* Three-month dollar Libor touches fresh 13-month highs

* Risk premiums rise despite less liquidity fears

* Central bank move not seen solving euro zone debt woes

* Traders await political solution to a political problem
(Updates US action; changes dateline, previous LONDON)

By Richard Leong

NEW YORK, Sept 16 (Reuters) – Key lending rates crept up on
Friday after a coordinated move among central banks to pump
dollars into European banks did little to dispel worries about
the euro zone debt crisis.

Investors and traders are holding out hopes for aggressive
measures from European policy-makers to come up with a firewall
for European banks in case debt-laden Greece defaults.

On Friday, US Treasury Secretary Timothy Geithner told EU
finance ministers they should end loose talk about a euro zone
break-up and work more closely with the European Central Bank
to tackle the debt crisis. For details, see [ID:nL3E7KG0KC]

There is a high degree of nervousness and a low degree of
confidence in European financials, said Stephen Wood, chief
market strategist at Russell Investments in New York, which
manages $163 billion worldwide.

Persistent jitters over the soundness of French banks due
to their exposure to Italy and Greece hammered the shares of
BNP Paribas (BNPP.PA) and Credit Agricole (CAGR.PA).
[ID:nL5E7KG2GU]

On Wednesday, Moodys Investors Service downgraded Credit
Agricole and Societe Generale (SOGN.PA), citing increased
concerns about their funding and liquidity profiles in light of
worsening refinancing conditions. It left the ratings of the
biggest French bank BNP on review for downgrade.

Anxiety about more bad news from Europe over the weekend
spurred safehaven buying of US Treasury bills, pushing their
rates below zero on Friday.

While central banks show willingness to help European
banks, there have been no signs of progress among euro zone
officials to deal with solvency problems threatening the
17-nation block, analysts said.

You have a political problem with an economic outcome.
Ultimately you need a political solution, Wood said.

In the wholesale lending market, the London interbank
offered rate for three-month dollars USD3MFSR= touched a
fresh 13-month high at 0.35133 percent. It has risen nearly 10
basis points since late July.

Libor is a benchmark for more than $350 trillion worth of
financial products worldwide.

Libor for three-month euros EUR3MFSR= climbed to 1.48375
percent, matching its highest level in two weeks. For more on
Fridays Libor fixings, see [ID:nEAP000028]

While the benchmark interbank rate continued to climb, the
borrowing rate for dollars in the foreign exchange market
stabilized. Some dollar-strapped banks have turned to the
currency market because money market funds and other
traditional investors curtailed lending to them due to their
exposure to peripheral European countries.

The cost of raising three-month dollars through the cross
currency basis swap market EURCBS3M=ICAP last stood minus
89.5 basis points, flat on the day. It fell sharply on Thursday
after the central banks dollar loan announcement. It touched
the most expensive level in a year at minus 125 basis points
earlier this week.

HIGH ANXIETY

Major central banks around the world said on Thursday they
would cooperate to offer banks access to three-month dollar
loans [ID:nL5E7KF3RA] — removing a key source of money markets
stress built over recent weeks.

The move failed to stop the rise in Libor, but kept fears
about funding problems among euro zone banks from escalating,
analysts said.

Still risk premiums in the dollar loan market generally
rose on the day after they fell briefly in earlier trading.

It just alleviated some of the immediate concerns about
dollar funding. I dont know if its going to have a tremendous
long-term effect, said Alex Manzara, vice president at TJM
Futures in Chicago.

The spread between three-month dollar Libor and the
overnight indexed swap rate on three-month dollars
USD3MOIS=RR was 29.6 basis points — its widest level since
late July 2010 — from 29.4 basis points late Thursday.

Another gauge of investor jitters — the spread between
three-month Libor and three-month Treasury bill rate US3MT=RR
– rose 1 basis point to 35 basis points.

Manzara said another reason for the rise in three-month
Libor was the level of September eurodollar futures EDU1
which will expire on Monday.

The Sept. eurodollar contract last traded at 99.6475,
implying a three-month Libor of 0.3525 percent, which is only a
tad above Fridays fixing level.

We are getting the final convergence right now between
cash and futures, Manzara said.
(Additional reporting by William James in London; Editing by
Andrew Hay)

–>

Boxer Floyd Mayweather Jr. doesnt mind if people hate him. Hes going to be who he is, not ashamed of his wealth of talent and cash. He will readily remind you of both.

