Last week’s deficit agreement clearly didn’t do much to restore market confidence, but it did send a clear signal about the likely direction of future defense budgets — down. The agreement put in place a two-step process that in the first installment would cut military outlays by about $350 billion over ten years, and then by some additional sizable amount after 2012 depending on how the political system behaves. The additional defense cuts could reach $300 billion over ten years if a special congressional committee reaches agreement on how to find $1.5 trillion in deficit reductions, or they could be double that number in the absence of agreement. Failure to reach agreement by the end of the year would trigger automatic cuts of $600 billion to defense programs — an outcome that policymakers say is very unlikely, but can’t totally discount given the structure of the budget law now in place. I have written an assessment of the math and implications for Forbes.com, that can be found here.
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