INTRODUCTION

The Obama administration needs to focus on executing its existing financial rescue plans, keep the TARP focused on the banking sector, and create a contingency plan should the banking system destabilize again.

Crystal balls are dangerous, especially when it comes to economic predictions, which is why it is important for the administration to chart a path forward. Public policy must remain focused on the very real possibility that the apparent easing in the economy’s decline may be followed by little or no growth for several quarters and there could possibly be another negative turn. One of the risks is that the United States is very connected to the rest of the world, most of which is in severe recession. The global economy could be a significant drag on U.S. growth.

Cautious optimism should be the order of the day. We fear that the recent reactions of the financial markets and of some analysts carry too much of the optimism without recognizing enough of the uncertainty. There remains a lot of uncertainty and policymakers should not rest on their laurels or turn to other policies, even if they look more exciting. It is vital to follow through on the current financial rescue plans and to have well-conceived contingency plans in case there is another dip down.

We propose three recommendations for the financial rescue plans:

• Focus on execution of existing programs. The Administration has created programs to deal with each of the key elements necessary to solve the financial crisis. All of them have significant steps remaining and some of them have not even started yet, such as the programs to deal with toxic assets. As has been demonstrated multiple times now since October 2008, these are complex programs that require a great deal of attention. It is time to execute rather than to create still more efforts.
• Resist the temptation to allocate money from the TARP to other uses—it is essential to maintain a reserve of Congressionally-authorized funds in case they are needed for the banks. It would be difficult to overemphasize the remaining uncertainties about bank solvency as they navigate what will remain a rough year or more. The banks could easily need another $300 billion of equity capital and might need still more. It is essential that the administration have the ammunition readily available.
• Third, make sure there is a contingency plan to deal with a major setback for the banking system. The plan needs broad support within the administration and among regulators and, ideally, from key congressional leaders. We probably won’t need it, but there is too high a chance that we will require it for us to remain without one. The country cannot afford even the appearance of the ad hoc and changing nature of the responses that were evident last fall.

We also give the administration a thumbs-up for their bank recapitalization as well as the TALF program, while they are much more skeptical of the Treasury’s approaches to toxic assets. The authors also believe it is time to focus on the truly mind-blowing budget deficits given the danger that markets will not be able to absorb the amount of government borrowing needed without triggering a rise in U.S. interest rates and perhaps an unstable decline in the value of the dollar, nor do they believe there should be a another fiscal stimulus except under extreme circumstances.

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Paris and Rome may be famous for romance, but it’s Filipinos who get the most love. That, at least, is a conclusion that can be drawn from a global love survey conducted by the Gallup Organization.

In our latest column for Bloomberg View, we mine the unique Gallup data for insights into the nature of love and its relationship to nationality, age, money and economic development. The survey, conducted in 136 countries, posed the question: “Did you experience love for a lot of the day yesterday?”

In honor of Valentine’s Day, we thought readers might be interested in seeing the full ranking. So here goes. The first number after each country name is the percentage of respondents who said they had experienced love the previous day. The second (in parentheses) is the sample size for the country.

