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During the first six months of 2008, commodities looked to be the savior of investors who were losing money in the stock market. In the second half, particularly for those who had invested in oil, futures contracts were their undoing.

At the start of 2009, commodities have little appeal. Most analysts expect prices to remain under pressure as worldwide demand continues to wane for basic materials of all kinds.

"For commodities to do well, they need demand," said Matt Zeman, head trader at LaSalle Futures in Chicago. "Until we see the physical demand picking up, we’re going to have a hard time moving forward."

Still, analysts expect the futures markets to escape the sharp swings they saw in 2008. Prices might not move much higher, but analysts predict the market will be more stable, which means what consumers pay for staples like gas and food won’t increase much either.

Commodities soared in 2008 — including oil reaching a once-unthinkable $147.27 a barrel in July and gold shooting up to a record $1,033.90 an ounce in March — on a wave of unprecedented global growth, especially the booming economies in China and India. Meanwhile, the dollar fell considerably against other major currencies, making commodities all the more attractive as a hedge against the weaker greenback.

The volatility on Wall Street during the first half of the year also raised commodities’ profile, as hedge funds and other big investors poured into the futures markets hoping to grab hold of big returns. But a large part of the buying, especially in oil, was fed by speculators who believed demand would only soar.

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"People bought oil and commodities because they thought the rest of the world would continue to consume," said Phil Flynn, senior energy analyst with Alaron Trading Corp. "They were wrong. And they were wrong in a spectacular fashion."

Prices began to skid as it became clear the U.S. economy was weakening rapidly — a trend exacerbated by the paralysis in the credit markets after the collapse of Lehman Brothers Holdings Inc. in September. Crude’s plunge was the most dramatic, with a barrel dropping to $35 in late December, but the chaos in the market was evident in other commodities:

•After setting its record March 17, gold dropped more than $300 an ounce to just under $705 in November. The metal’s path was a broken one, as investors were alternately attracted by its reputation for holding its value and turned away by commodities’ tarnished image payday cash loans. At year’s end, it was trading at about $875.

•Wheat topped $12.70 a bushel in March, lifted in part by bad weather in several growing areas, but also on the belief that demand would increase in a wealthier global economy. By the end of the year, wheat was trading in the $5 range.

•Copper rode expectations of rising demand in China to a record $4.22 a pound in July. At year’s end, battered by the recession, it was trading under $1.30.

At first, the drop in commodities was seen as beneficial; with prices cheaper, demand might come back. But as the huge decline continued, the lower prices were worrisome in and of themselves as indicators of just how weak the global economy is.

There are a number of variables that make it hard for analysts to predict much about the commodities market in 2009.

One is what will happen to interest rates in other countries, and in turn, to the dollar. The Federal Reserve has sent U.S. rates about as low as they can go. Lower interest rates can spur economic activity, as cheaper borrowing costs give consumers more money in their pockets to spend. But lower rates can weigh on currencies as investors seek higher returns elsewhere.

It’s not known whether central banks across Europe and Asia will also slash rates, further undermining their own currencies and potentially boosting the greenback. If their rates are stable, the dollar could weaken, and commodities might get a lift.

"The question is, what is going to happen to the dollar?" said Rob Kurzatkowski, a futures analyst with OptionsXpress. "Everybody is kind of left scratching their head."

There’s also uncertainty about inflation, which can rise in an environment of low borrowing costs. That could benefit commodities. "If we keep interest rates low for some time, inflation comes back with vengeance," Zeman said.

Gold is perhaps the biggest beneficiary in times of inflation and stock market volatility; the belief is that gold has more potential to advance than other investments. Jon Nadler, senior analyst at Kitco Bullion Dealers Montreal, expects gold prices to trade within a range of $630 to $980 an ounce next year, with an average hovering around $810.

One factor that stands in the way of another commodities boom in the new year is that investors, having been so badly burned by the plunge during 2008, are unlikely to flood back into the market. Signs of an improving global economy should give the futures markets back some strength though.

But that will mean markets that are more orderly, perhaps even more sensible, which should help consumers and the overall economy.

"Less volatility presents less price risk, which in turn should translate into lower costs to the consumer," said Stephen Platt, futures strategist with Archer Financial Services.

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Gainesville’s first community hospital has been on life support since the Shands Healthcare system in northern Florida bought it a dozen years ago.

