1) Obviously it is risky, if you could cut $487 billion from the defense budget without risk, then it would be a high alpha play.

2) I don't see how it is Obama's risky policy since it is really congress or the deficit reduction super committee that controls the power of the purse, and theretically/constitutionally the ability to declare war. So these jokers could cut almost a trillion dollars from defense over a 10 year period.

3) So Obama is in the uncomfortable position of making policy fit other policy (cutting the deficit). It would probably be irresponsible not to lay out a defense policy that did not take into account congressional action (as well as innaction)... So Obama should probably go ahead and lay out a plan for the military in a situation were a trillion dolllars was cut.

4) I am not sure why we have to cut the deficit, I think this is a debateable policy question. So I am all about blameing Obama for being too much of a deficit hawk.

For me the worst consequences of potentially cutting a trillion dollars from the military budget is that this will have a serious impact upon the bottom line of the defense industry. But it doesn't stop here.

So if the defense industry faces lower demand, it will go hunting for clients outside the U.S. and try to export more arms. It has already been gearing up to do this.

Obama has promised to increase exports, mission accomplished if you count grains, ethanol(which is no longer subsidized), and weapon systems.

This on the other hand hurts us in Egypt when demonstrators complain that the Nikes and Iphones they love are made in China and the CX gas used against them is made in the USA.

But if we cut our demand for weapon systems, but want the technological capacity to gear back up, we are simply going to want to export more weapons.

And while this may not be a war plan that counts on the cooperation of the enemy, it will be one that counts upon the cooperation of regimes in heavily islamic nations. Saudi Arabia, UAE, Oman and Kuwait.

A possible alternative to increased international arm sales is to try a sort of weapons to plowshares type build out where the nature of such domestic projects would allow these companies the capacity to gear back up for war.

I suggested before that the Obama's idea of High Speed Rail would make the most sense as a substitute market for some of the major players in the defense industry to transition into. Companies like FLUOR, GE, HAL, and others that have partial defense exposure could transition to building out american infrastucture. (not that this is deficit neutral).

I have always wondered...how quickly could a military non-entity like germany or Japan build out a respectable Armed Forces on the back of its peaceful engineering export economies.

One might think that the germany of today that is more advanced could simply from an engineering perspective be able to build out quickly?

While Von Mises (and Ron Paul) are certainly anti-war, the idea of an industry time lag is certainly Austrian. If we cut, how quickly could we build back up?

What I don't see is how you can cut a trillion dollars from the defense industry without all sorts of consequences. Increased unemployment in the U.S. and more advanced weapon systems in the hands of semi-friendly fragile regimes.

The anti-deficit crowd has no political economy. A lot of these folks are confused by the narrow state action doctrine, So they think the armed forces, but don't think Lockheed Martin. They have never seen the top 100 U.S. federal contractors. 48.7 billion a year is slightly less than the DOD paid to Lockheed Martin and Boeing combined, 54 billion. Still 48.7 billion probably ends up being a 35-40 billion cut to dollars obligated by DOD. If you are Lockheed Martin, for certain national defense reasons, your money can't come from just anyone, but it has and will continue to come from muslim nations in the middle east, as DOD cuts back.

These budget cuts are so deflationary, and will result in exporting more weapons to not so friendlies overseas. All because of a deficit fetish, that is a relic of the gold standard and only applies to non-sovereign currencies (i.e. Greece and the Euro, or California and the dollar).