The New American & CNBC Busines News & James Pethokoukis / Reuters Blog – 2010-12-10 22:46:35
US Military Prepares for Economic Collapse
Raven Clabough / The New American
(December 7, 2010) — Skeptics who continue to assert that the economic plight of the United States has been overstated need not look further than the Pentagon to find out just how wrong they are. CNBC has learned that the Pentagon is currently playing out “war games” pertinent to an American economic meltdown.
According to CNBC, “The Pentagon is planning for real economic threats to America.” CNBC’s Business News analyst Eamon Javers explains:
Ever since the crash of 2008, the Defense Intelligence establishment has really been paying a lot of attention to global markets and how they could serve as a threat to US National security interests.
At one upcoming seminar that we’re going to see here next month, theyâ€™re going to be taking a look at a lot of the issues… [including] the use of sovereign wealth funds to manipulate markets, currencies; nation state economic collapse, sovereign default, nation state instability; US Allies’ budgets, deficits, national security infrastructures.
Similarly, the Army has launched an operation called “Unified Quest 2011” in which it studies the “implications of ‘large scale economic breakdown’ inside the United States that would force the Army to keep ‘domestic order amid civil unrest.'” The Quest also trains the Army in how to “deal with fragmented global power and drastically lower budgets.”
In October, the United States Marine Corps visited J.P. Morgan to “study markets and the economy.”
All different parts of the Pentagon and Defense Intelligence establishment are looking at markets and looking at ways they can present a new kind of threat to the United States. These are the guys whose job it is to think of the worst possible things that could happen.
According to Wired.com, the Army hosts a Unified Quest every year, which entails “the Army’s chief of staff [instructing] talented mid-career and senior officers and senior enlisted (wo)men to evaluate where the service is falling short — and propose remedies.”
However, the 2011 Unified Quest lends truth to assertions that the United States is indeed not witnessing an upward economic recovery, as so many in our federal government have asserted. Soldiers are being trained in evacuation and detainment as a response to rioting, revealing the possibility that the United States military may resort to martial law in order to maintain order.
Unified Quest 2011 also prepares soldiers to act as diplomats in the event that there is a limited availability of diplomats at combat outposts, or on the streets contending with hungry and angry Americans. Wired.com writes, “There’s a strong consensus that negotiations ought to be part of the Army’s toolkit — something backed by a ream of recent doctrinal manuals and various short courses in negotiation at the Army’s many schools.”
Blacklisted News explains that the Pentagonâ€™s war games are just one of many examples that show the direction in which the world is headed. Others include the decentralization of FEMA from a single distribution facility in Washington to 15 regional facilities across the nation.
Blacklisted News also claims, “Anecdotal evidence indicates that the US government has been the leading buyer of freeze dried foods for the last couple of years, and private emergency shelter contractors have reported a shortage in equipment and supplies for building personal-sized bunkers.”
Other global powers are apparently preparing for “Doomsday” scenarios. Russia has reportedly been preparing for the development of 5,000 new underground bunkers for the city of Moscow, while the European Union commissioned the building of a “Doomsday Seed Vault” in a mountainside several hundred feet above sea level in 2006.
Additionally, FEMA’s website recommends that American families have emergency preparedness supplies readily available, including food and water, for at least several weeks.
Secret GOP Plan: Push States to Declare Bankruptcy and Smash Unions
James Pethokoukis / Reuters Blog
(December 7, 2010) — Congressional Republicans appear to be quietly but methodically executing a plan that would a) avoid a federal bailout of spendthrift states and b) cripple public employee unions by pushing cash-strapped states such as California and Illinois to declare bankruptcy. This may be the biggest political battle in Washington, my Capitol Hill sources tell me, of 2011.
That’s why the most intriguing aspect of President Barack Obama’s tax deal with Republicans is what the compromise fails to include — a provision to continue the Build America Bonds program. BABs now account for more than 20 percent of new debt sold by states and local governments thanks to a federal rebate equal to 35 percent of interest costs on the bonds. The subsidy program ends on Dec. 31. And my Reuters colleagues report that a GOP congressional aide said Republicans “have a very firm line on BABS — we are not going to allow them to be included.”
In short, the lack of a BAB program would make it harder for states to borrow to cover a $140 billion budgetary shortfall next year, as estimated by the Center for Budget and Policy Priorities. The long-term numbers are even scarier. Estimates of states’ unfunded liabilities to pay for retiree benefits range from $750 billion to more than $3 trillion.
Republicans in the House of Representatives already want to stop state and local governments from issuing tax-exempt bonds unless they are more forthright about these future obligations. Republican Representatives Devin Nunes and Darrell Issa of California and Paul Ryan of Wisconsin have introduced a bill that would require state and local governments to estimate the size of public pension liabilities if their assets earned a more conservative rate of return than many plans currently expect. Failure to do so would result in the suspension of their ability to issue tax-exempt bonds
Greater transparency on these obligations can’t be bad. In fact, the federal government itself would do well to report deficit numbers not just on the current cash-in, cash-out basis but also incorporating the underfunding of promised pension and healthcare benefits to retirees.
But itâ€™s about more than just openness. Some Republicans hope the shock of the newly revealed debt totals will grease the way towards explicitly permitting states to declare bankruptcy. Indeed, legislation amending federal bankruptcy law is currently being prepared by congressional Republicans. Local municipalities do declare bankruptcy from time to time, most famously California’s Orange County in 1994. But states can’t.
Allowing them the same ability to renegotiate obligations could enable them to slash public employees’ lavish benefits, a big factor in their financial woes. In a recent issue of the The Weekly Standard, bankruptcy expert David Skeel of the University of Pennsylvania walks through the implications:
With liquidation off the table, the effectiveness of state bankruptcy would depend a great deal on the state’s willingness to play hardball with its creditors. The principal candidates for restructuring in states like California or Illinois are the state’s bonds and its contracts with public employees.
Ideally, bondholders would vote to approve a restructuring. But if they dug in their heels and resisted proposals to restructure their debt, a bankruptcy chapter for states should allow (as municipal bankruptcy already does) for a proposal to be “crammed down” over their objections under certain circumstances.
This eliminates the hold-out problem — the refusal of a minority of bondholders to agree to the terms of a restructuring — that can foil efforts to restructure outside of bankruptcy.
The bankruptcy law should give debtor states even more power to rewrite union contracts, if the court approves.
Interestingly, it is easier to renegotiate a burdensome union contract in municipal bankruptcy than in a corporate bankruptcy. Vallejo has used this power in its bankruptcy case, which was filed in 2008.
It is possible that a state could even renegotiate existing pension benefits in bankruptcy, although this is much less clear and less likely than the power to renegotiate an ongoing contract.
It wouldn’t be easy to change the law. Public employee unions have traditionally carried great influence with Democrats, even if President Barack Obama’s willingness to freeze their pay on the federal level suggests their clout may be waning.
From the Republican perspective, the fiscal crisis on the state level provides a golden opportunity to defund a key Democratic interest group. For the GOP, it’s an economic and political win.
James Pethokoukis is the Money & Politics columnist for Reuters Breakingviews. Previously, he was the business editor and economics columnist for US News & World Report. Pethokoukis has written for many publications including The New York Times, The Weekly Standard, Commentary, USA Today, and Investor’s Business Daily. Pethokoukis is also an official CNBC contributor. In addition, he has appeared numerous times on MSNBC, Fox News Channel, Fox Business Network, The McLaughlin Group, CNN, and Nightly Business Report on PBS. A graduate of Northwestern University and the Medill School of Journalism, Pethokoukis is a 2002 Jeopardy! champion. firstname.lastname@example.org
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