Rising U.S. Weapon Costs May Force Cuts, Jonas Says
(Bloomberg.com)…Tony Capaccio, Bloomberg News, July 7, 2008
The next president will likely be forced to cut or delay U.S. weapons programs because their cost has almost doubled since 2000 to a projected $1.7 trillion, according to Pentagon Comptroller Tina Jonas.
“Some of this is just a matter of our own discipline — not changing the bells and whistles once we get going on something,”
Just who owns the U.S. national debt?
And as the cost of paying Social Security and Medicare benefits continues to rise, the national debt monster is going to be even harder to tame.
So far, the consequences of all this are hard to put your finger on. As Warren Buffett pointed out last week in his widely-read annual letter to shareholders (pdf file, page 16), a big reason we can fund our budget and trade deficits is that the U.S. is still an incredibly wealthy country with lots of stock, bonds, real estate and companies to sell. And we got that way because of the hard work of generations that come before us.
And American investors and companies also have investments in foreign countries. But as Buffett noted, last year marked the first time since 1915 that the net balance of this investment turned negative.
“Foreigners now earn more on their U.S. investments than we do on our investments abroad,” Buffett wrote to shareholders “In effect, we’ve used up our bank account and turned to our credit card. And, like everyone who gets in hock, the U.S. will now experience ‘reverse compounding’ as we pay ever-increasing amounts of interest on interest.”
The wealth gap between the U.S. and other countries — even those with huge, rapidly growing economies like China — is still big. That means our credit with the rest of the world should be good for years — if not decades — to come. But no matter how rich you are, borrowing on top of borrowing is not a great long-term financial plan.
“I believe that at some point in the future, U.S. workers and voters will find this annual ‘tribute’ (of interest payment on the debt) so onerous that there will be a severe political backlash,” Buffett wrote. “How that will play out in markets is impossible to predict – but to expect a ‘soft landing’ seems like wishful thinking.”
Observations (highlighted) on the debt from Warren Buffett caught my attention.
Iraq Study: Refugee Life Of Women, Kids Hard
(Arizona Daily Star (Tucson))…Associated Press
Women and children have been hit especially hard in Iraq’s refugee crisis, often forced to beg and in some cases turn to prostitution to provide for their families because so many men have been killed, a report said Friday.
In Iraq’s Oil Fields, Signs Of Hope Finally Are Emerging
(USA Today)…Charles Levinson
…This month, the Iraqi government expects 10 major foreign oil companies — including ExxonMobil, Shell and Chevron — to sign modest contracts that could be a first step toward bigger investments.
Post: The specter of the 1970s, Thomas P.M. Barnett on June 14, 2008
Scary bit of reporting by the Economist: the rising New Core economies look to be triggering their own inflation much like the West did to itself in the 1970s.
POST: How quickly it goes, and how long it lingers
Thomas P.M. Barnett on June 18, 2008
But here’s the chart from the Economist that spooks over time the crises seem to require longer recovery times, as in, the number of quarters til earnings at pre-crisis levels are resumed.
CNN, June 18, 2008, Rise In Fuel And Food Prices Affects Pentagon, Issue Number One (CNN), 12:00 PM
ALI VELSHI: Well, you’re going to love this story. You all probably have an idea of what you spend on gas and food every month. Hopefully it’s a simple family budget. But what if you had a food and fuel budget for your entire company? And what if that company was nearly three times the size of Wal-Mart, IBM and ExxonMobil combined? CNN’s Barbara Starr has the story.
(BEGIN VIDEOTAPE) BARBARA STARR: If you think your gas and grocery bill is high, meet Tina Jonas. She spends $15 billion a year on fuel and $3 billion a year on food.
TINA JONAS, PENTAGON CHIEF FINANCIAL OFFICER: It’s pretty hectic around here.
STARR: Jonas manages the Pentagon’s $600 billion budget.
JONAS: If we were a country on earth, we’d be about the 17th largest economy in the world.
STARR: She likes to point out that the Pentagon’s budget woes are just like everybody else’s, running out of money in a world of rising prices. The U.S. military is the single largest consumer of fuel in the country, perhaps the world — 122 million barrels a year.
JONAS: We need another $3.5 billion of fuel money just to get through the year. We’re going to need another $1 billion to finance our food bill.
