Monthly Archives: August 2012

The New Cold War

A clear review of the evidence indicates that Russia’s leadership has returned to a cold war posture.
     An Examination of both worldwide and Russian sources indicates that Moscow has engaged in:
  • vigorous and greatly expanded armaments expenditures; (while the U.S. has  slowed its military budget, and may reduce it sharply starting in 2013)
  • adventurous military patrols across the globe;
  • seeking naval bases abroad;
  • support of belligerent anti-western regimes in Syria, Iran, and Venezuela;
  • a belligerent attitude towards other nations;
  • threats of a “pre-emptive strike” against American missile defense installations in Poland;
  • energy “blackmail” against Europe;
  • Joint wargame maneuvers with China;
  • Soviet-style repression of its own people; and
  • Soviet-style treatment of the former captive nations of Eastern Europe as well as former Soviet Republics.
     This month marks the fourth anniversary of Russia’s invasion of Georgia, one of the former Soviet republics known to the Kremlin as “the Near Abroad.”  Henry R. Nau, writing in National Review Online, stated that “Moscow seeks a sphere of privileged interests in the former Soviet zone and feels uncomfortable with democracy in Ukraine, Poland, and Russia itself.”
     Observers have noticed a sharp increase in Russia’s Cold War attitude following Vladimir Putin’s return to his nation’s highest office.
     During this summer, two Russian Bear-class nuclear capable bombers buzzed the American west coast on July 4, and had to be chased away by U.S. interceptors.
   At the same time, to the apparent delight of Russian media sources (including the Voice of Russia, as quoted below) an Akula-class attack submarine capable of carrying long-range ballistic missiles patrolled the U.S. coast undetected for a month in the Gulf of Mexico.
“Vladimir Yevseyev, head of the Center of Social and Political studies, said:
 ‘This is a good lesson for the U.S., demonstrating that it should not pursue its foreign policy interests all over the world using force.  Other states also have some military potential…the U.S. should realize thatit is also vulnerable because the anti-missile system is not efficient enough when it comes to cruised missiles…this destroys the image of U.S. invincibility…”
     Defense expert Bill Gertz, writing in the Washington Free Beacon, quotes naval analyst and submarine warfare specialist Norman Polmar:
“The Akula was built for one reason and one reason only:  to kill U.S. navy ballistic missile submarines and their crews…sending a nuclear-propelled submarine into the Gulf of Mexico-Caribbean region is another manifestation of President Putin demonstrating that Russia is still  player on the world’s political-military stage.”
     Gertz described the extraordinary abilities of the Akulas, which include firing cruise missiles and torpedoes, anti-submarine missiles, and laying mines.
     The Akula incident, deeply reminiscent of cold war activities, enraged Senator John Cornyn (R-Texas) who stated:
“This submarine patrol, taken together with the air incursions, seems to represent a more aggressive and destabilizing Russian military stance that could pose risks to our national security.  This is especially troubling given the drastic defense cuts sought by President Obama, which include reductions in funding for antisubmarine defense systems.”
     A similar incident occurred earlier in the Obama administration when two Russian nuclear-powered attack submarines were reported patrolling off the East Coast of the United States.
   The similarities with the Soviet Union extend to Moscow’s renewed concentration on military prowess, accelerating a trend towards restoring the intimidation factor Russia possessed during the Cold War.
    The Heritage Foundation reports that the Kremlin as begun an extensive nuclear and strategic  force modernization program, while the U.S. equivalent suffers from increasing neglect.
     R.James Woolsey, writing in 2009 for the New Deterrent Working Group, noted that:
“The Kremlin is simultaneously engaging in more and more direct nuclear threats against our allies, eroding confidence in the United States’ extended deterrent.  And Moscow is irrefutably doing hydro-nuclear and hydrodynamic experiments at Novaya Zemlya, underground nuclear testing of a sort the United States claims is impermissible under the Comprehensive Test Ban Treaty and that it has, as a signatory (albeit not a state party to the treaty) forsworn.”
    In recent years, according to the New Deterrent Working Group, Russia has made numerous nuclear threats against American allies.  “These direct threats have been made from the level of senior generals all the way up to the Russian president…In addition to the numerous threats of direct targeting, Russia has also used the forward deployment of nuclear missiles, provocative “combat patrols” by its long range bombers and an aggressive nuclear buildup as instruments of foreign policy.  Russia has also announced the lowest nuclear weapons-use threshold in the world.”
    Adding to that threat, the U.S. Departments of Energy and Defense noted in 2008 that “Russia maintains a fully functional nuclear weapons design, development, test and manufacturing infrastructure capable of producing significant quantities of nuclear warheads per year.”  This contrast sharply with the U.S., which according to the New Deterrent Working Group “has effectively eliminated its nuclear weapons production capacity and allowed its infrastructure to atrophy.  We no longer produce successive generations of nuclear weapons and we have discontinued underground testing.”
    In 2011, while the American nuclear arsenal shrank, its Russian counterpart grew larger, according to the Heritage Foundation.  During that year, the U.S. reduced the number of warheads on deployed ICBMs and SLBMs, and nuclear warheads counted for deployed heavy bombers, by 0.6%.  In contrast, Russia’s similar arsenal increased by 1.9%.  In terms of total deployed ICBMs, SLBMs and heavy bombers, America reduced its numbers by a dramatic 6.8%, while Russia’s decreased by just 1.0%.  America reduced the number of launchers for ICBMs and SLBMs by 7.2%, while Moscow’s increased by 0.7%.
