Iraq: Follow the Money, If You Can
July 7, 2004
Comment: # 514
Discussion Threads - Iraq Related Comment #s: 513 and associated references
[Ref.1] Hannah K. Strange, "Report: The 'real' costs of the Iraq war," UPI, July 1, 2004
[Ref 2] Rajiv Chandrasekaran, "U.S. Funds for Iraq Are Largely Unspent," Washington Post, July 4, 2004; Page A01
Has the exploding Iraq budget bomb returned the heady days of the early 1980s
Excess Appropriations & Slush Funds -- a Quaint Trip into the Past
When Ronald Reagan entered office in 1981, inflation had been raging for several years. President Carter's Pentagon was accused of deliberately underestimating future inflation in its five-year plans to hold down future defense budgets. This was an important, if somewhat arcane budget issue to the courtiers of Versailles, because some defense appropriations (especially those for major weapons systems) are, in effect, bank accounts that authorize the expenditure of monies over a multi-year time horizon. Annual appropriations for new aircraft carriers, for example, projected expenditures for as long as seven years, monies for new fighter aircraft would take three to four years to spend out, under the policy of full funding. So money had to be added to the appropriations to compensate for the predicted loss of purchasing power caused by inflation predicted in each of the future years. Predictions inside predictions would make a soviet central planner feel right at home.
Each year in the late 1970s, the Pentagon asked Congress for supplemental appropriations to make up for the appropriations shortfalls caused by past inflation estimates, which the Pentagon said underestimated the real inflation it had to contend with. Congress usually honored these supplemental requests and, on occasion, even added more money than requested.
One of the so-call management reforms instituted immediately by the incoming managers of Reagan's Pentagon was to budget for "realistic inflation" in all its appropriations. Moreover, in addition to these more "realistic" estimates, the new management team contended major weapons, like fighters, ships, and tanks, were subjected to a 30% higher inflation rate the economy or the defense department at large. So, it instituted a second management reform to increase the "realistic inflation" rate by almost a third for major weapons—this became known as the 30% kicker. Congress happily went along with the gig and enthusiastically began increasing defense budgets to cover the new "realistic" inflation estimates (including the 30% kicker) in the five year plans, no questions asked.
But while Congress was busily shoveling the money to the Pentagon in the 1980s to cover higher paper inflation, the real rate of inflation was collapsing. Most supporters of Ronald Reagan contend he broke the back of this debilitating condition, although ironically much of credit goes to chairman of the Federal Reserve, Paul Volker (sp), a Carter holdover, who took the steam out of the economy by jacking up interest rates to double digit levels, thereby putting the screws to the economy, and dropping the country into the worst the recession since the great depression.
With inflation collapsing, Congress, in effect, had appropriated money to cover future inflation that never occurred, in effect giving the Pentagon a windfall profit of over $40 billion, according to separate estimates made by the Military Reform Caucus and the General Accounting Office. Even Secretary of Defense Casper Weinberger owned up to $29 billion in excess appropriations in a congressional hearing.
But a funny thing happened on the way to the Pentagon's bank, the windfall—whether $29B or over $40 billion—was never returned to the Congress and the American people. In fact, the money simply disappeared because no one could (or would) account for it, and after a short while, the press predictably lost interest in it. When the press lost interest, Congress lost interest, and the entire episode was forgotten and swept into the dustbin of history.
Many, including myself, believe a good part of the great inflation windfall ended up in two slush funds, known as the "M Account" and the "Merged Surplus Account," where it lost its identity, and could not be rescinded by expiration, and could be spent on anything, including black operations. But there is no proof of this ... the money simply vanished into the maw of the people's republican bank of Versailles. [Both accounts were shut down in the late 1980s and early 1990s (at least temporarily), thanks to the heroic solo efforts of Senator Charles Grassley, but to the best of my knowledge, the windfall was never recovered.]