Mayweathers nickname, Money, is more than a moniker; its his lifestyle.

He lives in a 22,000-square-foot Las Vegas mansion. He drives custom Rolls Royces and Maybachs. He hangs out with celebrities like 50 Cent. He once flaunted his fortune by burning a $100 bill in a nightclub.

For Saturdays fight against WBC welterweight champion Victor Ortiz, he will probably earn more than $30 million, depending on pay-per-view sales. And Mayweather is one of the kings of pay-per-view sales. His 2007 fight against Oscar De La Hoya had 2.5 million buys at $55 each (in the United States).

Hes made a (bad) name for himself, with a reason.

He showed up on the scene not as a big puncher, not as a knockout artist, not as a guy who is going to excite fans that way but as a great pure boxer who felt he was being underappreciated, said Max Kellerman, an HBO boxing analyst and CNN contributor. And the louder he started to talk, the more attention he would get.

Kellerman compared it to being cast in an action movie.

The role of the good guy was already taken, so he took the role of the bad guy, he said.

The bad guy persona has been helped by troubles outside the ring. He has feuded with his father, most recently on the HBO documentary series 24/7, where the two almost came to blows during a break in a training session. Junior and Senior crassly insulted each other, and the younger Mayweather denigrated his father as a trainer (his uncle Roger has held that position — except during a suspension — since Junior fired Senior) and then demanded that the eldest Mayweather get the F out of the gym.

After he was isolated in a dressing room, Money continued to rant.

Roger Mayweather made the Mayweather name (as a two-time world champion) … and I took it to the next level. And when its all said and done, there are only two (bleepin) Mayweathers that count: Roger Mayweather and Floyd Mayweather. And (motherbleeper), Im not no junior, Junior says at the end of the five-minute argument and tirade.

The problems dont end with family squabbles. Mayweather is also the defendant in six court cases, HBO reported (HBO, like CNN, is owned by Time Warner). The boxer says that hes innocent and that people are just trying to cash in and get money from a rich target.

One of the people suing him is Manny Pacquiao, widely considered the best fighter of any size.

The boxing public wants — demands — that the two fight before they get too old and their marvelous skills erode. But Mayweather wants 33-year-old Pacquiao to take a Olympic-style random drug test, which Mayweather says he does before every fight. The Pacquiao camp said no and sued when they thought Mayweather was calling their fighter a drug cheat.

So instead, Mayweather fights Ortiz, who is 24, 10 years his junior. Oddsmakers clearly favor Mayweather, who is 41-0 and a five-time world champion. Boxing experts clearly favor Money, too.

But as Kellerman and others point out, the likely result will come after some struggle. Ortiz is a bigger fighter and a hard puncher who, unlike most boxers, leads with his right hand.

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64

By Deborah Levine, MarketWatch

NEW YORK (MarketWatch) — For investors unsettled by repeat warnings of debt crises and economic slumps, cash deserves a second look. And a third and fourth.

Thanks to the exposure of many money-market funds to European bank debt, and the ultralow yields on other cash-like alternatives, allocating a bigger chunk of your savings to cash requires a reassessment of your risk — and the type of reward you expect.

The first thing to consider is how long you expect to keep your funds in cash. For some, that can be three to five years, making certificates of deposit more attractive. For those who want to access the cash within six months, high-yield savings and money-market funds may offer a better option.

Choosing the right vehicle for cash savings also depends on how soon you expect interest rates to rise, which is a big wild card. Interest-rate-futures traders and Wall Street economists expect the Federal Reserve to raise its target fed funds rate sometime between spring and fall of 2012 — about a year away.

Hopes for the economy’s rebound were pushed out further after a very weak payrolls report for June.
Read about June payrolls report.

But they’ve been forecasting rate hikes a year off for at least the past year, and these predictions have fallen flat thanks to the economy’s unusually slow and uneven recovery. For those who expect the Fed to keep benchmark rates low for longer, analysts advise looking for alternatives to money-market funds, whose rates are closely tied to the fed funds rate, which is near 0%.

And lastly, investors who are happy to keep a portion of their savings in a money-market fund should check the fund’s literature to determine how much it holds in European bank debt — a potential source of credit risk if Greece or another European country defaults.

Checking, savings options

With all these alternatives, some financial advisers recommend investors look at online savings accounts or high-yield checking accounts as offering the best choices for yield, safety and easy access.