   President Obama is advocating unilateral and unprecedented cuts to the American nuclear arsenal.  His proposal would reduce  U.S. nuclear weapons by 80%, down to levels not seen since the 1950s, leaving America with only 300 warheads, compared to Russia’s 6,000. This is based on the President’s belief that he has “reset” Washington/Moscow relations.  His administration’s2010 Quadrennial Defense Review  makes no mention of Russia’s military resurgence, and instead claims that the two nations are making progress in reducing deployed strategic nuclear weapons since the two governments “share many interests-including countering proliferation and countering terrorism.”
   The New START treaty between Russia and the U.S., signed on April 8, 2010, does not add confidence to those hoping to limit Moscow’s nuclear drive.
   A major flaw is the less stringent verification procedures.  As noted by theCongressional Research Service‘s February 14, 2012 report, The U.S. will no longer maintain a monitoring presence outside the Votinsk facility where Russia assembles its mobile ICBMs, which may weaken the U.S. ability to count these missiles as they enter Russia’s forces.  CRS also notes that the United States and Russia will no longer exchange telemetry data on all their ballistic missile flight tests, which, over time, could lessen the U.S. ability to understand and evaluate the capabilities of Russian ballistic missiles.
   New START also lacks some needed restrictions on mobile ICBMs, which only Russia fields.  At the same time, New START makes a major concession to Moscow in its statement on missile defense.  The CRS report outlines that the treaty “recognize[s] “the existence of the interrelationship between strategic offensive arms and strategic defensive arms, that this interrelationship will become more important as strategic nuclear arms are reduced, and that current strategic defensive arms do not undermine the viability and effectiveness of the strategic offensive arms of the parties.”
   Critics of New Start, including Senator Jim DeMint (R-SC) have pointed out that the treaty allows Russia to continue its 10 to 1 advantage in tactical nuclear weapons; reduces America’s ability to deploy missile defense, and allows Russia to modernize its nuclear weapons while the US remains idle.
The Administration’s extremely optimistic view of Russia’s nuclear ambitions was further evidenced by the August 14 report of the International Security Advisory Board (ISAB), a federal advisory committee established to guide the State Department.  It emphasizes President Obama’s goal to move towards “very low numbers” of nuclear weapons and the road to their total elimination.  Among the ISAB’s recommendations:
“Change U.S. doctrine and posture away from defining our nuclear posture based on perception of Russia as the primary threat, toward a doctrine of general deterrence, a posture in which attacks from any direction are discouraged without singling out a particular adversary or enemy (reciprocal action required.)”
The ISAB also recommends ending trade restrictions between the two nations, including those enacted under the Jackson-Vanik bill, which imposed restrictions based on the USSR’s policy of hampering Jewish immigration.  (The trend in Congress, however, may be in the opposite direction.  Under the proposed “Sergei Magnitsky Rule of Law Accountability Act,” Washington would both deny visas and freeze the assets of Russians who engage in human rights abuses such as that imposed on Magnitsky, who was imprisoned for exposing official corruption.  He was beaten to death while in jail in 2009.)
   Some of Putin’s actions seem difficult to justify even from a Russian nationalist perspective.  As disputes with Moslem nationalist groups from Chechnya, who have engaged in substantial terrorist acts (including airport and metro station bombings.  The Hudson Institute‘s David Satter, writing in Canada’s National Post, notes that “the number of terrorist incidents grew six-fold between 2000 and 2009, to 738 from 135, and Moscow remains the only European capital to be hit repeatedly by terrorists.”) within Russia continue, Putin provides aid to Iran’s nuclear program, running the risk of eventually arming Chechnyan groups with nuclear material.
   Some observers have taken to calling the Putin regime “a mafia state,” run for the enrichment of the leadership and not for the benefit of either the nation or its population.
   Russia’s intensive drive to develop a navy that could pose a threat to the United States will be strengthened by President Putin’s pledge to spend $138 billion on his maritime force.  Former President Yeltsin had rejected the need for such a force,  according to the Jamestown Foundation. However, the Kremlin today has a different perspective, deeply reminiscent of the first cold war.  In addition to the building of new ships, it is purchasing two French built Mistral class amphibious assault helicopter carrier vessels with state of the art equipment.
  To accommodate the refurbished fleet, Moscow’s vice admiral Viktor Chirkov  is seeking additional bases outside of the former USSR around the world, in Cuba, Vietnam, and the Seychelles to add to its current base in Syria.  In addition, Eurasia Daily Monitor reports that Putin has promised to build new naval bases in the Arctic, and Security Council Secretary Nikolai Patrushev promises that naval infrastructure hubs will be developed along the Northern Sea route.
   Russia joined the 2012 RIMPAC international naval exercises near Hawaii, and the Voice of Russia publication recounted how Moscow’s marines practiced landing on a US warship.
   The $723 billion modernization program includes providing up to 1,700 new warplanes, according to RT news.   This year, the Russian Air Force will get Su-35 and Su-30 jet fighters and Mi and Ka-52 Alligator helicopters,  according to a Voice of Russia report. In 2013, new air defense missile batteries will be delivered–a real irony, given Moscow’s vehement objections to US ABMs.
