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 $100million for the U.S. in missiles alone, according to estimates.
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.’
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.’
Mr Fisher warned there were signs that the speculative style of trading that had helped fuel the financial crisis was beginning to resurface.
‘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 $300billion.
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.