Now, the plug is being pulled on 80-year-old Shands AGH. Next fall, its nonprofit parent company will shut the 220-bed hospital and shift staff and patients to a newer teaching hospital nearby as part of an effort to save $65 million over three years across the system.

Like many U.S. hospitals, Shands is being squeezed by tight credit, higher borrowing costs and a jump in patients — many recently unemployed or otherwise underinsured — not paying their bills.

All that has begun to trigger more hospital closings — from impoverished Newark, N.J., to wealthy Beverly Hills, Calif. — as well as layoffs and scrapping or delaying building projects.

More closings and mergers are on the way, industry analysts predict.

"They’ll get swallowed up by somebody else, if they need to exist, and if they don’t, they’ll just close," said Tuck Crocker, vice president of the health care practice at management consultant BearingPoint.

Most endangered are rural hospitals and urban ones in areas with excess hospital beds and lots of poor, uninsured patients. Hospitals, which employ 5 million people, are reporting donations and investment returns are down, patient visits are flat and profitable diagnostic procedures and elective surgeries are declining as people with inadequate insurance delay care. But those patients are turning up later at ERs, seriously ill, making it tough for hospitals to lay off nurses and doctors.

All those problems are aggravating long-standing stresses — stingy reimbursements from commercial insurers, even-lower payments that generally don’t cover costs for Medicare and Medicaid patients, and high labor and technology costs.

In the St. Louis area, no hospitals have shuttered recently, although earlier this year Kenneth Hall Regional Hospital in East St. Louis closed its trauma unit and reduced its services to just an emergency room and some mental health care. At least two local hospitals, Forest Park and St. Louis University, operated at a loss in 2006, the latest year financial figures are available from the state.

Meanwhile, some area hospitals already have begun to make staff reductions.

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SSM Healthcare-St. Louis, which operates seven local hospitals, cut about 200 jobs in the last year. Some of the cuts, including about 45 positions at SSM’s St. Mary’s Health Center in Richmond Heights and 25 at its DePaul Health Center in Bridgeton, came as a result of the hospitals seeing fewer patients than expected. Missouri Baptist Medical Center in Town and Country, a member of the BJC HealthCare system, announced layoffs of about 40 people in June following similar declines in patient visits.

Hospital executives and consultants say the growing number of people with high-deductible health plans is boosting unpaid patient bills. Many worry health reform efforts by the Obama administration could bring cuts in Medicare reimbursements, and many cash-strapped states already have begun cutting payments for poor people covered by Medicaid cash advance.

In the past few months, patients and insurers have been paying hospital bills more slowly. As a result, some think hospitals will start demanding upfront payments for elective procedures.

Tim Goldfarb, CEO of Gainesville-based Shands Healthcare, said his system, Florida’s second-largest provider of charity care, has seen bad debt jump 20 percent this year from patients with no insurance.

Shands already has paid off variable-rate bonds to avoid higher interest rates, deferred roughly $25 million in equipment purchases, shifted management meetings to church halls and adopted employee suggestions to save millions more.

Goldfarb believes closing Shands AGH will save nearly $100 million over seven years, mainly by avoiding costly renovations, but some administrative jobs will go.

Around the country, while some hospitals still are doing well, closings and bankruptcies seem to be picking up.

In New Jersey, where 47 percent of hospitals posted losses in 2007, five of the 79 acute-care hospitals closed this year. In Hawaii, nearly every hospital is in trouble, with two filing for bankruptcy.

All over, hospitals are cutting costs by outsourcing services like housekeeping and security and trimming staff through layoffs, hiring freezes and attrition. Most are trying not to touch patient care jobs — nurses, pharmacists, therapists and X-ray technicians — as those already have staff shortages.

"The last thing we can do is skinny down our staffing right where we need it the most," said Mike Killian, marketing vice president for the Beaumont Hospitals in suburban Detroit.

There, auto industry job losses and other factors now equal fewer patients with commercial insurance. The system expects a $22 million loss, its first in at least 40 years, Killian said.

Rich Umbdenstock, chief executive of the American Hospital Association, said some of the hardest-hit hospitals began reducing staffing and services last spring. He expects some to eliminate services — such as behavioral health treatment, or burn units — rather than weaken their entire operation.

Meanwhile, an industry database of more than 550 hospitals found their third-quarter investment results amounted to a combined loss of $832 million, down from a $396 million gain a year earlier.

