Anyone who supports increased US military spending is greedy, ignorant, or advocating the economic sabotage of the United States. Since most Americans are ignorant of economic realities, this chart of discretionary spending explains why military spending must be slashed unless taxes are dramatically raised. The other category of federal spending is mandatory spending, money that is spent in compliance with existing laws that govern the particular program or function, like: Social Security, Medicare, Medicaid, Food Stamps, Federal Retirement, and interest payments on the national debt. The "National Defense" category accounts for 51% of all discretionary spending, and that excludes the Veterans Administration which was spun out of this category during the Reagan years, and ignores the $87 billion in planned "Terrorism Spending"; which is not counted as spending by Presidential decree.
An August 2003 Congressional Budget Office estimate put the FY2004 deficit at $480 billion. This estimate did not include the recent request for $87 billion to occupy and rebuild Iraq and Afghanistan next year, boosting the projected deficit to $567 billion. However, this total does not include costs for the recently passed prescription drug benefit for the elderly. It does not include the billions of dollars needed to bail out pension funds of failing corporations, nor the annual supplemental spending Congress adds each year for "emergencies". Tax revenues remain flat as the USA remains in the longest economic slump since the Great Depression of the 1930s while interest rates have begun to rise. This has caused the interest on Treasury bonds to rise, which will add several billion more in interest payments. Nevertheless, the Bush Administration is pushing for another increase in military spending after a 17% rise this year (excluding costs in Iraq and Afghanistan). When these factors are included, next years' budget deficit is likely to exceed $600 billion. It will actually exceed $800 billion if the $200 billion borrowed from the Social Security Trust fund is counted as debt.
This deficit is so reckless that the International Monetary Fund (IMF) recently scolded the United States for fiscal irresponsibility, criticism normally directed at Third World regimes. Last February, a US Department of Treasury report said that income taxes must be raised 66% to balance the budget, yet no one took notice. Few Americans are concerned because corporate cheerleaders like Larry Kudlow at MSNBC and the young models at Fox News tell them everything is great. Many Americans think budget problems can be solved by just cutting welfare and foreign aid. However, if Congress eliminated all federal welfare programs, the military budget would still have to be cut to balance the budget. In reality, the Bush administration and the Republican controlled Congress have increased social spending much faster than during the Clinton era.
While the rest of government can be trimmed, it is obvious that at least $100 billion must be cut from annual military budgets to help save the nation from hyperinflation or bankruptcy. This is not unreasonable since the annual military budget has grown by over $100 billion the past three years; a figure which does not include war costs in the Middle East. In addition, other federal government spending must be slashed, and Congress should scrutinized the outrageous request for $87 billion for colonial adventures in the Middle East; which is several times the annual GDP of both Iraq and Afghanistan. Another $55 billion will be requested early next year unless a fantasy plan succeeds in collecting that much from foreign contributions for the "war on terror." The entire world is perplexed as to why the US Government has asked them for funds and troops to rebuild Iraq after the USA defied the United Nations and international law to conduct an unprovoked bombing campaign and ground invasion.
A recent US Census report revealed that median household income has declined 3.4 percent between 1999 and 2002 and continues to fall while GDP "activity" rises, but only matching population growth. Keep in mind that GDP is not a measurement of wealth, but an indicator of activity. So when the federal government borrows and spends an extra $600 billion, GDP does rise, just like credit cards allow people to increase spending. However, none of this money is directed at improving America's productive private sector, and all of this money must be repaid with interest. In contrast, government spending diverts resources and skilled manpower away from America's economic engine. For example, some 200,000 military reservists have been diverted from productive tax paying employment in the private sector to tax absorbing work in the military.
Those in the rapidly growing government sector may feel immune to a faltering economy, yet they should remember that their pay and retirement benefits depend on a healthy economy to generate taxes. Federal workers and military personnel should be alarmed that 27 cents of each dollar they are paid next year was borrowed. Politicians tell the public that this year's deficit is not as bad as the worst year of Reagan's borrow and spend spree in 1983, as a percentage of GDP. However, the nation had just $1 trillion in debt and did not have to allot $323 billion for interest payments in 1983, and there was outrage in Congress which forced mandatory cuts like the unpopular "Gramm-Rudman". In contrast, the budget deficit will be much worse next year and there are no plans to cut anything, just more spending. What is truly alarming is the speed this deficit has grown, from a surplus when Bush took office to a record deficit three years later.
