What the Reboot of the US Budget Means for Your Money

Not long ago, I spoke with a mainstream media guy who writes for an international wire service. His beat is domestic politics, meaning big-name Washington, D.C. politicians, Capitol Hill back-room deals, national campaigns, major domestic policy and more.

The guy has good gossip, that’s for sure. For example, he told me what Senate Majority Leader Harry Reid (D-NV) eats for breakfast many days at the Ritz Carlton Hotel in Washington. (Actually, did you know that Harry Reid lives at the Ritz Carlton? I was astonished, I confess.)

The news-writer also follows trends in Congressional budgeting, including the Defense Department. And right now, budget-writers are in a thick quandary. Federal entitlement outlays are growing much faster than forecast — Social Security, Medicare, Medicaid payments are exploding.

On the day-to-day side of the federal budget, “overhead” items — salaries for bureaucrats and related costs like office space, health care and retirements — are going through the roof. In general, government is expanding in terms of numbers and cost of doing business. Big Government is expensive, and it’s no secret. (What do all those government people do, though?)

Until recently, the idea on Capitol Hill was to find “savings” in the defense budget and use those funds to pay for all the other goodies in other areas. It’s Obama administration policy, Democratic Senate policy and even Republican House policy. Everybody is in on the deal, in the sense that government is its own special interest, certainly in Washington. Rob Peter and pay Paul, so to speak.

In the past few years, we saw preliminary hits to the defense budget with “sequestration” and such. Shrinking Navy, shrinking Air Force, shrinking Army and more, right?

Looking ahead, money programmers were planning to carve out even more from the defense side of the ledger. In fact, to many policymakers in Washington, defense is “free money” for other pet projects. It’s a sign of the times, flowing from that “end of history” school of thought from the early 1990s.

Now, however, the situations with Russia, Ukraine and ISIS have upset the apple cart, so to speak. The problem for budget writers is that there’s an entirely new strategic situation in the world, with an assertive Russia working in tandem with an expanding China and increasing violence in the Middle East. Many budget writers in Washington have to reboot their entire worldview. The “end of history” has been postponed.

Western politicians — certainly an entire generation of U.S. political honchos — are petrified of what’s happening. They really don’t know what to do. By background, training and temperament, most elected U.S. politicians are not well-versed in big-time international diplomacy.

They’re not strategic thinkers in the Naval War College sort of way. At a personal level, they’re out of their comfort zone and have to rely on think tankers and subject matter experts for advice. It’s a long story.

Over the next few years, however, I believe the government will display entirely new levels of budget programming for U.S. defense firms. Here in The Daily Reckoning that should be no big news flash. But we’re exceptional, I suspect, in our collective foresight about defense spending trends and helping you profit from them.

Regards,

Byron King
for The Daily Reckoning

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