  Igor Korotchenko, chief editor of Russia’s National Defense magazine recently noted in the Voice of Russia publication:
“New aviation training centers are being set up now, the one already operating in Voronezh, where Russia`s future aviation engineers are offered everything they could ever need to succeed in their profession. The federal arms-related program suggests adopting 1,200 helicopters and over 500 planes by the year 2020.”
   According to Voice of Russia, “Mr. Korotchenko stressed that the way the national aviation is developing now cannot even be compared to how it was in the 1990s. Since the early 2000s the Russian army has adopted 92 Su-34 bombers, 48 multi-purpose Su-35 jets and over 100 fifth generation jets.The Sukhoi T-50 5th generation jet fighter is what the future of the Russian aviation is about. This is a unique aircraft which performed a demonstration flight during the air show in Zhukovsky. The jet`s radar system can spot and identify targets at the distance up to 400 km. Experts believe that T-50 will surpass America`s the F – 22 Raptor fighter jet. It means that the Russian military aviation is growing even stronger.”
   The environment for a return to a Soviet style brand of leadership includes repression at home.
   David Satter notes that “Twenty years after the fall of the Soviet Union, Russia is again in political crisis.” He describes a nation rife with corruption and lawlessness, its government ranked 154th out of 178 by Transparency International, “on a level with Cambodia and the Central African Republic.”
   Putin reclaimed the presidency in the May 7 election, which has been criticized as being rigged in his favor. His government has restricted public protests, prosecuted demonstrators, broken into the homes of opposition leaders, tightened controls on the internet and private organizations, and strong-armed the media.  Corruption has been extensive. A Jamestown Foundation study notes that “Putin’s presidential pool journalists never publicly ask the president unwanted or un-vetted questions.”
   A “Europe Online Magazine” report lists thirteen separate incidents since December 2011  in which Putin’s actions have prompted the ire of the Russian people, including irregularities in elections for parliament and the presidency.
   Most recently, a political trial involving the female rock group”Pussy Riot” sent the musical band to prison for two years.  Supporters of the musicians are said to be preparing an appeal to the European Court of Human Rights.  While awaiting the verdict outside the courtroom, Human Rights Foundation chairman and opposition political leader Garry Kasparov was severely beaten, apparently for nothing more than speaking with journalists about the case, as reported in the Wall Street Journal.
   Putin’s impulse to subjugate political opposition may extend even to Prime Minister Dmitry Medvedev, who was pressured to step aside from his former post as President to make way for Putin’s return. A Jamestown Foundation report notes that “After agreeing not to seek reelection for a second term as President and becoming Prime Minister last May, Medvedev has been visibly sidelined on the Moscow political scene and has been struggling to assert himself.”
   Putin’s determination to make Russia an unequaled nuclear power with an extraordinarily powerful conventional military has not been recognized or responded to by the United States, which continues to adhere to a mistaken belief that the Cold War is gone forever.

China in Latin America

China’s expanded entry into western hemispheric affairs has been substantial, sustained and multifaceted. In the Jamestown Foundation’s China Brief, Russell Hsiao notes that since China’s President Hu Jintao’s first visit to Latin America in 2004, it took just three years for bilateral trade to reach over $100 billion.
   The U.S.-China Economic & Security Review Commission’s 2011 report
notes that since 2004, Hu returned twice and also dispatched high level officials.  Venezuela, Mexico, Brazil, Peru and Cuba were particular targets. Latin American officials have reciprocated the visits.  The end result was a deep immersion of the Beijing government into regional affairs.  121 bilateral agreements and cooperation initiatives have been signed since 2000, concentrating in cultural, economics and trade, investment protection, public administration/consular affairs, science and technology, tourism, and military affairs.
  Participation in regional organizations has become extensive.  Beijing joined the Organization of American States as a permanent observer. It also joined the
Inter-American Development Bank with a donation of $350 million. It expanded diplomatic ties with the Group of Rio, the Andean Community, and the Caribbean Community groups. China has also been particularly encouraging in the development of regional organizations that exclude the United States. As reported on Beijing’S official web site, President Hu Jintao sent an enthusiastic congratulatory message to Venezuela’s Hugo Chavez and Chilean President Sebastian Pinera past December  on the founding of the “Community of Latin American and Caribbean States” (CELAC), a grouping that includes every nation in the western hemisphere except the United States and Canada.
                                  MILITARY MATTERS
  China’s official “Policy Paper on Latin America and the Caribbean” states:
“Military Exchanges and Cooperation.     The Chinese side will actively carry out military exchanges and defense dialogue and cooperation with Latin American and Caribbean countries.  Mutual visits by defense and military officials of the two sides as well as personnel exchanges will be enhanced.  Professional exchanges in military training, personnel training and peacekeeping will be deepened.  Practical cooperation in the non-traditional security field will be expanded.  The Chinese side will, as its ability permits, continue to provide assistance for the development of the army in Latin American and Caribbean countries.”
  Much of Beijing’s investment has been in strategic infrastructure, including port facilities on both the East and West sides of the Panama Canal, and, as Dr. Evan Ellis notes in Chinese Engagement with Nations of the Caribbean, the massive deepwater port and airport facility in Freeport, The Bahamas, just 65 miles from the USA, and a deep sea port in Suriname.
