Obama administration to spend $350 billion upgrading nuclear arsenal

The Obama administration's modernization plan includes upgrading over 5,000 nuclear warheads and refurbishing storage facilities. Delivery systems for the weapons need to be replaced.

The U.S. has 5,113 nuclear warheads each of which could wipe out most of a major city. U.S. priorities are clear. While the U.S. debt is in the trillions and the country faces a fiscal cliff, it is regarded as imperative that all these weapons be retained and even upgraded.

The cost estimate of slightly more than $350 billion comes from the Stimson Center. The program is to last a decade. The Government Accounting Office (GAO) places the plan on a high-risk list for fraud, waste, and abuse. No doubt politicians will applaud the scheme as producing jobs and make sure that some of the work is channeled to their own constituencies.

The nuclear arsenal has been more or less neglected for two decades. Officials simply put off putting money into the aging arsenal. However each year the cost of upgrading to keep the arsenal safe and reliable increases.

U.S. military tactics have changed to reliance on Special Operations Forces and tactical strikes. It is difficult to see why so many nuclear warheads are even needed.Yet Federal Officials are determined to act now to maintain air, sea, and land nuclear superiority. These gargantuan expenses may cause economic stresses of such magnitude that the U.S. will lose the battle with rising giants such as China and India through U.S. unsustainable defense expenditures which are almost as much as the rest of the world added together.

The costs of renovation are huge. Just one of the seven types of stockpiled weapons the B61 bomb will likely cost $10 billion over five years. In comparison the budget for Fairfax County next year will cost just $3.5 billion and this includes the school system. The Virginia county has over a million people.

Fairfax County is a county in Virginia, in the United States. As of the 2010 census, the population of the county is 1,081,726, making it the most populous jurisdiction in the Commonwealth of Virginia, with 13.5% of Virginia's population. The county is also the most populous jurisdiction in the Washington Metropolitan Area.

The opportunity costs of money spent on outdated weapons many of which are probably not needed is huge but so will be the rewards to the military-industrial complex. An estimate of the world stockpile of nuclear weapons can be found here. The estimate for the U.S. is larger than in this article. Apparently some weapons are still waiting to be dismantled but are not operational. This may explain the difference.

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Governments with big economies face over 7.6 trillion maturing debt in 2012

 Many of these governments will also face increased borrowing costs to refinance their debt. Japan has the most in maturing debt 3 trillion U.S. dollars. The U.S. amount is somewhat lower but still huge at 2.8 trillion.
  The IMF has cut the growth forecast for 2012 to 4 per cent. Originally the estimate was for 4.5 per cent global growth. The spread of  Europe's debt crisis is one factor but also the U.S. will struggle to reduce its debt and the Chinese property market will be slowing
   Some countries are already having problems selling new debt securities. Italy has already had trouble auctioning off as many debt securities as it had wanted. Economists and strategists surveyed by Bloomberg estimated that borrowing costs for G-7 nations could rise as much as 39 per cent above last year's levels.
    Fund manager  Michael Riddell said:“The buyer base for peripheral Europe has obviously shrunk at the same time that the supply coming to the market is increasing, which is not a good combination,” With many new debt securities being offered investors will avoid buying in countries where risks are very high. This will drive up borrowing costs for some countries in Europe which most need the funds. For much more see this article.

A derivatives expert on U.S.debt issues

   Satyajit Das is an expert on derivatives. He has had 25 years experience working with companies such as Citicorp Investment Bank and Merril Lynch. He now is a consultant and also gives presentations worldwide. A long article on the U.S. debt crisis is available here. Das writes very clearly and often with some humor and notable quotes.
   Here is a sample:"" China, the major investor in US government bond investors, finds itself in the position that John Maynard Keynes identified: “Owe your banker £1000 and you are at his mercy; owe him £1 million and the position is reversed.""    Here is one more: "" China financed customers creating demand for exports and America received the money to buy cheap Chinese goods. Asked whether America hanged itself with an Asian rope, a Chinese official told a reporter: “No. It drowned itself in Asian liquidity.”
   In the last section of his article, Das talks about the devious ways in which the U.S. debt problem is likely to be managed. He suggests that there will be "fudging", "monetization" and "devaluation". As an example of fudging Das notes the manner in which states and cities have tried to engage in what he calls fiscal magic tricks to stave off facing the crisis. Unable to raise taxes for political reasons and facing increasing deficits states borrow money to close budget gaps. As an example he points to Illinois which borrowed 10 billion in 2003. The money was used to invest in its pension funds. But this was not enough and it had to borrow another 3.5 billion and now is planning another 3.5 billion. Illinois had not been making the required annual payments required for its pension funds for years. The unfunded liabilities of U.S. state and local governments is huge. Das puts it at nearly 3.5 trillion dollars. Other ways of fudging the issue include selling off assets to temporarily help reduce the amount of unfunded liabilities.  
   Debt monetization is also a way of dealing with debt. Quantitative easing increases the money supply and eases liquidity problems. In the longer term it debases the currency and may cause inflation according to Das. Monetization is linked to devaluation the final means of dealing with debt. 
   The dollar has been deliberately weakened by government fiscal policy according to Das. In 2007 he notes that the dollar weakened by about 8 per cent. Since 2009 Das maintains the U.S. dollar lost 18 per cent against major currencies including a 25 per cent decline against the Canadia dollar. This decline not only makes U.S. exports more competitive. It also encourages foreign investors to buy more U.S. dollars to lower their average cost. Das notes that the role of the U.S. dollar as a reserve currency allows the country what he calls an extortionate privilege. 
   In conclusion Das thinks that by using fudging, monetization, and  devaluation the U.S. "" will usher in a prolonged period of stagnation for the US economy reducing global economy growth. At worst, continuation of a strategy of FMD(fudging, monetization, devaluation) and maintaining the balance of financial terror will create a volatile and dystopian economic environment.""  For much more see the entire article.