The U.S. military is bracing for lean years, and Secretary of Defense Robert Gates has warned that the past decade’s “gusher of defense spending” is coming to an end. But you wouldn’t necessarily know that from the House Armed Services Committee’s version of the National Defense Authorization Act for Fiscal Year 2011, passed last night.
Among other things, committee members approved a second engine for Lockheed Martin’s F-35 Joint Strike Fighter, a direct thumb in the eye to Gates, who has said he would recommend that the president veto any bill that includes a second JSF engine.
Over the past few years, Congress has approved continued work on an alternate F-35 engine, a move that would break Pratt & Whitney’s lock on the JSF engine market by funding a competing engine made by a GE/Rolls Royce team. Supporters say a second design would ultimately yield some cost savings, but that argument has failed to move Gates, who has said that things don’t need to be any more complicated than they already are for the troubled F-35 program.
Then there’s money for 30 Boeing F/A-18 Super Hornet fighters: eight more than the Department of Defense requested. Rep. Todd Akin of Missouri, who introduced the amendment, said the extra aircraft (like the one pictured here) would “help address a looming fighter shortfall for the Navy’s carrier fleet.”
So much for austerity in naval budgets. Gates, as readers will recall, has already suggested that the Navy needs to take a hard look at whether it is right-sized — and whether it needs to keep 11 carrier strike groups for the next three decades. House authorizers, however, said their $65 billion recommendation for Navy and Marine Corps procurement was aimed at “reversing the decline in the Navy battle force fleet.”
Below you will find the English version of my press release. I entitled my presentation “Spain - Finland or Argentina”. I think the reason for this should be fairly clear. Back in the early 1990s, following an uncontrolled credit boom, Finland underwent a deep depression as its GDP dropped by around 14% and unemployment rose dramatically from 3 to almost 20%. Initially the Finish government refused to recognise the severity of the situation, and the economy failed to recover. Then they took the “bull by the horns”, carried out a series of deep structural reforms and as a result the country is now widely recognised as a model of flexibility and good practice.
The other path is to do very little, live in hope, and expect the worst. This is the road to ruin and decay. The Argentine path.
The downgrade could not have come at a more dreadful moment. The EU's €750bn "shield" for eurozone debtors has halted an incipient run on Club Med banks, but it has failed to restore full confidence for the obvious reason that such a guarantee cannot plausibly be extended from Greece to Portugal and then to Spain. The sums are too large, the number of solvent creditors too reduced, the intra-EMU politics too poisonous.
Both textbook economics and experience say that slashing spending when you’re still suffering from high unemployment is a really bad idea — not only does it deepen the slump, but it does little to improve the budget outlook, because much of what governments save by spending less they lose as a weaker economy depresses tax receipts. And the O.E.C.D. predicts that high unemployment will persist for years. Nonetheless, the organization demands both that governments cancel any further plans for economic stimulus and that they begin “fiscal consolidation” next year.
Why do this? Again, to give markets something they shouldn’t want and currently don’t. Right now, investors don’t seem at all worried about the solvency of the U.S. government; the interest rates on federal bonds are near historic lows. ...
The best summary I’ve seen of all this comes from Martin Wolf..., who describes the new conventional wisdom as being that “giving the markets what we think they may want in future — even though they show little sign of insisting on it now — should be the ruling idea in policy.”
Want to hear the optimists’ case for the eurozone’s future? Austerity programmes coupled with a weak euro might just save it. The argument is that fiscal indiscipline has caused the crisis. Austerity must therefore solve it. A weak euro and a global recovery would cushion the impact of austerity. In addition, the financial guarantees and the bans on short sales would see off the speculators. End of crisis.
The optimists have not had a good crisis so far. This will not change. Here is why.
First, fiscal adjustment programmes will be necessary eventually but European governments are currently repeating their age-old mistake of cutting spending and raising taxes well before the economy has recovered. In the US there is a debate about another stimulus package to ensure the recovery does not prematurely run of out steam. The Europeans are choking off the recovery before it has even started. The premature austerity programmes will ultimately impede debt reduction, as nominal growth remains very weak.
Furthermore, Italy and Spain will both need to accompany fiscal adjustment with structural reforms. There are no such reforms on the horizon in Italy. Spain is about to decide a labour reform package. But it will almost certainly not deal with the fundamental problem of a divided and extremely inflexible labour market. Even in Germany, where domestic spending remains anaemic, the government coalition is discussing a tax increase
arkinson’s closest analogy to the new ECB headquarters may be New Delhi, where British architects envisaged their own Versailles. Each step towards the project’s completion corresponded precisely to a stage in political collapse. The British Viceroy moved into his new palace in 1929, the year in which the Indian National Congress demanded independence. As Parkinson concludes: “What was finally achieved was no more and no less a mausoleum.”
When did the ECB receive construction bids for its new headquarters? The reader who has tracked Parkinson can guess: December 2009, the month in which the Greek debt crisis exploded. The project is slated for completion in 2014, by which, if Parkinson’s insight holds, the euro will have been relegated to the museum of retired currencies.
Einhorn goes on to discuss why the US is likely to go the path of Greece with bond markets revolting against further funding requests from the US government. Just the style he uses is misleading:
I don’t believe a United States debt default is inevitable. On the other hand, I don’t see the political will to steer the country away from crisis. If we wait until the markets force action, as they have in Greece, we might find ourselves negotiating austerity programs with foreign creditors.
Why not say that historically the United States has never defaulted end of story. Why not explain how the funds that the bond markets provide to the US government under the unnecessary obsession the latter has in matching every $ of net spending with a $ of private debt – that the funds came from the government in the first place. The government just borrows its own spending back.
Why not actually educate people about how the US dollars that China holds never leave the country and come only from the US government not the Chinese government? Why not explain how the monetary system that Greece is constrained by is very different to that which the US government runs as a monopoly issuer of the currency?
That would require too much thinking and wreck his argument