  Familiarizing its military with the region, China has deployed peacekeeping forces to Haiti, and a naval hospital ship to Cuba. Ellis notes that “The PRC also conducts significant interactions with the militaries of virtually all of the Caribbean nations with which it has diplomatic relations.  A series of senior level Caribbean military leaders have visited China in the past two years…At a lower level, people-to-people military interactions have included inviting uniformed Caribbean military personnel and defense civilians for professional education trips to the PRC…The PLA donated $3.5 million in non-lethal military equipment to the Jamaica defense Force in 2010….The PLA is also reported to have personnel at Soviet-era intelligence collection facilities in Bejucal, Lourdes, and Santiago de Cuba…”
  The U.S.-China Economic & Security Review Commission reports that Venezuela, Chile, Bolivia and Cuba now maintain strong ties to the Chinese military “through a high number of official visits, military officer exchanges, port calls, and limited arms sales.”  Venezuela, Bolivia and Ecuador have begun to buy Chinese arms and military equipment, including radar and aircraft.  Bolivia has signed a military cooperation agreement with China.
  Much of this is consistent with China’s long-range military strategy.  As noted in the Department of Defense’s hrecently released Annual Report to Congress on military & security developments involving the People’s Republic of China 2012, “China’s military modernization is…focusing on investments in military capabilities that would enable China’s armed forces to conduct a wide range of missions, including those farther from China…underscoring the extent to which China’s leader are increasingly looking to the PLA to perform missions that go beyond China’s immediate territorial concerns…”
 Cynthia Watson’s study Of China’s arms sale to the region notes that the introduction of Chinese armaments allows Latin American governments to distance themselves from Washington. She notes that although Latin American nations have relatively limited resources to spend on weaponry, “Beijing’s ability to sell a small number of arms to the region is leading to an enhanced presence there…Beijing’s military to military ties are growing with the states of South America across the board:  military missions, educational exchanges and arms sales.  This activity is part of Beijing’s overall advancement of a foreign policy agenda aimed at raising China’s role as a great power.”
  Dr. Ellis notes that China has also insinuated itself in strategic areas such as space and telecommunications.  He concludes that “The PRC presence in the Caribbean has the potential to take on a much more menacing character should Sino-US relations degenerate into a hostile geopolitical competition.” He emphasizes the potential danger of “the presence of substantial Chinese naval facilities and telecommunications infrastructure (albeit commercial), and thousands of Chinese personnel, many less than 100 nautical miles from US shores…” Thanks to low or no interest loans by the Chinese government, telecommunications companies Huawei and ZTE have captured lucrative contracts.
  According to another report by Ellis, Brazil is the most important partner for China in space technology, and the South American nation is clearly eager to expand that relationship.  Peru, Venezuela, Bolivia, and Mexico may well fall into Beijing’s space technology orbit.  The presence of advanced technology and the Chinese professionals who operate it, so close to the American homeland, should give Washington pause.
  The U.S.-China Economic & Security Review Commission’s 2011 report  stated that “Resource acquisition remains a cornerstone of Chinese trade and investment in the region.” Other objectives included wrenching regional nations away from supporting Taiwan and interacting with local military organizations.
“In the past ten years, trade between China and Latin America has skyrocketed due to China’s enormous demand for new sources of natural resources and untapped markets for Chinese companies and brands.  From 200 to 2009, annual trade between China and Latin American countries grew more than 1,200% from $10 billion to $130 billion based on United Nations statistics.”  Due this extraordinary growth, Beijing has designated Brazil, Mexico, Argentina and Venezuela as “strategic partners”.  China has become Latin America’s third largest trading partner.
  Some observers, like Kevin Gallagher, co-author of “The Drago in the Room: China and the future of Latin American industrialization” believe that China has supplanted Latin America’s role as a manufacturer of low-cost goods and forced it to depend more heavily on the sale of raw materials, a move which may eventually prove detrimental to the region’s economic future.  The view is shared by Market Watch’s Tom Thompson   He notes the effect may be harmful not only to the enterprises but also to the people of the region.  “By design,” he notes, China will not contribute to knowledge-based, value-added innovation and production in Latin America.  Chineses investors are perfectly happy with low levels of education among workers in raw materials industries.  Liberalization of labor codes will lag.  And investment in extractive industry research and development will be kept in China.”
  Removing recognition from Taiwan has been a key object of Beijing’s expansion into Latin America.  The U.S.-China Economic…notes that that the PRC has followed the “checkbook diplomacy” approach once employed by free China.  The practice has been openly mercenary.  Dominica abandoned Taiwan in favor of Beijing in 2004 after receiving a $112 million dollar pledge from the mainland.  Costa Rica followed suit in 2007 in return for a $300 million government bond purchase and infrastructure projects, a $10 million cash donation $83 million for a national soccer stadium, and a $1 billion joint petroleum venture.  Other nations have or will be following suit.
  The Chinese emphasis was clear.  Six of the 23 nations that still recognize Taiwain, the Republic of China, are in this part of the world.
  Hsaio, discussing Sino-Caribbean relations,  notes that “The desire to strip Taiwan of its remaining allies, as a step toward reincorporating it under the domain of mainland china, has given the Caribbean a level of political salience in Beijing that it would otherwise lack.  Yet, the true shape of China’;s relations with the Caribbean will be determined by broader global forces and the dexterity with which Chinese policymakers and their Caribbean counterparts are able to forge mutually advantageous ties.  It is clear that China is mapping out a long-term vision for engaging with the Caribbean, but it is to early to tell whether this vulnerable region will sink or swim as a result.”
