America is going broke! Federal Reserve official's fear as Libya missiles cost $100 million in just ONE day

By David Gardner
Last updated at 7:51 AM on 23rd March 2011

~ 'We are at tipping point... We WILL become insolvent, the question is when'

~ Fed has done its job - pressure is on lawmakers, says official

A senior Federal Reserve official warned today that America is going broke as fears grow the Libyan bombardment could cost more than $1 billion.

With the U.S. now fighting three wars, the massive new military drain on the budget could not have come at a worse time as the nation is trying to claw itself out of recession.

The first day of Operation Odyssey Dawn had a price tag of well over $100 million for the U.S. in missiles alone, according to estimates.


Launch: A Tomahawk cruise missile is fired at Libyan defences from the the deck of the destroyer USS Barry on the first day of Operation Odyssey Dawn

The U.S. military has no official cost figures yet for the operation, which has been going on less than a week. By comparison, the much more extensive Afghan war costs more than $9billion a month.

Although he did not refer to the Libyan offensive, Dallas Federal Reserve Bank President Richard Fisher said the American economy is at a crucial ‘tipping point.’


Warning: Richard Fisher, president of the Federal Reserve Bank of Dallas

He added: ‘If we continue down on the path on which the fiscal authorities put us, we will become insolvent – the question is when.

‘The short-term negotiations are very important. I look at this as a tipping point.'

Mr Fisher was speaking after giving a speech at the University of Frankfurt in Germany. He insisted he was confident the country's leadership would make the right decisions to avert a financial catastrophe.

‘I think we are at the beginning of the process and it’s going to be painful,’ he said after claiming the US recovery is starting to gain momentum.

Mr Fisher, seen by economists as one of the most hawkish policymakers within the Fed, told CNBC that he believes the central bank has done enough to pour liquidity into the markets.

He said: ‘Our job is done. Now the pressure and the job is in the hands of our elected representatives who have the only power to tax and spend.’

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Mr Fisher warned there were signs that the speculative style of trading that had helped fuel the financial crisis was beginning to resurface.


Armed: An American F16 bristles with missiles as it flies to join allied warplanes bombarding Libyan defences

‘We are seeing speculative activity that may be exacerbating (price rises in) key commodities such as oil,’ he said.

Oil prices hung near $105 a barrel this morning. Oil has jumped 24 per cent since February 14 as violent protests rock the Middle East and North Africa.

Mr Fisher added that it was too early to gauge the impact Japan's disasters and the rising tensions in the Middle East would have on the U.S. economy.

Last night it was estimated that the Japan disaster would cost in excess of $300 billion.

CRUNCHING THE NUMBERS ON LIBYA

The operation unfolding in Libya resembles a scenario for a limited no-fly zone analysed by Todd Harrison and his colleague Zack Cooper. The scenario assumed a limited no-fly zone covering Libya north of the 29th parallel, not the entire country.

They made their projections by computing the cost per square mile of previous no-fly zones and applying that to the situation in Libya. The price of munitions, jet fuel and maintenance were the primary cost drivers. Their figures reflected the cost over and above regular operations.

One thing Cooper and Harrison had not anticipated was significant coalition support, with allies bearing part of the expense. Cooper said it appeared the United States had flown more than half of the sorties and fired most of the Tomahawks.

'In our analysis, we assumed that the U.S. would be picking up the bulk of the cost,' he said. 'So even though the U.S. has picked up more than a majority of the cost, I assume, so far, it probably hasn't picked up as much as we estimated.'

Cooper said the Tomahawk cruise missiles fired so far by Britain and the United States cost about $200 million, putting the price for taking out Gaddafi's air defences on target to hit their projection.

'We estimated $400 million to $800 million. Between the Tomahawks and other munitions and flight hours and fuel, it's probably going to be somewhere in that ... range for the initial cost of suppressing the air defences,' he said.

The crash of a U.S. F-15 warplane was an unexpected cost. Cooper said the Pentagon was unlikely to buy another F-15 and probably would replace it with a joint strike fighter, with an estimated price tag of between $100 million and $150 million.

Todd Harrison, a senior fellow at the Center for Strategic and Budgetary Assessments, was reported yesterday as saying that the U.S. cost in Libya ‘could easily pass the $1 billion mark on this operation, regardless of how well things go.’

He calculates the initial cost of taking out the Libyan regime’s coastal air defences could cost coalition forces between $400 million and $800 million.

He believes that maintaining a no-fly zone in the country would cost between $30 million to $100 million a week.

The Pentagon has contingency reserves to deal with military emergencies, but critics claim they will only be ‘robbing Peter to pay Paul.’

The Pentagon already has plans to cut $78billion in defence spending over five years and is delaying weapons programs and putting off maintenance to reduce costs.

Republican Congressman Richard Lugar is critical over the decision to take up arms against Colonel Gaddafi. He believes Congress should have been given the opportunity to debate what he said will be ‘a very expensive operation, even in a limited way.’

‘It’s a strange time in which almost all of our congressional days are spent talking about budget deficits, outrageous problems. And yet [at the] same time, all of this passes,’ he said on CBS’s Face the Nation on Sunday.

The unanticipated war spending comes at a time when lawmakers are bickering over cuts in this year’s budget to try and slash America’s massive $1.5 trillion deficit.

The Congressional Budget Office projected the fiscal 2011 deficit will hit $1.48 trillion, a jump of nearly 40 per cent over prior forecasts.

Boosted by election victories last November, Republicans have proposed $61 billion in cuts this fiscal year, which ends in September. Democrats have backed only $10 billion in cuts.

House Speaker John Boehner has signaled to Democrats they need to step up and make some tough choices.

'Senate Democrats have yet to come to the table with any serious plan to cut spending,' said Kevin Smith, a Boehner spokesman.

'The American people are waiting, and it's time for Democrats to stop ducking their responsibility.'

Another senior Republican aide predicted: 'There'll be a deal. It's in everyone's best interest.'

The main European countries enforcing the no-fly zone downplayed the cost of the operation.

British Finance Minister George Osborne, whose government has staked its reputation on eliminating the country's budget deficit, told Parliament to expect the cost to be in the tens of millions of pounds.

French analysts also attempted to downplay the expense, saying the intervention was likely to cost Britain and the United States much more since they used pricier weapons.

http://www.dailymail.co.uk/news/article ... 1-day.html