Now this history of excess appropriations and slush funds in the 1980s may seem like an ancient boondoggle, a curiosity, irrelevant in a time of low inflation and unending war of the 21st century. But, if the attached analysis by my good friend Werther is correct, a similar albeit mutated form of this history may be now be repeating itself with respect to appropriations covering some of our adventures in Iraq.
Given the culture of non-accountability in Versailles on the Potomac stage is always set for more abuse and high jinks, and the opportunities are multiplying rapidly, because the bill for Iraq is rising rapidly—it is already up to $1600 per household and a 3-year occupation will increase that number to over $3400 , according to one estimate [see Ref 1 below]
So, read Werther's attached analysis carefully and follow the money, if you can—but wear your rubber boots, because the slush is deeper and soggier that it looks—after all, $18 billion is but a small part of a continuing saga, for the Pentagon still produces a mountain of unauditable budget books to "manage" a budget of $440 billion [see Threads 1-4].
Report: The 'real' costs of the Iraq war
By Hannah K. Strange
Washington, DC, Jul.y1 (UPI) — The average U.S. household has already spent almost $1600 on the war in Iraq, according to a report presented in Washington Wednesday. The final bill will be an estimated $3,415, based on the U.S. military's prediction of a three-year military occupation, says the report, citing calculations by economist Doug Henwood.
In the run-up to the Iraq war, administration officials gave the impression, co-author Phyllis Bennys points out, that the cost of reconstruction would be largely covered by Iraqi oil revenues.
"There's a lot of money to pay for this that doesn't have to be U.S. taxpayer money, and it starts with the assets of the Iraqi people," said Deputy Defense Secretary Paul Wolfowitz at a House of Representatives appropriations hearing the same day.
The administration's budget request for 2005 proposes "deep cuts in critical domestic programs," the report details, "(and) virtually freezes funding for domestic discretionary programs other than homeland security." The White House is seeking the elimination of programs including grants for firefighters' assistance, low-income schools, family literacy, rural housing and economic development. As written, the proposal would keep such cuts in place until 2009.
A White House memo, leaked in May to the Washington Post, outlined further cuts in 2006, including funding for education, Head Start, home ownership, job training, medical research and homeland security.
"The Bush vow to 'leave no child left behind'" the report adds, "remains underfunded by at least $14.1 billion, with the new budget threatening to reduce funding by an additional $9.4 billion."
U.S. Funds for Iraq Are Largely Unspent
By Rajiv Chandrasekaran
BAGHDAD, July 3 —
Only $366 million of the $18.4 billion U.S. aid package had been spent as of June 22, the White House budget office told Congress in a report that offers the first detailed accounting of the massive reconstruction package.
Thus far, according to the report, nothing from the package has been spent on construction, health care, sanitation and water projects. More money has been spent on administration than all projects related to education, human rights, democracy and governance.
Of $3.2 billion earmarked for security and law enforcement, a key U.S. goal in Iraq, only $194 million has been spent. Another central objective of the aid program was to reduce the 30 percent unemployment rate, but money has been spent to hire only about 15,000 Iraqis, despite U.S. promises that 250,000 jobs would be created by now, U.S. officials familiar with the aid program said.
Spending patterns have been different with the Iraqi money. The Coalition Provisional Authority, the now-dissolved U.S.-led occupation administration, spent or locked in for future programs more than $19 billion from the $20 billion Development Fund for Iraq, which was established by the U.N. Security Council to manage Iraq's oil revenue, said Joseph A. Christoff, director of international affairs and trade at the General Accounting Office, the watchdog arm of Congress.
The CPA appears to have earmarked more than $6 billion of the Iraqi funds over the past two months alone, as it prepared to hand over political authority—and control over the development fund—to the interim Iraqi government. As of May 6, the CPA had earmarked only $13 billion from the fund, according to a GAO report released this week.
One of the principal beneficiaries of the development fund money was Halliburton Co., which was paid hundreds of millions of dollars to truck gasoline and other fuels into Iraq -- a country with the world's second-largest oil reserves -- because of problems with Iraq's refineries.
© 2004 The Washington Post Company
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