Faced with 'eye popping' deficit, Reagan may pare Pentagon budget
The Pentagon's budget is running a collision course with the nation's Treasury deficit. President Reagan is under strongest pressure from his Cabinet and associates to cut defense expenditures. At the same time, political demands are mounting in Congress for more federal aid to the unemployed.
Four former United States Treasury secretaries are scheduled to testify today (Jan. 10) on the increasing strains on the global economy before a Senate subcommittee under Sen. Charles McC. Mathias Jr. (R) of Maryland. They are former secretaries Henry H. Fowler, William E. Simon, W. Michael Blumenthal, and G. William Miller. Some assert the world is threatened by a ''debt bomb'' created by global recession and nations' record indebtedness.
In this complicated international crisis President Reagan must first propose his own budget solution and then fight for it through a disturbed Congress.
There appeared some signs last week that President Reagan might yield to intense pressure within his official family to seek defense cuts. Washington waited breathlessly for the White House reaction to the recommendations of a budget-drafting session held by Budget Director David A. Stockman.
Present was Defense Secretary Caspar W. Weinberger, who has heretofore demanded $247 billion for the Pentagon for the fiscal year 1984, which starts Oct. 1. This is part of the overall Reagan schedule of $1.6 trillion for five years. Now Mr. Weinberger agrees to try to cut military spending as much as $11 billion. Uncertain is Mr. Reagan's reaction.
What threatens his entire economic program is the prospect of a staggering $ 200 billion deficit for the year. At a press conference Jan. 5, Mr. Reagan revealed the complexity of the situation: There is evident need to cut federal expenditures until economic recovery takes care of the matter, but shall this be done in social programs or military expenditures?
Mr. Reagan said, ''Clearly we're facing very big deficits. The federal budget must not become a roadblock on the path to long-term economic recovery.''
Economic signs were scanned closely in what could be a fateful week of decision:
* The unemployment rate held at 10.8 percent in December; many had thought it would rise. Teen-age unemployment, at 24.5 percent, was at a four-decade high. On the other hand, unemployment of factory workers moderated, indicating that production decline may have slowed.
* Wall Street's Dow Jones industrial average, a favorite indicator, reached an all-time high, inspiring hopes of business recovery. On Thursday the Dow surged 26.03 points to a record 1.070.92.
* Favorable signs: partial recovery in the residential construction market; also a decline in interest rates.
* Unfavorable signs: worldwide over--extension of credit by lending countries. One example: the nine largest US banks have lent about 130 percent of their equity to Mexico, Brazil, and Argentina.
Behind extraordinary uncertainty on the budget, which must be submitted to Congress in two weeks, is the prospect of big deficits. One member of the White House inner circle called them ''eye popping.'' They could reach $280 billion by 1988. Mr. Reagan hinted at a shift on defense outlays last week when he said of the Pentagon budget, ''If it can be cut it will be cut.''