  Beijing’s determination has borne fruit, sometimes spectacularly so.  In 2007, Mexico conceded to Beijing’s demands  to force a plane with Taiwanese president Chen Shui-bian to leave its airspace.  The president was merely flying over Mexico while returning from an inauguration of Nicaragua’s Daniel Ortega.
 As a Communist and totalitarian nation, China naturally feels more comfortable with similar governments.  It is not surprising then that relationships with Cuba and Venezuela are the most intimate.  In July, Chinese Premier Wen Jiabao met with Cuban president Raul Castro, and referred to the island nation as China’s most important partner in the region.  He also pledged to bring relations between the two nations to a “new high.”
  Relations with Venezuela’s Hugo Chavez are also valued greatly. The two nations have a memorabdum of understanding dating back to 2001 that aims to cement the relationship. China is Caracas’ second-largest consumer of oil, after the US.

  China has made significant military, economic and diplomatic inroads throughout Latin America and the Caribbean.  Washington’s policy of benign neglect will cause significant peril in the near future.

State Budgets

As of July, the federal deficit is $15,874,365,457,260 with a projected $1.211 trillion federal deficit in the current year.  Deficit-reducing growth projections continue to appear dismal, as the potential expiration of the Bush tax cuts could have a harshly detrimental impact on the economy.
   The combined state deficit (spread among 31 of the 50 states) totals $55 billion.  The importance of state government fiscal health is vital.  As noted by the State Budget Task Force (SBTF) state and local governments spend $2.5 trillion annually and employ over 19 million workers–15% of the national workforce and 6 times as many workers as the federal government.
 The federal General Accounting Office (GAO) notes that “the fiscal situation of the state and local government sector has improved over the past year as the sector’s tax receipts have slowly increased in conjunction with the economic recovery…From the 2nd quarter of 2009 to the third quarter of 2011, total tax receipts increased nearly 11%, returning to the prerecession levels of 2007.”
 A report noted that tax receipts are better this year, and the “fiscal state of the states is good.”  A spring analysis by the National Conference of State Legislators reported that “revenue performance remains positive and expenditures in most states are stable…state lawmakers have closed more than $500 billion in budget gaps over the previous four fiscal years.”
   Comparisons are difficult.  The federal government can print money, while the states cannot; and the federal government can impose mandates on the states, not vice-versa. Moreover, the states have received funds from the federal government.  Over approximately two and a half years, the American Recovery and Reinvestment Act provided between $135 to $140 Billion dollars to them.  This amounted to between 30 and 40 percent of FYs 2009-2011 state deficits.  Most of the funds were Medicaid funding, according to the Center on Budget & Policy Priorities.
  40 states have also raised taxes (nine reduced them)–an option the federal government cannot take, since it would depress a national economy already in danger of sliding back into recession, or, under some views, continuing the current recession and making it far worse.
 Far more important than federal assistance in keeping deficits down, however, is the impact of balanced budget laws throughout the states. The National Conference of State Legislatures (NCSL) reports that 49 out of the 50 states have some sort of balanced budget requirement (Vermont being the exception, and some dispute whether Alaska, Wyoming and North Dakota laws actually meet the popular definition) although the meaning of “balanced budget” is not fixed.
 According to NCSL, “Most states have formal balanced budget requirements with some degree of stringency, and state political cultures reinforce the requirements…Constitutional and statutory provisions requiring balanced budgets are often unclear, making it impossible to count the different kinds of requirements with precision.  Some state requirements that governors and legislators regard as binding have emerged over time through judicial decisions based on constitutional provisions that have little to do with budgets.  Not only is it difficult in some states to determine the constitutional or statutory authority, but often it is also unclear what the enforcement mechanism is.  Considering the lack of specific constitutional mandates and enforcement structures, state compliance with the principle of a balanced budget is notable.  Restrictions on debt play a part, but are an insufficient explanation for the fact that even states that can legally carry a deficit from one year to the next try to avoid doing so. It appears that the political convention that state budgets are supposed to be balanced is its own enforcement mechanism.”
How the States are Faring
 There is significant differences in opinion in how sound state finances are.  There is, however, common agreement that over the past several years, the “Great Recession” has played havoc with the fiscal position of state governments.
 The National Association of State Budget Officers (NASBO) notes that despite a gradually improving fiscal prospect and rising general fund spending, resources remain tight, and revenue growth will remain below peak levels in the coming year.  NASBO describes a “new normal,” where scarce resources produce slower revenue growth, and the challenges of rising health care, education, and pension costs will continue to grip state capitals.
 The GAO is concerned that property tax receipts which had improved 3% from the second quarter of 2009 to the third quarter of 2010, increased less than 1% from 2010 to 2011.  Combined with reduced federal aid, rising Medicaid/health care costs, and decreased return from investments of held pension funds, the GAO’s outlook is not optimistic.  The impact of the Patient Protection and Affordable Care Act (Obamacare) also provides significant uncertainty.
 While the trend in tax receipts is improving, “The hole was so deep that even if revenues continue to grow at last year’s rate-which is highly unlikely-it would take seven years to get them back on a normal track” according to the State Budget Crisis Task Force (SBCTF)
 On July 17, the SBCTF led by former Federal Reserve Chairman Paul Volcker and former New York Lieutenant Governor Richard Ravitch, released what they described as the “first ever comprehensive report detailing threats to states fiscal sustainability and actions that can be taken to address them.”
