Defense Cuts Make Wall Street (and countless others) Nervous

As the bottom has fallen out of the economy for the umpteenth time in the last 12 years, Wall Street has tossed its girth into the defense budgetary ring.

The hand-wringers and pacers of the stock exchange met discreetly with Pentagon officials. A few crumbs from this hush-hush gathering have been tossed to interested wonks out on the floor.

Wall Street is concerned defense spending will dry up as it did at the end of the Cold War. The Pentagon in this series of planned meetings was on hand in New York to assuage fears, though few, if any, were convinced.

While there are concerns about looming cuts, the Pentagon assured financial leaders, as it has stated publicly, its plan to cut $100 billion over 5 years will allow DoD to cover its personnel and procurement costs. The large portion of the cuts will come from overhead and low-priority programs, according to defense officials.

But financial types aren’t buying it. Wall Street says investors are worried and defense industry executives are scrambling for new revenue streams to replace the defense contracts they envision will slow down considerably.

One analyst noted if the national deficit is increasing by a billion dollars every six hours, it is likely defense will have to play a bigger role in the deficit solution. JP Morgan predicted defense will have a difficult time outperforming the broader market. Standard and Poor’s Aerospace and Defense index, while rising 6 percent this year, is off 25 percent from 2007.

Financiers and defense denizens plan to meet again. Gate’s approval of these gatherings stands in stark contrast to predecessor Donald Rumsfeld who refused to engage the money changers.

What impact can Wall Street’s involvement have on defense budgetary policy?

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