Record US deficit makes reduction target unlikely

**Parihaka** · 26 Jan 05,, 21:53

http://www.isn.ethz.ch/news/sw/details.cfm?id=10643

Record US deficit makes reduction target unlikely
ISN SECURITY WATCH (26/01/05) - The US federal budget deficit will amount to US$427 billion in 2005, an all time record. The director of the Congressional Budget Office (CBO), Douglas Holtz-Eakin, was pessimistic about the ability of the administration of George Bush to meet its goal of cutting the deficit in half by 2009 from last year's level of US$412 billion to US$207 billion, and said deficits over the next decade would likely total US$1.36 trillion. The CBO projected that the government would rack up another US$855 billion in debt between 2006 and 2015, but Holtz-Eakin cautioned that that figure was almost certainly an underestimate since it assumes no additional money would be spent in Iraq or Afghanistan. As President Bush has just requested an additional US$80 billion from Congress for the wars in Iraq and Afghanistan, and the fighting continues in both countries, it is a foregone conclusion that more funds will be requested in the coming years. That forecast is also flawed because by law the CBO had to assume Bush's first-term tax cuts would expire after 2010, changing the government's balance sheet from a US$189-billion deficit that year to a US$71-billion surplus is 2012. Bush campaigned on a platform calling for those tax cuts to be made permanent and has repeatedly stated that that is one of his main goals during his second term as president. The CBO forecast also excluded the cost of Bush's promised overhaul of Social Security, which could add an additional US$1 trillion to US$2 trillion over the next decade. Even with those omissions, the CBO projected that Bush would miss his goal of cutting the deficit in half by 2009. According to the CBO, even if there were a phase-out of activities in Iraq and Afghanistan and war spending would declines steadily over the next five years, the deficit would still jump to US$266 billion in 2009, rather than meeting the target US$207 billion. If tax cuts set to expire before then are extended, then the deficit would jump to US$315 billion. At the same time, if Congress revamps the alternative minimum tax, a tax designed to catch the affluent but increasingly hitting the middle class, the deficit would rise to US$371 billion - a figure not much lower than now. While the CBO expressed concern over the budget deficit, the UN raised concerns about the US trade deficit, which is expected to reach a record US$600 billion for 2004. The IMF joined the chorus of concern over America’s economic policies, saying that the country had amassed a debt without precedent. It calculated the current-account US deficit at US$631 billion, or 5.4 per cent of the nation's gross domestic product (GDP). Europe is also unhappy with the low US dollar. At a meeting in Paris on 24 January, the finance ministers of Germany and France complained that Europe had unjustly borne the brunt of the dollar's decline, and called for coordinated action to stop it. The dollar has fallen almost 35 per cent against the euro and 24 per cent against the Japanese yen over the last three years. Although Bush has said he supported a strong dollar, many European politicians and exporters are suspicious that the Bush administration has been perfectly content to watch the dollar sink and has done little to arrest its fall. (By Ustina Markus in Washington, DC)

**Parihaka** · 26 Jan 05,, 21:59

http://www.sipri.org/contents/milap/...ex_trends.html

Recent trends in military expenditure
World military spending in 2003 increased by about 11 per cent in real terms. This is a remarkable rate of increase, even more so given that it was preceded by an increase of 6.5 per cent in 2002. Over two years world military spending increased by 18 per cent in real terms, to reach $956 billion (in current dollars) in 2003. High-income countries account for about 75 per cent of world military spending but only 16 per cent of world population. The combined military spending of these countries was slightly higher than the aggregate foreign debt of all low-income countries and 10 times higher than their combined levels of official development assistance in 2001. While it is not possible, because of a lack of data, to make the same comparison for 2003, it is clear that these gaps have widened owing to the stark rise in world military expenditure since 2001. Thus, there is a large gap between what countries are prepared to allocate for military means to provide security and maintain their global and regional power status, on the one hand, and to alleviate poverty and promote economic development, on the other.

The main reason for the increase in world military spending is the massive increase in the United States, which accounts for almost half of the world total. After a decade of reductions in military expenditure in the period 1987–98 and moderate increases in 1998–2001, the changes in US military doctrine and strategy after the terrorist attacks of 11 September 2001 unleashed huge increases in US military spending in 2002 and 2003. Much of the rise is accounted for by the large supplementary appropriations to cover the costs of the military operations in Afghanistan and Iraq and of anti-terrorist activities. In the absence of these appropriations, US military expenditure would still show a significant increase, but at a much slower rate, and world military spending would show a rise of 4 per cent rather than 11 per cent in 2003.

While military expenditure is also rising in several other major countries, these increases are much smaller, and there is little indication that the strong increase in US military spending is resulting in an equally strong tendency for other countries to follow suit. It is difficult to assess the importance of US influence relative to more basic drivers of military spending – such as changing threat perceptions, increased global responsibilities and force projection, and the dynamics of military technology – in particular, since these factors are often strongly interlinked with the relevant countries’ relations with the USA. While all countries accept that no nation is currently able to match the USA in military power, there are other types of response that could have an impact on their military spending.

A review of military expenditure trends in seven other major spenders shows that military expenditure has risen in most years of the five-year period 1999–2003 in all seven countries. India and Japan have increased their military spending in line with their GDP growth. Apart from the two years 2001 and 2002, the same is true for China. In France and the UK, the military burden declined slightly in recent years, but in France it began to rise in 2003 and the burden is planned to increase in the UK. In Brazil and Russia, increases have exceeded the rate of GDP growth and thus involved a higher military burden.

During most of 2003, much of the focus of national military spending debates continued to be on the need to increase military spending to meet increasing dangers and risks in an increasingly complex and globalized world. However, towards the end of the year and in early 2004, there were several indications that other factors, related to the economic burden of the military sector and to ethical considerations, tended to increase in importance in several countries. In particular, the US doctrine of pre-emptive wars was being challenged on both ethical and international law grounds as well as because of the large costs and dubious successes associated with it. Thus, while US military expenditure is set to continue to grow and will continue to propel world military spending, the pace is likely to fall back somewhat in the next few years. In the longer term it is doubtful whether current levels will be economically and politically sustainable.