Click to Play

Looking for signs of a rebound

There's no silver lining in the jobs report but economists are still not giving up on signals of a turnaround, Societe Generale economist Stephen Gallagher explains.

“For liquid cash, people are better served with online savings accounts or high-yield checking accounts,” said Greg McBride, senior financial analyst at BankRate.com.

“As long as it’s protected by the Federal Deposit Insurance Corp., it doesn’t matter if the bank is across the street or across the country,” he said.

Some online banks are offering 1.1% for their online savings accounts, according to Bankrate.com. That’s
See rates on Bankrate.com.

The average money-market fund’s seven-day yield is 0.05%.

As for high-yield checking accounts, there are usually some requirements that need to be met: that you use direct deposit, paperless statements, or make a certain number of debt-card transactions, McBride said. For that, the average federally insured rate is 2.56%, according to Bankrate.com.

Schwab is also finding that many clients want more than just money-market funds to preserve cash.

Schwab Bank, a subsidiary of Charles Schwab Corp.

/quotes/zigman/240465/quotes/nls/schw SCHW
-3.23%

 , has a high-yield investor checking account and high-yield investor savings offering that clients use as a cash alternative, and are linked to their Schwab account, said Jeff Morley, who heads up Schwab’s team of portfolio consultants.
See more on Schwab’s high-yield checking account.

The checking account yields 0.25% and the savings account yields about 0.4%.

/quotes/zigman/240465/quotes/nls/schw

Add SCHW to portfolio

SCHW

Charles Schwab Corp.

$
15.60

-0.52
-3.23%

Volume: 39.57M
July 8, 2011 4:00p

Page 1
Page 2

4 days ago

ALBANY, N.Y. (AP) — This year’s nationally scrutinized battle in New York over whether to legalize gay marriage has attracted big money.

One longtime Albany lobbyist describes it as a “limitless” amount of lobbying dollars and campaign contributions from gay marriage advocates.

Susan Lerner of the good-government group Common Cause says she hasn’t seen anything like the spending over gay marriage since the abortion fights of the 1970s.

Both sides have had commitments of over a million dollars, mostly from national advocates for their position.

A vote could come as soon as Wednesday and is seen as a critical moment in the national movement for gay marriage rights.

Copyright © 2011 The Associated Press. All rights reserved.

2 days ago

COLUMBUS, Ohio (AP) — Ohio State University on Tuesday dropped its review of car purchases by football players and family members after two separate investigations found dealerships made money on almost all of the sales.

The university made its decision in light of a report by the Ohio Bureau of Motor Vehicles and a separate review by the Ohio Independent Automobile Dealers Association.

“We have seen no evidence that would lead us to believe that Ohio State student athletes violated any policies when purchasing used cars,” said university spokesman Jim Lynch.

The reviews were launched after questions about players’ car purchases arose in the wake of a scandal in which some players received cash and tattoos for autographs, championship rings and equipment.

In a 65-page report issued Tuesday, the state BMV said two Columbus-area dealerships made money on 24 of 25 sales made to players and family members.

The BMV, however, did not interview Ohio State players or officials and did not examine records of financial transactions that players file with the university’s athletic compliance office. The report also did not address whether players received discounts not available to the public. Such a discount could be an NCAA violation.

Jason Goss, owner of Columbus-dealership Auto Direct, said Tuesday that players who bought cars from him did not receive discounts not available to the public.

“Absolutely not,” he said.

“I know what was in our deals. I know what we sold the cars for and what we paid for the cars,” Goss said. “What we made was a normal profit that we would make on any customer that would come here.”

In its report, the BMV said the certificates of titles for 25 vehicle sales by Jack Maxton Chevrolet and Auto Direct to Ohio State players and their families accurately reflected the vehicles’ sales prices.

According to the report, Auto Direct made money on the 10 vehicles it sold to players and their families and Jack Maxton made money on 14 of 15 sales; one vehicle was sold at a loss because it had been on the lot longer than 150 days.

A BMV investigator found vehicles bought at Auto Direct were sold for an average of $2,000 over their wholesale purchase prices, the report said.

Auto Direct owner Jason Goss told an investigator “he is not in the business to sell vehicles at a loss and has never discounted the price of vehicle in lieu of sports memorabilia or anything related to O.S.U. athletics.”

The BMV investigation found no evidence that tickets and/or sports memorabilia were included in the sales.