The only thing keeping the nation afloat is a huge trade deficit which pumps a half trillion in surplus dollars overseas, which is used to buy US treasury bonds. China/Hong Kong have $469 billion in foreign currency reserves (mostly US dollars), and lent the poor USA $41 billion last year through the purchase of US treasury bonds. China spent nearly as much on US treasury bonds as it did on its military last year, and billions of US tax dollars now flow to China as interest payments. The USA will waste $323 billion for interest in FY2004 on a $6.7 trillion national debt which will grow by another $600 billion next year. This represents a birth tax invented by the "greatest generation" that must be paid by all future generations. Since political leaders ignore this looming disaster, the USA cannot avoid hyperinflation when Asian nations decide to unload their dollars and shed what Gore Vidal calls: "The Yellow Man's Burden." Ironically, the USA has pledged to spend an additional $14 billion to improve defenses in South Korea, money it must borrow, while South Korea sits on a hoard of $133 billion US dollars.
Inflation has begun to rise in the USA, and may prove impossible to stop from doubling each year even if political leaders grow a backbone and raise taxes or slash spending. This is because the Clinton Administration lowered the budget deficit by introducing Treasury Inflation-Indexed Securities which promise buyers of US Government debt their investment will not be decimated by inflation. However, this means that each time inflation rises by 1%, the federal government eventually owes another $67 billion in interest each year. Unless the US government can find buyers for this exploding debt, the Federal Reserve must "print" money, causing inflation to rise further. So a moderate inflation rate of 8% will result in another $335 billion that must be borrowed to make annual interest payments. Buying US Treasury bonds will become risky even with the inflation guarantee, so rates will soar, or the Federal Reserve will print money and "buy" them, which in turn will push inflation even higher.
All this assumes there is no panic in which a trillion dollars overseas are dumped on the world market for safe currency and precious metals. Hyperinflation has destroyed hundreds of foreign economies throughout history. Even the brilliant and frugal Germans ended up shopping with wheelbarrows full of cash in the 1920s. More recently, the Soviet Union's economy collapsed from overspending by a centralized government focused on the production of weaponry and foreign adventures. Unless the US Congress and the President quickly cut spending or raise taxes, the automatic inflation tax will rise quickly; and 50% or 100% annual inflation is possible. This will continue until Congress takes serious action, probably by limiting spending increases to a point where pay, pensions and the Pentagon's budget falls to half of today's value. The Auerbach Report contains more background on this probable catastrophe.
Nevertheless, some people insist the Pentagon budget deserves to grow to 5% of GDP, which was the average during the Cold War. First, this assumes that protecting the USA from a few hundred nomadic terrorists costs more than preparing for total nuclear war with the Soviet Union. Second, the amount spent on "National Defense" is much greater than just Department of Defense funding. Most funding for the Department of Energy is for building and storing nuclear weapons, while money spent on veterans is no longer counted, and neither are the tens of billions of dollars in annual "supplemental" spending for the Pentagon. In addition, the soaring annual interest on the national debt represents 2% of GDP, and the Pentagon's budget does not share that cost. Finally, at least 10% of GDP is artificial, fueled by foreign lending in the form of bond purchases and trade credits, which cannot continue much longer.
The biggest threat to the national security of the United States is exploding debt which will lead to hyperinflation. If Americans truly care about US servicemen, they should demand higher taxes or reduced military spending to ensure that GIs receive the retirement benefits they expect. Its well past time for American military leaders to rein in plans for bigger budgets and eliminate some programs. Billions of dollars are wasted each year on future military programs when it is obvious there will never be enough money to produce all that equipment. Is it possible that military leaders in the United States can overcome their inbred service loyalty and do something patriotic? They should tell their President that unless taxes are raised, cutting military spending is advisable until the overall budget situation improves. Since the USA spends seven times more on its military than any other nation, a $100 billion a year cut will still allow the USA to spend five times more than anyone else. Even as a percentage of GDP, military spending by the USA is more than twice that of most modern nations around the globe. So why is it unthinkable to slash military spending to help save the nation from collapse?
Carlton Meyer editorG2mil@Gmail.com
G2mil editorials may be freely distributed without permission
October 2003 Articles
have been returned to the Members Library
Letters - comments from G2mil readers
US Army Infantry Was Better in 1919 - progress is nil
Astrobots - virtual reality astronauts
Unify ROTC - combine the three ROTC programs
Reserve Urban Infantry - a 2001 G2mil article even more valid today
How Do We Win? - retired General Anthony Zinni on Iraq
Convoy Escort in Guerilla Country - the Soviet experience
Overpaying the Pentagon - spend, spend, spend
40mm Multiple Grenade Launcher - what the US military needs
Massive Media Contractor - how SAIC insiders run things
We Cannot Afford Iraq - a real conservative congressman not allowed on TV
Imperial Muddle - a short history of modern Iraq
On the Ground With US Troops in Iraq - a first hand account
Why Bush Won't Be Reelected - rebuild America instead
Previous G2mil - September 2003 issue
Past Editorials - by Carlton Meyer
2005 Base Closures - Bolling AFB added
Library Tour - visit G2mil's library
Library Entrance - members only
All material in G2mil Copyright 2003 G2mil, patents pending on some items. Links to www.G2mil.com are encouraged.