Here’s an economics lesson for the American serviceman. Reach into your pocket and pull out a dollar bill. Its value isn’t set by gold or any precious metal, only law and world currency markets determine its worth. Why, then, would someone buy mere paper not backed by a tangible asset? For the same reason you might buy stock in a company. Foreigners buy our dollars because they know America has the greatest return on investment of any endeavor in history.

Historically, America is where the world’s smart money runs in troubled times. But now America finds itself in hard times. No longer a manufacturing giant, we’re now a consumer economy shouldering crippling public and private debt. The US is hemorrhaging trillions in real estate and corporate wealth while embroiled in two expensive wars. A 2007 BBC survey found America’s standing abroad ranking only above Israel, North Korea and Iran. With all this gloom, does the world’s smart money still consider America a safe bet?

Absolutely, and the US serviceman has something to do with it.

Since the early 1990s America led the way building the post-Cold War global economy, an international free trade system. For better or worse, the United States is the lynchpin holding it all together. When the world buys our dollars and debt they essentially cast a vote of confidence not only in America, but the global economic system we helped establish. This is true, even during the current crisis, due in large part to the US military.

Defense critics point out the US spends more on defense than the next 14 nations combined. True, but we also directly or indirectly protect those 14 nations’ access to international trade. From Bangkok to Baghdad, international merchants know goods and services flow unhindered because of US military power. This arrangement benefits our friends and rivals alike. China, the world’s manufacturing superpower, exported $1.2 trillion in goods last year, but China doesn’t protect the international trade routes on which she so strongly depends. Nor is it African ships leading the charge against pirates off Somalia or OPEC armies guaranteeing the flow of oil through the volatile Persian Gulf region. It’s the American fighting man and woman who keep global trade free.

Foreign nations may rail against US military power in public, but privately they vote with their money. They understand two important facts: our forces operate with immense restraint and in strict adherence to law; and no international coalition can yet match America’s military prowess. Would China act with our humanity and restraint? Can the U.N. match our decisiveness and competence should they become protectors of the global economy? This is why, rhetoric aside, the world trusts us to protect the global market.

For this reason our leaders must tread carefully. Recently, Rep. Barney Frank (D-Mass) called for a 25% cut in the defense budget. One lesson the financial crisis taught us is risk assumed by one global player is risk assumed by all. If America can’t or won’t protect the global trade system our national stock will surely go down. Investors will take their money elsewhere and other nations will fill the power vacuum we leave behind. What will our dollars and debt be worth then?

The 21^stcentury US Military isn’t just protecting our homeland or hunting down terrorists, but ensuring the global economy remains free.  If you’re an American serviceman reading this, you truly hold that dollar in your hands. It isn’t backed by gold...

...It’s backed by steel. 

This weekend and over the next month they’ll send their high-powered lobbyist to gain assurances from their pet senators and congressmen that their key programs will remain safe from any future cuts.  Our legislators will try to put on their best face and tell them all is well. All the while they’ll quietly send their staffers to the Pentagon...Those staffers will tell the Pentagon budget planners…to start planning deep cuts. They’ll give these planners draconian bottom lines and tell them to meet them - period...Over the next few months rumors of the deep budget cuts will seep outside the Pentagon. Small programs, big programs – nothing will be sacred...The Air Force will get hit hardest since it’s currently the least favored branch among the political elites.... Don’t hold your breath on a new replacement rescue helicopter...Expect early retirement for various weapons systems...

Let’s see where we stand one month and over a trillion dollars later:

(Leaders) will assure defense contractors defense spending will remain strong: According to Rueters, "U.S. Defense Secretary Robert Gateson Tuesday struck an upbeat note about the future outlook for U.S. defense spending, citing strong bipartisan support for U.S. national security goals." 

Deep defense cuts: I guess Sec. Gates hasn't been talking to the movers and shakers in the upcoming Democratic congressional super-majority. Two weeks ago this story hit the papers:  "After the November election, Democrats will push for a second economic stimulus package that includes money for the states' stalled infrastructure projects, along with help paying for healthcare expenses, food stamps and extended unemployment benefits, U.S. Rep. Barney Frank said Thursday...(He) also called for a 25 percent cut in military spending, saying the Pentagon has to start choosing from its many weapons programs..."

Congress is already looking for offsets to pay for the bailout and stimulus packages.

 'Big programs, small programs, nothing will be sacred'…expect early retirement for various weapon systems’: According to Inside Defense and the Air Force Times, the service will cut over 300 frontline fighter aircraft by 2010, almost a decade ahead of schedule. This is about 15% of the services fighter force, significant by any standard.

Don’t hold your breath on a new rescue helicopter:  On 23 October the Washington Times reported the Air Force postponed awarding the CSAR-X helicopter until sometime next year, leaving it for the next presidential administration. The tanker is also now delayed until the next administration is seated.

1. After the election the Pentagon likely faces an openly hostile congress and administration in time of active war. Rep. Barney Frank’s 25% cut comment is a clear message of things to come.
2. Never has the Pentagon had to maintain a sustained forward force posture and active combat operations while America was so deep in debt (public and private).
3. Never has so much of that debt been held by potential hostile powers. He who holds the debt makes the rules.
4. Never has America experienced a deep recession as a consumer, not manufacturing or farming, economy. The Pentagon keeps many of America’s remaining heavy industry on life support, what happens to them in a shrinking economy and lower defense spending is uncertain.
5. The Pentagon has yet to factor in the new realities of global free trade into its acquisitions or defense posture. Its current budgeting and acquisitions framework hasn’t fundamentally changed since America was a creditor nation and General Motors ruled the world.
6. Never has the Pentagon had to rely of foreign sources, many potentially hostile for three critical items: funding (via investment in US debt), energy, and critical technologies. This is the true national security issue of our time.
7. What happens if we enter a period of increased inflation due to our current massive bailout and stimulus spending? This is a real possibility. A severely weakened dollar will discourage foreign (i.e. Chinese) investment in the debt & dollar. Inflation makes everything more expensive – like fuel for fighter jets or computer chips for guidance systems. A defense budget passed one year may assume a 5% inflation rate, but face 10% inflation when executed. Though the government doesn’t officially factor it in, energy is one of the biggest drivers for actual inflation.
8. Never has the Pentagon had to rely on an all-volunteer force during times of sustained combat operations. This has resulted in enormous personnel costs for a relatively small force. The only good news here is a poor economy makes for good recruiting and gives the Pentagon more flexibility in reigning in benefits.

All of these factors will come into play in the next 24 months and beyond to reshape how America defends herself and her global interests. I won’t venture anymore predictions other than hold on…its going to be a bumpy ride.