“The deals that I did for Ohio State student-athletes were no different than any of the other 10,000-plus deals that I’ve done for all my other customers,” said Aaron Kniffin, the salesman who sold most of the vehicles at both dealerships, in a May 10 affidavit.

Kniffin said any sales involving Ohio State players were forwarded to the general manager, who contacted Ohio State’s compliance office.

The review by the independent auto dealers association of Auto Direct sales found no evidence of improper titling or sales tax calculations and said the paperwork on all sales complied with state and federal laws.

All vehicles were sold at fair market value and profit margins were consistent with the company’s average profit per unit and the national average for used car dealers, James Mitchell, OIADA executive director, said in a May 18 letter to Goss released Tuesday by Ohio State.

There “was no preferential treatment,” Mitchell wrote.

Ohio State President Gordon Gee said Tuesday the BMV’s findings weren’t surprising.

“The university has a very strong compliance system,” he said. “We have always tried to make certain that we are on solid ground on these issues.”

Gee added: “That doesn’t mean to say we’re not going to be surprised once in a while.”

A lawyer for former Ohio State quarterback Terrelle Pryor said the BMV report confirms Pryor never received special treatment in his dealings with Auto Direct, which included a repair on one of Pryor’s cars and a $11,435 purchase of a 2007 Nissan by Pryor’s mother.

“There has been no testimony from any credible source that any OSU Student Athlete received special benefits beyond those that any customer received in having their car repaired or in considering the purchase of a vehicle,” attorney Larry James wrote in a memo Tuesday to Doug Archie, Ohio State’s athletics compliance director.

Pryor was one of five players suspended for the first five games of the 2011 season for taking money and tattoos from local tattoo-parlor owner Edward Rife, who signed an agreement in May to plead guilty to federal drug trafficking and money-laundering charges.

Pryor announced earlier this month he wouldn’t return for his senior year. He is now aiming to be selected in the NFL’s supplemental draft this summer.

The BMV report also addressed what it called “persistent allegations” that Ohio State athletes and coaches have been allowed to drive dealer-owned cars using dealer license plates.

That practice is not illegal and is allowed under BMV rules, the agency said.

“On the contrary, the statute that governs the use of dealer-plated vehicles by third parties expressly permits dealers to allow any member of the public to operate dealer-owned vehicles,” the agency said in its report.

In a May 12 interview with the Ohio Inspector General, Kniffin said Jeff Mauk, owner of Jack Maxton Chevrolet, received tickets from Ohio State coaches for giving them cars to drive. Kniffin said that was a common practice, according to the interview included in the BMV report.

A message was left for Mauk seeking comment.

Andrew Welsh-Huggins can be reached at http://twitter.com/awhcolumbus.

Copyright © 2011 The Associated Press. All rights reserved.

2 days ago

COLUMBIA, S.C. (AP) — South Carolina will not fund the state GOP’s first-in-the-South presidential primary in February, leaving officials scrambling to sort out who will pay for it.

The Republican Party insists the primary will go on, even if the GOP must come up with as much as $1.5 million to run it.

“In no way is this primary in jeopardy,” said Matt Moore, the state GOP’s executive director.

The party could go back to running the primary with paper ballots and volunteers, which is how it was done until 2008. That year, Republicans and Democrats pushed for and won state funding for the wide-open White House primaries and the state election commission started running them.

But Republican Gov. Nikki Haley, a conservative who has been making a name for herself nationally, insists that taxpayer funds be used only for what she calls core functions. She told lawmakers earlier this year that those functions don’t include primaries.

“Political parties have sufficient fundraising ability to offset the costs of partisan presidential preference primaries, and in a budget year like this one, it is my ask that we do not dedicate taxpayer dollars to something I believe does not rise to the level of a core function of government,” she wrote in a letter in March.

A measure that would have allowed the election commission to run the primaries and bill the GOP was axed last week during final budget negotiations.

On Friday, the election commission asked the attorney general whether it can use leftover money from last year’s elections– $680,000 at most — to pay for the primary, said agency spokesman Chris Whitmire. The attorney general has not yet offered an opinion.

Despite Haley’s objections, the state GOP has been persistent in asking for state funding for the primary, including during budget negotiations.

The GOP “outreach last week sought to make clear that state involvement is wise to ensure the election is fair and unbiased,” Moore said.

