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Will increased war expenditures increase the need for the Treasury to print money?

*The New York Times, by Krishna Guha & Anna Fifield, December 2, 2009

”Obama faces domestic battle on war costs

President Barack Obama will on Thursday pivot from waging war to battling unemployment with a high-profile White House jobs summit, as critics ask whether he can afford both the troop surge in Afghanistan and stepped-up efforts to speed recovery at home.

With liberal Democrats worried that war spending will crowd out their progressive domestic agenda, Mr Obama has sought to reassure his party that he will not shortchange the challenges at home.

‘The nation I am most interested in building is our own,’ he said on Tuesday.

Even more than Afghanistan, fixing the economy and bringing down the 10.2 per cent unemployment rate is Mr Obama’s most pressing concern and the one that will define his presidency.

‘This is clearly the most important political issue right now,’ said Desmond Lachman, an economist at the conservative American Enterprise Institute. The jobless situation is much worse than the President expected when he took office in January, he said. ‘Then they expected the unemployment rate to peak at 8 per cent.’

But officials privately admit that the administration’s fiscal room for manoeuvre is limited. The US has a record budget deficit and the White House acknowledges it will have to cut spending or raise revenues in order to bring the deficit down to a more manageable 3 per cent of gross domestic product over the medium term.

In this context any additional outlay – such as the decision to send an additional 30,000 troops to Afghanistan at an annual cost of roughly $30bn – is problematic.

Anthony Cordesman, a fellow at the Center for Strategic and International Studies, said the administration already planned to spend $73bn on Afghanistan in the fiscal year 2010. Now the total will be over $100bn – ‘around five times the financial year 2005 level’ – with more potentially needed to train the Afghan army.

‘With the benefit of hindsight, I don’t think it’s a good idea to be doing everything at once,’ said Isabel Sawhill, a fellow at Brookings, noting the large increases in defence spending that will be required by the Afghan surge. ‘The administration needs to focus on the economy. What bothers me is not the current deficit but the projected deficit 10 or 20 years out into the future.’ ”


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