1. Philippines 93% (2193)
2. Rwanda 92% (1495)
3. Puerto Rico 90% (495)
4. Hungary 89% (1002)
5. Cyprus 88% (988)
6. Trinidad and Tobago 88% (506)
7. Paraguay 87% (1986)
8. Lebanon 86% (970)
9. Costa Rica 85% (1985)
10. Cambodia 85% (1961)
11. Nigeria 84% (1965)
12. Guyana 83% (486)
13. Spain 83% (998)
14. Mexico 82% (989)
15. Tanzania 82% (1941)
16. Ecuador 82% (2126)
17. Jamaica 82% (534)
18. Venezuela 82% (997)
19. Cuba 82% (978)
20. Brazil 82% (1038)
21. Laos 81% (1947)
22. Argentina 81% (1985)
23. Belgium 81% (1015)
24. Canada 81% (1006)
25. Greece 81% (996)
26. U.S. 81% (1224)
27. Denmark 80% (1003)
28. Portugal 80% (995)
29. Netherlands 80% (993)
30. Vietnam 79% (1901)
31. New Zealand 79% (1775)
32. Italy 79% (1000)
33. Colombia 79% (1994)
34. Madagascar 78% (998)
35. Uruguay 78% (1969)
36. Turkey 78% (985)
37. Dominican Republic 78% (1976)
38. United Arab Emirates 77% (961)
39. Saudi Arabia 77% (978)
40. Chile 76% (1982)
41. Malawi 76% (1997)
42. Ghana 76% (1986)
43. South Africa 76% (1968)
44. Australia 76% (1199)
45. Panama 75% (1995)
46. Zambia 74% (1971)
47. Kenya 74% (1965)
48. Namibia 74% (996)
49. Nicaragua 74% (1988)
50. Germany 74% (1214)
51. Ireland 74% (992)
52. Sweden 74% (993)
53. U.K. 74% (1200)
54. Switzerland 74% (986)
55. Montenegro 74% (800)
56. Austria 73% (984)
57. France 73% (1217)
58. Kuwait 73% (934)
59. Finland 73% (993)
60. El Salvador 73% (2000)
61. Pakistan 73% (2253)
62. Zimbabwe 72% (1989)
63. Honduras 72% (1947)
64. Peru 72% (1982)
65. Egypt 72% (1024)
66. Serbia 72% (1474)
67. Bosnia and Herzegovina 72% (1896)
68. Sierra Leone 71% (1986)
69. India 71% (3140)
70. Taiwan 71% (984)
71. Bangladesh 70% (2200)
72. Belize 70% (464)
73. Croatia 69% (958)
74. Macedonia 69% (1000)
75. Mozambique 69% (996)
76. Bolivia 69% (1948)
77. Liberia 68% (988)
78. Iran 68% (963)
79. China 68% (7206)
80. Slovenia 68% (1000)
81. Haiti 68% (471)
82. Norway 67% (992)
83. Sri Lanka 67% (1974)
84. Poland 67% (939)
85. Guatemala 67% (1988)
86. Uganda 66% (1961)
87. Sudan 66% (971)
88. Israel 66% (957)
89. Kosovo 65% (983)
90. Thailand 65% (2377)
91. Jordan 65% (998)
92. Albania 64% (855)
93. Guinea 62% (952)
94. Botswana 62% (999)
95. Angola 62% (957)
96. Burkina Faso 62% (1876)
97. Malaysia 61% (2115)
98. Mali 61% (984)
99. Niger 61% (1925)
100. Palestinian Territories 61% (991)
101. Romania 61% (937)
102. Senegal 61% (1805)
103. Indonesia 61% (2013)
104. Afghanistan 60% (1128)
105. Hong Kong 60% (789)
106. Cameroon 59% (1967)
107. Japan 59% (1138)
108. Nepal 59% (1965)
109. Bulgaria 59% (927)
110. Slovakia 58% (991)
111. Singapore 58% (3002)
112. Czech Republic 58% (992)
113. Mauritania 57% (1960)
114. Benin 56% (974)
115. South Korea 56% (2056)
116. Myanmar 55% (1047)
117. Latvia 54% (1942)
118. Togo 54% (988)
119. Estonia 53% (1800)
120. Lithuania 50% (1863)
121. Russia 50% (4667)
122. Chad 49% (1915)
123. Yemen 48% (959)
124. Ukraine 48% (1930)
125. Ethiopia 48% (1913)
126. Azerbaijan 47% (1824)
127. Tajikistan 47% (1847)
128. Moldova 46% (1937)
129. Kazakhstan 45% (1871)
130. Morocco 43% (1011)
131. Belarus 43% (1992)
132. Georgia 43% (1904)
133. Kyrgyzstan 34% (1969)
134. Mongolia 32% (928)
135. Uzbekistan 32% (962)
136. Armenia 29% (1954)

Note: This content was first published on Bloomberg View on February 13, 2013.

      

       

       

       

The U.S. military will carry out a major modernization of its strategic nuclear forces in the 2020s.

It will cover all three legs of the strategic triad.

Much of the planned program makes sense. The long-range standoff (LRSO) — a new nuclear-armed cruise missile to outfit strategic bombers — does not.

The primary reason for the modernization program is that many US strategic weapons systems are aging out, and American policy is that, as long as there are nuclear weapons, the United States will maintain a safe, secure and robust nuclear deterrent.

The Ohio-class ballistic missile submarines will begin to hit the end of their service life in the late 2020s, and the Navy will need new submarines. Submarines and submarine-launched ballistic missiles (SLBMs) make up the most survivable leg of the triad, and they carry the bulk of deployed US strategic warheads.