He said the primary will go on even if Haley vetoes plans to use leftover election commission money.

“That’s the governor’s prerogative. We respect that,” Moore said. “No matter what, we’re going to put on this primary. We’re committed to raising any funds beyond what the state may provide.”

The GOP already has raised $125,000 through filing fees from five candidates and will pick up $35,000 on Wednesday when former Utah Gov. Jon Huntsman drops off his as he launches his presidential bid, Moore said.

Still, the party would have to raise a lot more either to run a primary on its own or supplement the cash the Election Commission has. The GOP’s latest state and federal financial reports show it has nearly $137,000 on hand. An exact date for the primary has not been set.

Copyright © 2011 The Associated Press. All rights reserved.

* Dollar funding costs ease, but pressure can come back
* Greek deal edges closer but situation still shaky
* Restructuring talk seen intensifying even after a new deal

By Marius Zaharia

LONDON, June 17 (Reuters) - Dollar funding costs for euro
zone banks retreated from multi-month highs on Friday as the
blocs key policymakers looked closer to agree on how to bail
out Greece, but interbank stress was likely to persist.

Germanys Angela Merkel and Frances Nicolas Sarkozy, long
at odds over how to involve the private sector in a new aid deal
for Greece, said they had found common ground in the so-called
Vienna Initiative -- a voluntary deal by banks to maintain
their exposure. [ID:nLDE75G0JV]

The one-year euro/dollar currency basis swap spread
EURCBS1Y=ICAP, which expands when banks become less willing to
supply dollars to each other, narrowed to 29 basis points from
Thursdays 37 bps, the widest level in four months.

But risks remain in the short-term, with the Greek
government facing a no confidence vote next week which may
complicate the attempt to reach a bailout agreement in time to
plug a financing gap next month.

In the longer run, economists say talk of losses being
imposed on private Greek government bond holders could reignite
again if the country does not meet its ambitious fiscal and
privatisation targets and the swap can still test levels seen in
May 2010, just before its first bailout deal was agreed.
Weve narrowed a bit (in FX basis spreads) today, but we
are now looking for new equilibrium levels in the spreads and
those are generally at wider levels than before, said Benjamin
Schroeder, rate strategist at Commerzbank.

I could imagine some scenarios where we could hit (the May
10 levels) again -- if they cant form a new government, if they
cannot implement austerity measures then the next tranche of the
new package would be an issue.

Eurodollar futures rose 4-5 bps higher across the 2011 strip
lt;0#ED:gt; after the Merkel-Sarkozy meeting, recovering some of the
sharp falls seen earlier this week.

But Philip Tyson, head of rates strategy at MF Global, said
funding pressures were likely to remain as Greeces situation
was still vulnerable and can deteriorate quite rapidly

(The falls) weve seen over the past few days have been
just the start of the process. People have been comparing (the
potential stress in money markets from a Greek default) to
Lehman and yes, it can be huge because of the Greek contagion.

Weve recommended this morning a put spread for the
December eurodollar contract at 99.25 and 99.00 from the current
99.55 just in case we start seeing yet more pressure in these
markets, he said. EDZ1

MECHANISMS IN PLACE

However, Tyson said that while stress indicators such as
eurodollar futures and cross currency spreads could reach levels
seen in 2010, both the European Central Bank and the Federal
Reserve have mechanisms in place to avoid levels seen at the
height of the Lehman crisis at the end of 2008.

The ECB has a dollar swap line with the Fed which can be
activated, while it continues to provide euro zone banks with
unlimited euro liquidity.

Abundant ECB cash is the reason why the spreads between
Libor and Overnight Index Swaps -- a traditional gauge of
counterparty risk -- have been stable at around 12 bps this
week, compared with 25 bps in May 2010 and over 100 bps in 2008.

Morgan Stanleys head of European rates strategy Laurence
Mutkin prefers spread wideners in cross currency markets to
Libor/OIS wideners as a way to hedge against financing markets
stress because the latter are kept low by ECB liquidity
facilities, which makes the former a better risk proxy.

The stress in dollar funding markets is likely to be higher
than that in euro funding markets because the ECB can more
easily ensure the supply of abundant cash to European banks,
Mutkin said.
(Editing by Catherine Evans)

Newly introduced legislation would require U.S. government money spent on state and local transportation projects be repaid before the assets are leased or sold to private operators, potentially crimping an ongoing national push toward privatization.