STARR: And why is that?
JONAS: Well, transportation’s driving a lot of it. The cost of wheat and corn and other things have gone up.
STARR: From her desk, or what she calls her dash board, Jonas monitors everything.
JONAS: What I do for my fuel prices is, I have my — the figures that I have here tell me how short I’m going to be in the accounts that buy fuel for the departments.
STARR: So the budget around here really isn’t that different than your family budget really?
JONAS: Well, that’s right. We’re car pooling a lot at home now. Took the metro yesterday.
STARR: Seriously?
JONAS: Yes, I did. I’ve been taking it the last couple of days. My husband, he’s a former retired Marine, so he’s pretty tight with the bucks. (END VIDEOTAPE)
STARR: And Jonas has another tip for saving money that might sound familiar, pay your bills on time. She’s making sure the Pentagon does that and so far she calculates she has saved about a quarter of a billion dollars in late fees.
VELSHI: All right. And that — I mean, when you’re at the Pentagon, that’s a lot of money to be able to save, but they’ve got big budget needs. Where do they get the new money for those?
STARR: You know, I asked that question, Ali. I said, so is there a secret printing press for money in the basement? There’s always been that rumor here in the Pentagon. But, of course, what they do is they go to Congress to get authorization to spend more money. So, of course, they’re really getting it from you and me, the taxpayers.
VELSHI: Yes. And those gas prices have really, really hit them very hard. It’s a great story. It’s a good lesson to learn. You know, when the biggest of the big save money by doing those things, it could work for us.
Audit Says Tanker Deal Is Flawed
(New York Times)…Leslie Wayne
In a stunning turnabout for the Boeing Company, government auditors on Wednesday upheld the company’s appeal of the Air Force’s decision to award a $35 billion contract to build midair refueling tankers to a partnership of Northrop Grumman and the European parent of Airbus.
New Forces Fraying U.S.-Saudi Oil Ties. (Los Angeles Times)…Paul Richter, June 8, 2008, Pg. 1
…The weakening of the economic relationship comes when the vital U.S.-Saudi security relationship also has been fraying.
As gasoline prices have risen, the White House has unsuccessfully exhorted the Saudis to step up production, and Congress has threatened retaliation. But the situation now is a far cry from the days when the U.S. economy dominated the direction of the petroleum market.
“That gave us leverage,” said Greg Priddy, an oil analyst at the Eurasia Group, a New York-based risk assessment firm. “There’s certainly a perception that the power equation has changed.”
China and other Asian nations now use about 17 million barrels a day. That’s up more than 20% since 2003, and booming growth is expected to continue.
By the end of 2007, it was also apparent that the Saudis no longer believed they could substantially affect prices by increasing production.
Now, Saudi oil experts believe that the price run-up is due to such factors as investor speculation, the weak dollar and limited output from such key producers as Iraq, Iran and Venezuela.
In mid-May, President Bush went to Saudi Arabia for the second time this year to seek increased oil production, but officials in Riyadh, the Saudi capital, said no large increases were planned. Sen. Hillary Rodham Clinton (D-N.Y.) criticized Bush in her presidential campaign appearances, saying she found it embarrassing that a sitting president was “begging” the Saudis.
REMARKS: Joseph A. Lannon, Director, ARDEC.
It is a tremendous honor to stand here today and accept this prestigious award, the Malcolm Baldrige National Quality Award, on behalf of my co-workers at the United States Army Armament Research, Development and Engineering Center, also known as ARDEC.
Our prescription for organizational success is very basic. Everything we do is bound by a commitment to the customer, our warfighters, whose lives depend on our work.
Four basic components—coupled with hard work, tenacity and vision—have shaped ARDEC into the organization it is today:
- Innovation in both product and process;
- Persistence in the pursuit of excellence;
- External evaluation and continuous learning to accelerate improvement; and
- A culture that thinks like a “for-profit” great business with a bottom line.
2007 was the first year for the nonprofit category. The Award recognized SUSTAINED and PROVEN (auditable) excellence over several years.
The Good or Great Page provides a notional comparison of Baldrige to the concepts of capability maturity, cost of poor quality, sigma, and knowledge of variation.
Success Through Quality's Weblog 