The service life of the Minuteman III intercontinental ballistic missile (ICBM) runs out in 2030. The Air Force seeks a replacement ICBM. At a minimum, keeping an ICBM leg of the triad would require another life extension program for existing Minuteman III missiles.

As for the air-breathing leg of the triad, the Air Force wants to procure 80 to 100 B-21 bombers. Plans are shrouded in secrecy but reportedly will incorporate stealth features and advanced electronic warfare capabilities to allow the aircraft to penetrate contested air space. The Air Force is also modernizing the B61 nuclear gravity bomb for use on strategic bombers.

One can and should question the Pentagon’s desired numbers for these programs. That is especially the case given the projected costs of strategic modernization, which Pentagon officials openly admit they do not know how to fund.

It is not clear why the United States will need to replace 400 deployed ICBMs on a one-for-one basis, particularly as the Air Force several years ago was prepared to go down to 300. A force of 200-300 ICBMs would suffice and result in significant cost savings. Likewise, one can challenge the requirement for 12 new ballistic missile submarines, as opposed to nine or 10.

The biggest question, however, arises over the LRSO, with a projected cost of $20 billion to $30 billion. The Air Force originally developed nuclear-armed air-launched cruise missiles (ALCMs) in the 1970s because the B-52 — then the mainstay of the strategic bomber fleet — presented a big target for adversary radars. That would make it hard for the aircraft to penetrate air defenses. A B-52 armed with ALCMs could remain outside of radar range and release its cruise missiles.

The B-2, with its stealth features, was designed to restore a penetrating capability. The Air Force plans to use stealth and electronic warfare capabilities to give the B-21 a penetrating capability as well. If these bombers can defeat and penetrate air defenses, that makes the LRSO redundant. (Moreover, unlike in the 1970s, the Air Force today has very capable long-range conventionally armed cruise missiles that provide a standoff capability for bombers.)

If, on the other hand, the stealth of the B-21 will be compromised in the not-too-distant future, then one has to question the wisdom of spending $60 billion to $80 billion — and perhaps more — to procure the B-21. If we believe the B-21 would soon encounter problems penetrating air defenses, scrap that program. Buy instead modified Boeing 767s, a variant of which will serve as the Air Force’s new aerial tanker, and arm them with the LRSO.

The Air Force’s evident attachment to the B-21 suggests, however, that it believes that the aircraft will be able to defeat adversary air defenses for some time to come. That means that the LRSO would add little capability to the US strategic force mix.

If one were to argue for the redundant capability provided by the LRSO, the number of new ALCMs that the Pentagon proposes to purchase — 1,000 to 1,100 — is difficult to understand. Even allowing for extra cruise missiles for test purposes, the number seems excessively high.

In its 2010 annual report to Congress on implementation of the Strategic Offensive Arms Reduction Treaty (SORT), the State Department advised that, as of Dec. 31, 2009, the United States had 1,968 operationally deployed strategic nuclear warheads. That figure captured the actual number of nuclear warheads atop SLBMs and ICBMs plus the number of nuclear bombs and ALCMs at air bases for use by bombers.

On June 1, 2011, a State Department fact sheet showed the number of deployed US strategic warheads as 1,800 as of Feb. 5, 2011, when the New Strategic Arms Reduction Treaty (New START) went into force. A Dec. 1, 2011, fact sheet provided a more detailed breakdown of US strategic forces. It stated that, as of Sept. 1, 2011, the United States had 1,790 deployed strategic warheads and 125 deployed strategic bombers. Like SORT, New START counts each warhead on a deployed ballistic missile as a deployed warhead. But New START counts bomber weapons differently from SORT. New START attributes each deployed bomber as one warhead, regardless of the number that it can carry or the number of weapons that may be at bomber bases.

The 125 deployed bombers on Sept. 1, 2011, would have counted as 125 under New START’s deployed strategic warhead total. Reducing 1,790 by 125 yields 1,665 — the number of deployed warheads then on US SLBMs and ICBMs.

Comparing the SORT and New START numbers is a bit of an apples-and-oranges comparison, but it gives some idea of the number of bomber weapons at US strategic bomber bases. Unless there was a dramatic increase in the number of warheads on ICBMs and SLBMs between the end of 2009 and September 2011 — and there is no reason to think that there was — comparing SORT’s 1,968 figure (end of 2009) to the 1,665 deployed warheads on ICBMs and SLBMs (under New START counting rules in September 2011) suggests some 300 nuclear bombs and ALCMs were at bomber bases. The B-2s would have been armed with bombs, which indicates a maximum of 200-250 ALCMs. The Federation of American Scientists (FAS) also estimates that there are about 300 nuclear weapons at strategic bomber bases, of which 200 are nuclear-armed ALCMs. FAS believes an additional 375 ALCM airframes are held in reserve.