The bill, by U.S. Sen. Dick Durbin (D., Ill.) ensures “that the interests of the federal taxpayer are protected when a private company seeks to operate a public asset for a profit,” Durbin said in a prepared statement Friday.

He singled out in particular the potential privatization of Midway airport in Chicago, …

Three California prisoners received “medical parole” this week, earning release simply because of their poor physical condition — including a inmate who has served fewer than four years of a 68-year sentence for a home invasion.

The decisions stem from a new state law that allows the release of medically incapacitated inmates to save the state money. These prisoners have to face “dire” health conditions and can no longer be a threat to their communities.

Craig Lemke, the first inmate to win release under the law, had been convicted of tying an elderly couple together after he broke into their home in 2006, but the parole board deemed that he is no longer considered a threat to public safety because of his poor medical state, the Los Angeles Times reported.

Under the law, if his condition improves, he would need to return to prison, the Times reported. Prison officials would not comment on the condition of Lemke.

The state, which is struggling financially to support its large prison population, passed the law in September with the hope of saving the state millions.

The Sacramento Bee reported that Lemke was so ill, he cost taxpayers $750,000 a year to guard him at a long-term care facility, and that doesnt include the medical costs.

Two others were cleared for release Thursday under the law, the Bee reported: Juan Garcia Sandoval, 78, who was sentenced to 27 years in prison, and John Joseph Swesey, 72, serving a 24-year sentence.

The decision come as the state faces pressure to solve its prison crowding problem. In May, the US Supreme Court ordered the state to remove more than 33,000 inmates after the justices ruled easing congestion is the only way to improve unconstitutionally poor inmate medical and mental health care.

Ken Gregory, a lawyer in California, called the California prison overcrowding a complicated issue that requires many changes.

“I think this solves a part of a much bigger problem,” he said.

The board previously denied medical parole to a paralyzed rapist, the Times reported. The board considered him a threat because he could still speak.

Lemke, 48, was the second inmate considered for such release.

David Gilkey/NPR

Darryl St. George, a Navy corpsman with Weapons Company 2/8 Marines out of Camp Lejeune, N.C., walks along a mud compound wall with Afghan National Army soldiers while on a foot patrol in northern Marjah, Helmand province, southern Afghanistan.

text size A A A

June 17, 2011

As budget concerns multiply, money worries have entered the debate over foreign policy strategy.

Some policymakers cite fiscal savings as one compelling reason to begin a serious withdrawal of troops from Afghanistan next month.

And the Obama administration has had to be fairly modest in its diplomatic efforts regarding the emerging democracies of the Middle East and North Africa. Its proposed $2 billion aid package for Tunisia and Egypt falls far short of being a new Marshall Plan.

“The United States is caught in a vise where an incredible fiscal conservatism is working hard at rolling back deficits, and this is impacting foreign policy considerations in very serious ways,” says Steve Clemons, a foreign policy strategist at the New America Foundation.

In Search Of A Constituency

Foreign assistance is never as politically popular as programs that benefit, say, farmers or schoolchildren. At a time when budgets are being cut, political logic seems to dictate cutting programs that mainly benefit people overseas. Especially in countries that lawmakers have grown wary about, such as Pakistan.

There’s no political constituency to keep foreign assistance alive. The public thinks that foreign assistance makes up 30 percent of the budget, when it’s one percent.

- Mark Helmke, a spokesman for Sen. Richard Lugar (R-IN)

“There’s no political constituency to keep foreign assistance alive,” says Mark Helmke, a spokesman for Richard Lugar of Indiana, the senior Republican on the Senate Foreign Relations Committee. “The public thinks that foreign assistance makes up 30 percent of the budget, when it’s 1 percent.”

A Bloomberg National Poll in March suggested that more than 70 percent of Americans believe slashing foreign aid and pulling troops out of Iraq and Afghanistan would make a substantial dent in the deficit. Fewer than half believed the same thing about cutting Medicare or Social Security benefits, which make up a far larger share of the federal budget.

“The wars in Iraq and Afghanistan and the extension of the United States around the world militarily are losing their political salience,” says Gordon Adams, an American University foreign policy professor who helped oversee the defense budget during the Clinton administration.

“People don’t like the wars,” Adams says. “Iraq is done, as far as we’re concerned. If you go into polling, what really matters to people is jobs, the state of the economy, the debt and the deficit.”