 The Report focused on the fiscal conditions in six heavily populated states, including California, New York, Illinois, New Jersey, Texas and Virginia.  Their conclusion: “the existing trajectory of state spending, taxation, and administrative practices cannot be sustained.  The basic problem is not cyclical, it is structural.”
  According to the SBCTF, the major threats to financial stability include:
  • Medicaid spending growth is crowding out other needs.  The report notes that Medicaid spending is far outpacing revenue growth.  “Based on recent rates, the gap could widen by $23 billion within 5 years.”
  • Federal deficit reduction threatens state economies and budgets. The report notes that “a 10% cut in grants would cost California and New York, each, more than $6 billion annually.”
  • Underfunded retirement promises create risks for future budgets. Volcker and Ravitch point out that pension liabilities in the six jurisdictions reviewed are underfunded by $385 billion, and retiree health benefits promises by more than $500 billion.
  • Narrow, eroding tax bases and volatile tax revenues undermine state finances. State tax revenue is diminishing, [particularly during the years of the Obama administration.]  New Jersey is cited as a prime example.  From 2005-2008, income state revenue reported by Trenton grew 32%, then declined by 16% from 2008 to 2011.
  • Local government fiscal stress poses challenges for states.  The study emphasizes that this challenge, while affecting a number of states, hits California particularly hard, “Where sharp declines in property tax revenue, increases in pension costs, and state aid cuts have contributed to severe fiscal stress.” The Pew report notes that while property tax revenue surged from 2000 to 2008, it declined sharply thereafter.
  • budget laws and practices hinder fiscal stability and mask imbalances. The study criticizes state finances as being “opaque,” without multi-year financial plans.  It notes that rainy day funds are inadequate, and temporary solutions are often used to cover gaps.
  Research by The Pew Center for the States indicates that states have managed to spend less since 2008, with 37 states below pre-recession fy 2008 spending levels, an accomplishment which has eluded Washington. NASBO believes that states will manage to  restore some cuts in FY 2013, while taking “painful” actions and avoiding bankruptcy. Cuts have been made to education, public assistance, Medicaid, corrections, transportation, local aid, and state employee levels.  Agencies have been reorganized.

 While benefiting from federal aid, the states have succeeded where Washington has failed largely due to a commitment to at least a semblance of a balanced budget.

China’s Military Modernization

Thanks to a robust economy, an increasingly sophisticated scientific and engineering capability and a willingness to obtain western technology by any means, China’s commitment to establish a military second to none is succeeding.  The U.S. is not responding appropriately.
China’s Great Technological Leap Forward
   Since the end of the Second World War, Americans have assumed that their technological superiority would make up for the larger militaries of potential adversaries such as the Soviet Union and China.  However, the booming economy of the PRC has allowed that nation to catch up to and in some cases overtake the U.S. in this crucial area. “The observable reality” notes James Kynge, author of China Shakes the World, “is that China is climbing the technology ladder at a rapid pace, and its ascent is neither localized nor specialized, but identifiable almost across the board.”
   China explained its military world view in its China National Defense white paper:
“International military competition remains fierce.  Major powers are stepping up the realignment of their security and military strategies, accelerating military reform, and vigorously developing new and more sophisticated military technologies.  Some powers have worked out strategies for outer space, cyber space and the polar regions, developed means for prompt global strikes, accelerated development of missile defense systems, enhanced cyber operations capabilities to occupy new strategic commanding heights…”
  The paper notes that Beijing emphasizes “accelerating the modernization of national defense and the armed forces…the PLA has expanded and made profound preparations for military struggle, which serves as both pull and impetus to the overall development of modernization…development of high-tech weaponry and equipment.”
Battle of the Budget 
   Beijing can and does expend extraordinary amounts in its largely successful quest to establish an armed force second to none in size, and increasingly rivaling the United States for technological sophistication. Pentagon sources indicate that even in areas in which Washington has long held unquestioned superiority, such as stealth and space capability, the PRC has become a significant challenger. An analysis by Japan’s Self Defense Forces notes that “China has been modernizing its military forces, backed by the high and constant increase in defense budget.”
   Misunderstandings concerning Beijing’s military budget have long plagued defense analysts.  Its stated budget for this year is $106 billion dollars, (According to Pravda, exceeding $100 billion for the first time) a significant 11.2% increase from the prior year (rendering the average annual rate of increase since 2000 at 11.8% in inflation-adjusted terms.) But the actual figure is considerably higher. Beijing does not include numerous expense items in its defense budget that other nations do, hiding those costs in various civilian spending programs.  Further, thanks to the extensive commercial activities of The People’s Liberation Army, profits can be funneled directly to military needs.
   The Department of Defense notes that “Estimating actual PLA military expenditures is difficult because of poor accounting transparency and China’s still incomplete transition from a command economy.  Moreover, China’s published military budget does not include several major categories of expenditure, such as foreign procurement.  Using 2011 prices and exchange rates, DoD estimates China’s total military-related spending for 2011 ranges between $120 billion and $180 billion.” We believe the actual figure to be even higher.
   At the same time, America’s defense budget is in danger of being substantially reduced, along with cuts to the vital research and development budget. The White House plans to cut roughly a trillion dollars from the armed forces over the next ten years.