This comparison raises the question: Why would 1,000-1,100 ALCM airframes be needed to support a couple of hundred deployed ALCMs?

The United States should sensibly modernize its strategic deterrent, particularly in a time of tight defense budgets. The case for the LRSO is demonstrably weak, especially for the planned size of the program. The LRSO should be shelved.

This piece was originally published in Defense News.

      

The Pentagon is embarking on a modernization of U.S. strategic nuclear forces that will cost hundreds of billions of dollars. Much of it makes sense, as key elements of the strategic triad age out and require replacement. As long as nuclear weapons exist, the United States should maintain a robust triad. However, the long-range stand-off weapon (LRSO), a new nuclear-armed air-launched cruise missile, does not make sense.

The U.S. strategic triad consists of intercontinental ballistic missiles (ICBMs), submarine-launched ballistic missiles (SLBMs), and strategic bombers. This mix gives the Pentagon the ability to hold at risk things that a potential adversary values. The inherent ability to destroy those things provides the basis for deterrence.

ICBMs can hold at risk targets 6,000 miles away. As they are based on mobile ballistic missile submarines, SLBMs can reach targets anywhere on earth. The same is true for weapons carried by the B-2 and B-52 and, in the future, the B-21. With aerial refueling, U.S. strategic bombers have global reach.

So the question arises: What unique target set could the LRSO hold at risk that cannot be threatened by ICBMs, SLBMs, or gravity bombs delivered by stealthy strategic bombers? At a recent panel discussion on the LRSO, the best answer to this question was “certain things”—but the proponent could not articulate what those “things” were. That explains much of the questioning about the LRSO. No one seems able to offer a plausible explanation for what the LRSO could do that other strategic nuclear systems cannot.

The weapon’s justification often seems to boil down to: The Pentagon is replacing other strategic systems because they are old, so it should replace the old nuclear-armed air-launched cruise missile (ALCM) as well. Does that logic hold?

The Air Force developed nuclear-armed ALCMs in the 1970s because the B-52 presented a big target on radar screens. Concern grew that the B-52 could not penetrate Soviet air defenses. A B-52 armed with ALCMs could launch its missiles from well beyond the reach of those air defenses.

Today, however, the Air Force has the stealthy B-2 bomber. It is in the process of procuring 80 to 100 B-21 bombers, which reportedly will incorporate stealth and advanced electronic warfare capabilities. The Department of Energy is already well along in the program to modernize the B61 nuclear gravity bomb. The modernized bomb will be highly accurate and have a variable yield. B-2 and B-21 bombers that can penetrate advanced air defenses and deliver B61 bombs against targets make the LRSO redundant.

Some suggest the LRSO hedges against a compromise of the B-21’s stealth. If that argument has merit, Congress ought to reexamine the wisdom of spending $60 to $80 billion—or perhaps $100 billion—on the bomber. Converted KC-46s (military refueling variants of the Boeing 767) with LRSOs would offer a far cheaper option. The Pentagon, however, seems to believe the B-21 will be capable of defeating advanced air defenses.

That being so, the case for the LRSO is weak. It will cost taxpayers $20 to $30 billion. True, that is a relatively small cost compared to what the Pentagon will pay to replace the Ohio-class ballistic missile submarines or build the B-21. But it is not chump change.

Some LRSO proponents cite the relatively “small” cost to argue that the defense budget can afford it. Current Pentagon officials, however, say they have no idea how to pay for everything they want for strategic modernization. Given the rising cost of mandatory spending such as social security and Medicare, and the pressure to hold down the deficit, the budget problem will not become easier in the 2020s, when the “bow-wave” of strategic modernization spending arrives. The Air Force will likely find itself having to choose between B-21s, KC-46 tankers, F-35 fighters, and the LRSO. It also wants to buy a new ICBM then. It is hard to see how all of that will be affordable.

Funding the LRSO now contributes to a budget time-bomb that the current administration and Congress will leave to their successors. The LRSO seems a redundant weapon without a mission. Shelving the program would defuse part of that time-bomb.