Partial Sequestration
Jan 15, 2014

On 10 December 2013, two members of the bicameral legislature of the U.S. government, Democrat Senator Patty Murray and Republican Congressman Paul Ryan, announced that a political agreement had been reached that would restore nearly $31 billion in funding to the Department of Defense (DoD) in 2014 and 2015. The resulting Bipartisan Budget Act included a provision to lessen, but not eliminate, the $1.1-trillion reduction in federal spending between 2013 and 2022 known as “sequestration.”

U.S. Navy Commander Bill Urban, a spokesman for the Pentagon, told FrontLine Defence that as things legally stand now, sequestration will be back in full force in 2016 due to the Budget Control Act (BCA) of 2011. He also reiterated the recent comment by Secretary of Defense Chuck Hagel: “Will there be [DoD] cuts across the board? Of course there will. You can’t do it any other way… But you must preserve readiness and modernization, and the capability and capacity to do the job of protecting this country within the framework of the resources you have.”

In Kentucky last July, Hagel told a Veterans of Foreign Wars audience that: “To implement the steep and abrupt reductions that have been required under sequestration, we’ve had to make very difficult decisions to reduce, stop and defer many activities and programs that keep our military prepared to fight – including training, maintenance, and modernization investments. Readiness cuts aren’t always visible, but these cuts are having and will continue to have very damaging effects.”

Worsening debt woes
The BCA 2011 was created, in part, to keep the U.S. government from defaulting on its $14.5-trillion debt, which has since swelled to $17.2 trillion (Congress passed legislation to allow the debt ceiling to rise). By comparison, the value of the American econ­omy in 2013 was $15.8 trillion.

This massive expansion of federal debt ($11.3 trillion during the past dozen years) has put the United States on a strategically imprudent, if not dangerous, course. In early February, the Congressional Budget Office (CBO) issued its latest report on the American economy and the state of federal finances, including projected deficits. Summary Table 1, “CBO’s Baseline Budget Projections”, showed that between Fiscal Year 2014, which began October 1, and FY2024, the Treasury will need to borrow $8.418 trillion to pay the government’s bills.

According to CBO and Treasury data, by the end of FY2025 the U.S. national debt will surpass $25 trillion. The CBO report also revealed that from FY2022 onward, deficits would top $1 trillion, unless Congress raises taxes and/or reduces spending. On the calculated borrowing trajectory, by mid-century the U.S. government will owe at least $62 trillion.

Critically, the Treasury will have to offer higher interest rates to reward lenders for taking on greater financial risk, which will drive up federal borrowing costs. The CBO document said the debt-servicing expense is expected to “grow rapidly”, from $221 billion in FY2014 to $880 billion in FY2024 (and eclipsing the DoD’s budget by $200+ billion annually within a decade).

The size of government deficits is determined by the amount of collected taxes relative to spending, with tax revenues influenced by the health of economies. Since 2009, the CBO and the White House’s Office of Management and Budget have projected deficits based on the very rosy assumption that the U.S. economy will continue to grow uninterrupted for at least another decade. However, an examination of U.S. cycles of economic growth and contraction reveals that the likelihood of no recession prior to 2020 is almost nil.

U.S. Federal Debt
In August, the Associated Press reported that David Walker, the U.S. Comptroller General and head of the Government Accountability Office from 1998 to 2008, and later the CEO of the Peter G. Petersen Foundation and Comeback America Initiative, warned that while the federal government “estimates the national debt at about $17 trillion… it’s closer to $73 trillion, once all the unfunded promises for future Social Security benefits and other obligations are added in.”

The report also said that Walker envisions a “bleak future if the U.S. doesn’t stem the financial sinkhole: painful inflation, larger gaps between the rich and the poor, even threats to national security.” His assessment last summer of the federal fiscal situation updated what he told CNN seven years ago: “We’re underwater to the tune of $50 trillion, and that number is going up three to four trillion a year on autopilot.”

In September 2011, Admiral Mike Mullen, then-Chairman of the U.S. Joint Chiefs of Staff, told a Business Executives for National Security group in Washington, D.C.: “I’ve said many times that I believe the single, biggest threat to our national security is our debt.” Since then, the Treasury has borrowed more than $2.5 trillion.

Huge war-related costs
Last year, the Costs of War Project by the Watson Institute for International Studies at Brown University in Rhode Island published a report on the armed conflict in Iraq involving American forces. Thirty-four experts provided input to the study, which noted: “Total US federal spending associated with the Iraq war has been $1.7 trillion through FY2013. In addition, future health and disability payments for veterans will total $590 billion and interest accrued to pay for the war will add up to $3.9 trillion.”

Linda Bilmes, a public policy professor at Harvard University, wrote in her March 2013 report, The Financial Legacy of Iraq and Afghanistan: How Wartime Spending Decisions Will Constrain Future National Security Budgets: “The Iraq and Afghanistan conflicts, taken together, will be the most expensive wars in U.S. history – totaling somewhere between $4 to $6 trillion. This includes long-term medical care and disability compensation for service members, veterans and families, military replenishment and social and economic costs. The largest portion of that bill is yet to be paid.”

Frowning on deployments
In February 2011, then Secretary of Defense Robert Gates, during a speech to army cadets at West Point, said: “In my opinion, any future defense secretary who advises the president to again send a big American land army into Asia or into the Middle East or Africa should ‘have his head examined,’ as General MacArthur so delicately put it.”

Gates also said that the DoD and the rest of the U.S. government should focus on developing capabilities that can “prevent festering problems from growing into full-blown crises which require costly – and controversial – large-scale American military intervention.”

Cocking the gun, but no trigger action
Eighteen months after Gates’ address, President Obama told reporters at the White House: “We have been very clear to the Assad regime [in Syria], but also to other players on the ground, that a red line for us is when we start seeing a whole bunch of chemical weapons moving around or being utilized. That would change my calculus.”

American warships equipped with cruise missiles were subsequently deployed to the eastern Mediterranean, but none of the pilotless weapons were launched against Syrian government targets.

By August 2013, U.S. and British intelligence agencies had concluded that the Assad regime had indeed crossed the “red line” by using chemical weapons to kill ­Syrians, including hundreds of civilians, at least 15 times since 2012. Also, the United Nations and human rights groups have reported on the Syrian conflict’s horrors, including “countless killings, maiming and torture” of 10,000-plus children by “the Government and allied militia”, quoting a U.N. study released in February.

Although the U.S. military certainly has the firepower to pound Syria’s armed forces, the Obama Administration has shied away from such muscular intervention because of realpolitik. Specifically, the United States cannot afford to participate in a war that might not be won quickly. According to the CBO, the government requires loans of nearly $10 billion per week this fiscal year and will borrow an average of $15.2 billion weekly between FY2015 and FY2024 alone. The projected extra debt is equal to the cost of almost one million M1 Abrams battle tanks (the combined fleet of the U.S. Army and Marine Corps is about 8,800 machines).

In a September 2008 op-ed in The Observer, a leading British newspaper, former London School of Economics professor John Gray wrote: “Our gaze might be on the markets melting down, but the upheaval we are experiencing is more than a financial crisis, however large. Here is a historic geopolitical shift in which the balance of power in the world is being altered irrevocably. The era of American global leadership, reaching back to the Second World War, is over.”
As the U.S. federal debt swells, the ability of Washington to use America’s armed forces to “prevent festering problems from growing into full-blown crises” will be increasingly constrained. Canada and other allies of the United States should prepare accordingly.
Monitoring the sequestration situation would also be prudent, considering that its effects could again be “very damaging” to the American military.

Blair Watson is a financial analyst and contributing editor at FrontLine magazine.
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