The Role of Espionage
   The Department of Defense’s recently released Annual Report to Congress on Military and Security Developments Involving the People’s Republic of China 2012 notes that Beijing accelerates its technology in more ways than just standard R&D investment.  China makes significant use of illegally acquired dual-use military-related information, as well as data stolen by espionage. According to the DoD, “One of the PRC’s stated national security objectives is to leverage legally acquired dual-use and military-related technology to its advantage…[the Chinese]..are the world’s most active and persistent perpetrators of economic espionage.  Chinese attempts to collect U.S. technological and economic information will continue at a high level and will represent a growing and persistent threat…”
  Despite this, as noted by PRC expert Bill Gertz, the White House has reduced the importance of counterespionage against Beijing, and has placed the Commerce Department, not known for attentiveness to spying concerns, in charge of sensitive export technology control.
  This is consistent with the Administration’s 2010 Quadrennial Defense Review.  That document, despite mounting evidence of China’s successful abuse of American civilian technology, successful espionage, and the advancing sophistication of its armed forces, proclaimed:
“Today’s export control system is a relic of the Cold War and must be adapted…the current system impedes cooperation, technology sharing… [and] is largely outdated…Much of the system protected an extensive list of unique technologies and items that, if used in the development or production of weapons by the former Soviet Union, would pose a national security threat to the United States.”  In an effort to mitigate its naïve view that national security concerns ended with the Cold War, the report goes on to claim that the Administration will seek to concentrate on fewer but more vital matters.
The Growing Reality of China’s Military Sophistication
   Indeed, the view that the Soviet Union’s demise essentially eliminated the danger from a Cold War style, high-tech nuclear assault permeated the Administration’s acceptance of the New Start Treaty with Russia.  As part of President Obama’s “Reset” concept, in which he viewed Moscow-Washington relations far more benignly than his predecessors, substantial reductions in the U.S. nuclear arsenal were agreed to, and the President has proposed even further unilateral cuts to America’s deterrent.
   Unfortunately, Beijing was not bound by that treaty.  James Woolsey’s U.S. Nuclear Deterrence in the 21st Century white paper notes that “China, while officially professing a doctrine of ‘no first use,’ is modernizing and expanding its nuclear forces.  Nuclear threats have also been periodically made by senior Chinese generals.”
   Beijing has been clear on the priority it places on making its armed forces as sophisticated as possible.  The Heritage Foundation’s Dean Cheng reports that Hu Jintao has discussed the need to “accelerate its transformation and modernization in a sturdy way, and make extended preparations for military combat…Hu…congratulated China’s weapons designers and manufacturers on their achievements…this suggests that the Chinese leadership expects even more advanced systems to be developed in the coming five years.”
 The White House apparently fails to recognize the scope of China’s increasingly sophisticated military threat.  In his White House address onPriorities for 21st Century Defense earlier this year, the President, discussing China, stated: “States such as China … will continue to pursue asymmetric means to counter our power projections capabilities, while the proliferation of sophisticated weapons and technology will extend to non-state actors as well.” His use of the term “asymmetrical,” which generally refers to a far smaller and substantially less sophisticated opponent, is totally inappropriate. The President also appears to deemphasize the key role of substantial armed deterrence. “Meeting these challenges cannot be the work of our military alone, which is why we have strengthened all the tools of American power, including diplomacy and development, intelligence, and homeland security.”
  The Center for Security Policy has expressed deep concern over the President’s increased reliance on “soft” power.  “The nation’s nuclear forces will be allowed to atrophy further through a failure to modernize, test and properly maintain them, and further cuts in their numbers-including in all likelihood the elimination of an entire ‘leg’ of the Strategic Triad.  The result will not be the President’s stated goal, namely of ‘ridding the world of nuclear weapons.’  Rather, it will simply be to rid the United States of its deterrent forces at a time when they are likely to be more needed than ever.”
  In discussing our nuclear deterrent, the President wholly fails to note China’s rapid rise, claiming that “It is possible that our deterrence goals can be achieved with a smaller nuclear force, which would reduce the number of nuclear weapons in our inventory as well as their role in U.S. national strategy.”
In contrast to the President’s perspective, the 2012 DOD report begins by noting that “…China is pursuing a long-term, comprehensive military modernization program designed to improve the capacity of China’s armed forces…China’s military modernization is, to an increasing extent, focusing on investments in military capabilities that would enable China’s armed forces to conduct a wide range of missions, including those farther [away.]”
“[Beijing’s] leaders in 2011 sustained investment in advanced cruise missiles, short and medium range conventional ballistic missiles, anti-ship ballistic missiles, counterspace weapons, and military cyberspace capabilities…the PLA also continued to demonstrate advanced capabilities in advanced fighter aircraft,…limited power projection…integrated air defenses; undersea warfare; nuclear deterrence and strategic strike; improved command and control;  and more sophisticated training and exercise…The PLA Air force is attempting to increase its long-range transportation and logistics capabilities, to achieve greater strategic projection.”  A Space Express report notes that as part of China’s power-projection goals, it will be building two aircraft carriers, adding to the one purchased from Russia.
