What Automatic Spending Cuts Would do to U.S. Defense Industry

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The looming automatic spending cuts would include a major hit to the U.S. defense industry, slashing $500 billion from the Pentagon budget over 10 years.

The cuts, known as sequester, would result from a law enacted in summer 2011 following Congress' failed attempt to find a balanced way to trim federal spending. Policymakers in Washington sought to resolve the issue again in December after elections, but the only thing agreed upon then was a two-month extension.

With talks set to resume on March 1, expectations have dimmed among senior defense officials that U.S. President Barack Obama and Congress will succeed in mapping out an all-encompassing deficit-reduction plan before the massive spending cuts envelope the country.

As a result, the Defense Department is prepping to ground military aircraft and radio ships back to port should the substantial cuts come.

Reductions in ship and pilot training, flying hours and equipment maintenance would also have to be implemented. Plus, civilian hiring freezes, travel halts and a decrease to base spending are all expected.

The uncertainty surrounding what's ahead has brought widespread concern. U.S. Defense Secretary Leon Panetta voiced his unease during a recent Pentagon briefing.

"(We) have no idea what the hell's going to happen. All told, this uncertainty, if left unresolved by the Congress, will seriously harm our military readiness," Panetta said.

How Defense Loses in Automatic Spending Cuts

The effects of reduced spending have already started, as many government contractors have simply left the industry, anticipating the worst.

More are ready to exit following the Pentagon's fresh announcement last Thursday that it is ready to reduce defense contracting as it waits in the wings for decisions from Capitol Hill.

Many of the contractors who left have shifted to more stable sectors. Among the ones that remain, plenty are finding it difficult to secure loans to fund operations. In addition, employers have to deliver more pink slips to quality workers.

"They're losing good people whom they likely won't get back. And with them goes the cutting-edge expertise," Retired Gen. Lawrence Ferrell, president of National Defense Industry Association, told FOX Business Network.

Furthermore, long-term defense planning is hanging in the balance. Since Congress has failed to pass an appropriations bill for this year, leaving spending frozen at last year's budget levels, future arrangements have been stalled.

Not Just Spending Cuts That Are Troublesome

Also causing concern around Washington is the debt ceiling debate scheduled to begin the same time as budget talks.

The country hit the $16.4 trillion debt limit on Dec. 31. The threat of the U.S. government facing a detrimental shutdown during budget negotiations creates what Panetta calls a "perfect storm of budget uncertainty."

Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, chimed in during the briefing, adding, "We have to now take measures to prepare ourselves for that eventuality [of a government shutdown]."

Panetta and others worry that the Republican-controlled Congress will be unwavering in negotiations with Democrats. The GOP relented on taxes during fiscal cliff talks and is expecting something in return - steep spending cuts.

President Obama has said repeatedly he won't bargain when it comes to raising the debt ceiling.

During a press conference Monday, the president said the House GOP likely has the needed votes to carry through threats to shut down the government when the opposing parties begin haggling over lifting the debt ceiling.

In a cautionary note, President Obama said it would be a grave error to let the government default or merely stall on raising the ceiling. He added it would harm the recovering U.S. economy.

"I suspect the American people would blame all of Washington," said the president. "If the issue is deficit reduction…getting our debt in a sustainable place, the Republicans will have a partner in me."

We'll see soon enough if these "partners" can agree on spending cuts.

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