Cuts To Foreign Aid Spending

The State Department’s budget has doubled over the past decade, thanks to wars and concern about terrorism.

The Obama administration began with the hope that some of the flood of money still gushing toward the Pentagon could be redirected toward State, to strengthen diplomacy and development efforts alongside defense.

Secretary of State Hillary Clinton has warned Congress that serious fiscal constraints on this strategy would be “devastating to our national security.”

The budget agreement that averted a government shutdown in April cut spending for State and foreign operations. The cut was only $500 million from the previous year’s level, but it was $8.4 billion less than President Obama had proposed.

Further cuts are expected this year. On Wednesday, the House voted to cut foreign food assistance by 26 percent from current levels, although it rejected an amendment that would have eliminated funding for the Food for Peace program altogether.

‘We Just Can’t Afford It’

People don’t like the wars. Iraq is done, as far as we’re concerned. If you go into polling, what really matters to people is jobs, the state of the economy, the debt and the deficit.

- Gordon Adams, an American University foreign policy professor

Dollars are also starting to drive the debate about Afghanistan. A small but growing number of Republicans are calling for a swifter troop withdrawal than the Obama administration is expected to propose next month, in part because of budget concerns.

“What’s animated a lot of the conservative discussion is that it’s costing so darn much,” says Clemons, the New America senior fellow. “Money has been the pathway of conservative dissension.”

Jon Huntsman Jr., the former Utah governor and ambassador to China, is expected to announce his bid for the GOP presidential nomination on Tuesday. He made clear his concerns about the financial cost of war in an interview this week with Esquire.

“If you can’t define a winning exit strategy for the American people, where we somehow come out ahead, then we’re wasting our money and we’re wasting our strategic resources,” Huntsman said, referring to Afghanistan.

Regarding Libya, he said he never would have entered into the campaign.

“We just can’t afford it,” he said.

Spending In Afghanistan

Ronald Neumann, who served as U.S. ambassador to Afghanistan from 2005 to 2007, takes issue with the idea that budgetary concerns should shape American strategy in the war.

“This suggests we could lose the war for the wrong reasons,” he says.

Characterizing a viewpoint he opposes, Neumann says, “This war is really important — it’s really important that we keep Americans there, some of whom die, and we kill people — but if it costs too much, it’s not worth it.”

But financial considerations are an inevitable part of the calculation, says Rajan Menon, an international relations professor at Lehigh University and skeptic of the administration’s Afghanistan strategy.

Spending $10 billion per month on the war is already a tough sell, given the state of the domestic economy, and will become even more dicey if the economy heads south, Menon says.

“Afghanistan is now costing more per month than Iraq,” Menon says. “This to me is an unsustainable burden.”

Strategy Wears A Dollar Sign

The debate over money for foreign policy will continue to take many forms. Many observers note that there is a limit to how much help countries such as Egypt can “absorb” without it having a distorting or even corrupting effect on its own economy.

“One has to be careful about saying budgetary considerations are the only factor here,” says Anthony Cordesman, a national security analyst at the Center for Strategic and International Studies.

Some will argue that much of the money spent abroad is wasted, while others will contend that the U.S. provides foreign aid because it’s in America’s national security interest to do so.

For his part, Cordesman worries that American foreign policy could become pound foolish — that by not spending the money to combat a crisis in a particular country, the U.S. will end up confronting a worse crisis later.

“You end up wasting money in the guise of saving it,” he says.

Getting Ready For A Hit

The impulse will be to cut back further in the coming years, not just because of concerns about the deficit, but because the military presence in Afghanistan and Iraq will shrink, says Adams, the American University professor.

“When the U.S. finishes military engagements, whether in Korea or Vietnam, you see reductions in the foreign policy budget as well, sometimes sharper than for the military,” he says. “Sadly, I think that’s what’s going to happen here.”

But as the military footprint begins to shrink, greater responsibility will fall to the State Department.

“It’s evident that the American profile in both Iraq and Afghanistan is going to move from the Defense Department to the State Department account,” says Helmke, the spokesman for Lugar. “And the State Department account is usually whacked.”

House Republicans are planning to shift funds around to prioritize foreign aid spending in Iraq and Afghanistan. House appropriators plan to spend just under $40 billion for State and foreign operations this year, which would represent a cut of $8.6 billion. But, counting the money shifted to war-related spending, the net reduction is about $1 billion.