  A similar analysis was contained in the 2011 paper, The National Military Strategy of the United States of America, which, while not specifically naming China, noted: “…States are rapidly acquiring technologies, such as missiles and autonomous and remotely-piloted platforms that challenge our ability to project power.”  Interestingly enough, the paper’s only specific mention of China is a statement that “Our nation seeks a positive, cooperative and comprehensive relationship with China that welcomes it to take a responsible leadership role…” and goes on to state that America will “monitor” China’s “military developments.”
American Miscalculation
 The immediate effects of Washington’s miscalculations of China’s aggressiveness based on its growing military might can be seen in increased tensions in Southeast Asia.
  NY Analysis correspondent Larry Allison, reporting on location in the Philippines, notes that the PRC’s overtly aggressive actions in Southeast Asia have caused great concerns for the Manila government.  Earlier this month, a missile frigate, part of a flotilla of Chinese military vessels intruding into the Philippine’s Exclusive Economic Zone, ran aground within the Spratley Shoals. A large fleet of PRC fishing vessels moved into the area to reinforce Beijing’s illegitimate claims.  Heritage reports that Beijing had “begun ‘regular, combat-ready patrols’ in waters under Chinese jurisdiction.”
  Secretary of State Clinton has offered no U.S. response other than to suggest a “code of conduct” for China. Clinton’s consistent outreaches towards Beijing have been demonstrably unsuccessful in gaining any concessions.
  The U.S.-China Economic & Security Review Commission’s report released in April, Indigenous Weapons Development in China’s Military Modernization, notes that:
  “Evidence broadly suggests that U.S. analysts did not expect the emergence of the PLA Navy’s Yuan-class submarine when the class was unveiled in 2004… On the other hand, U.S. Officials were keenly aware of Chinese anti-satellite (ASAT) weapons development, and reports show that U.S. officials were also aware of potential ASAT testing activity in 2007, although it is possible that the exact timing of the test was unexpected.  However, while U.S. government analysts accurately anticipated several developments, such as the emergence of China’s SC-19 ASAT system, China’s selective transparency-or strategic deceptions that asserted opposition to the development of space weapons-may have misled foreign observers outside of military and intelligence channels.
  “There have been, however, identifiable cases of miscalculation regarding U.S. assessments on the development speed of Chinese indigenous weapons systems.  While U.S. intelligence sources acknowledged the development of a land-based anti-ship ballistic missile in 2008, academic and government sources have both indicated that the United States underestimated the speed of China’s ASBM development.  U.S. Department of Defense officials have assessed that ASBM reached initial operational in December 2010, and official Chinese media and Taiwanese sources have reported that the ASBM is now field deployed with PLA missile units. China’s fifth-generation fighter, the J-20, was originally projected to begin prototype testing in 2012; however, the United States also underestimated the speed of its development, as the aircraft made its first publicized flight in January 2011.
“Particular challenges to accurate predictive assessments on indigenous Chinese developments include:
  • Information denial and/or deception…;
  • Underestimation of changes in China’s defense-industrial sector…;
  • Difficulty in understanding the PRC national security decision-making process…;
  • Underestimating of Beijing’s threat perceptions…;
  • China’s increased investments in science and technology…; and
  • Inadequate capabilities for and/or attention to the exploitation of open-source Chinese language materials….
“U.S. observers should not take at face value statements from the Chinese government or military policy, as they could be deceptive, or simply issued by agencies…that have no real say over military matters…U.S. analysts and policymakers should expect to see continued advancements in the ability of the PRC to produce modern weapons platforms, and an attendant increase in the operational capabilities of the People’s Liberation Army.”
The Air Sea Battle Concept Shell Game
  The White House has made much of the Air Sea Battle Concept which shifts resources from the Atlantic to the Pacific in response to Beijing’s growing power.  The operational plan is to integrate Naval, Air Force and Marine assets to deter China.  However, those assets are increasingly scarce.  As the NY Analysis has previously reported, the U.S. has only 284 combat ships, down from a high of 600 in the Reagan era, and the Air Force has been reduced from 37 combat wings to 20.  Funds for vitally needed modern fighters have been slashed.  The President plans to cut funding for the Marines.
  The problem isn’t limited to China. The mantra that a full scale war is no longer possible following the fall of the Soviet Union continues to misinform the Obama Administration and the general media.  Indeed, while the Soviet Union has fallen, Russian militarism is experiencing a resurgence under Vladimir Putin. (Hard evidence of this was visible as recently as July 4, when Moscow sent nuclear-capable TU-95 BEAR-class bombers to the U.S. West Coast, testing American defenses.)
  Moving pieces from one part of the globe to the other is useless if there aren’t enough pieces to begin with.
  The U.S.-China Economic & Security Review Commission believes that “The apparent disparity over the past decade between U.S. predictions and the actual pace of development…raises questions as to whether flawed underlying assumptions may have affected analysis in this area, inside or outside the U.S. government.”  The Commission notes that there have been significant differences between the views of the State Department’s International Security Advisory Board, (which reports that “America is viewed as China’s principal strategic adversary…China’s military  modernization is proceeding at a rate to be of concern even within the most benign interpretation of China’s motivation.”) and the State Department itself.

  From Beijing’s perspective, there has been no downside to its unprecedented military buildup. Indeed, as its power to confront America or intimidate regional neighbors has grown, the White House has responded by planning to significantly scale back American military capability.  China’s belligerent stance and aggressive territorial claims against nations such as the Philippines, Vietnam, Japan and, of course Taiwan, as well as others, will only become more intense as its ability to successfully compete against diminishing American power grows.