating Tea Partiers and far-right-wing elements of the Republican Party want federal spending chopped more and have signalled, as they did last year, that the military is not to be spared. Throw the next debt ceiling crisis into the political mix and the extent to which military funding will be further reduced in exchange for a new law allowing the current U.S. debt ceiling of $16.4 trillion to rise is anyone’s guess.

In November, McCain summed up the situation: “The end result of these cuts after ten years would be [according to U.S. Defense Secretary Leon Panetta] the smallest ground force since 1940, the smallest number of ships since 1915, and the smallest Air Force in its history … the United States would face [the] substantial risk of not being able to meet our defense needs. The consequence of a sequester on the Defense Department would set off a swift decline of the United States as the world’s leading military power.”

And Canada’s military would be affected accordingly.

Blair Watson is a contributing editor at FrontLine Defence.
© FrontLine Defence 2012