"They’re having serious problems getting the capital they need for needed renovations and upgrading their facilities," said Mike Rock, a lobbyist at AHA.

At Exempla Healthcare, with three hospitals in Denver and its suburbs, Chief Executive Jeff Selberg said there’s usually a 5-7 percent annual profit margin, but this year investment losses wiped that out. He’s scaled back a $200 million plan to upgrade facilities, information technology and clinical equipment.

Selberg has seen a slight increase in bad debt and expects more problems.

"We feel like the wave is coming, but it hasn’t hit yet," he said, "and we don’t know how big this wave is going to be."

BLYTHE BERNHARD OF THE POST-DISPATCH CONTRIBUTED TO THIS REPORT.

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Tumbling gasoline prices gave consumers more purchasing power last month and led to a rise in consumer spending, even as personal income sags and Americans continue to worry about their jobs in a rapidly weakening economy.

The Commerce Department reported Wednesday that consumer spending, when adjusted for inflation, rose 0.6 percent in November, its largest gains in two years. The increase followed a 0.5 percent decline in October.

And although the unadjusted rate of consumer spending declined 0.6 percent in November, following a 1 percent drop in October, economists suggested the relative increase in spending was a rare piece of good news for the faltering economy.

Households continue to try to save more money as many Americans adjust to stagnant wages and reduced working hours and brace for the possibility of layoffs. The Commerce Department reported that personal savings increased 1 percent in November compared with 0.7 percent in October. Personal incomes dropped by 0.2 percent last month after increasing 0.1 percent in October.

Meanwhile, weekly jobless claims continued to hit new highs. Employers cut 533,000 jobs in November.

The Labor Department reported on Wednesday that the number of people filing for unemployment insurance for the first time rose to 586,000 in the week ending Dec. 20, up from a revised 556,000 a week earlier.

A Labor Department analyst said auto-related layoffs were a factor behind the rise. The four-week average of initial claims, which smooths out fluctuations, rose to 558,000. That’s the highest since December 1982, when the economy was emerging from a steep recession payday loan.

There was some improvement in the number of Americans continuing to seek unemployment benefits, which dropped slightly to 4.37 million from 4.39 million the previous week. Wall Street economists had expected the number to increase to 4.4 million. Economists consider jobless claims a timely, if volatile, indicator of the health of the labor markets and broader economy. A year ago, initial claims stood at 353,000.

America’s manufacturing sector marked another weak month, with new orders to factories for durable goods falling 1 percent to $186.9 billion, the Commerce Department reported Wednesday. Although it was the fourth consecutive month of declines, the drop was smaller than Wall Street’s expectations of a 3 percent decline.

Helping to drive down that November number was a 37.7 percent drop in demand for commercial aircraft. Industrial production has declined 5.5 percent so far this year as automotive assembly lines shut down and house construction grinds to a near standstill.

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The Associated Press contributed to this report.

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Nichole Carter of Chesterfield says she has a passion for shoes. So much so that if a heel became badly damaged she used to pitch the pair and buy something new.

But the economy has put a stop to that. Now she takes the shoe to a cobbler to see if it can be repaired.

"As much as I love shoes, they aren’t as important as food and gas," she said.

Carter is among a growing number of consumers tightening their belts by pumping new life into a range of older items instead of spending money on higher-priced replacements. The result is that all sorts of repair shops are seeing a boost in business.

"I’m so busy I can’t even see straight," said John Glover, who has owned Brentwood Shoe & Luggage Repair, 2314 South Brentwood Boulevard, for 14 years. "It seems people are trying to get everything fixed. I’ve never been this busy before."

Jeff Lipson, one of the owners of Cobblestone Quality Shoe Repair, tells a similar story. He said business at Cobblestone, which has locations in Creve Coeur, Chesterfield, Ladue and Town and Country, is up about 30 percent over this time last year.

"There’s been a dramatic upcharge primarily in the last six weeks," he said.

The repair business is booming across the country.

Louis Johnston, an economics professor at the College of St. Benedict and St. John’s University in Collegeville, Minn., has analyzed U.S. Department of Commerce data on repair service expenditures and found increases during tough economic times.

He said there was a big spike between 1980 and 1983 and smaller spikes around 1990, 1991, 2000 and 2001.

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"We see the percentage of what consumers spend on repairs goes up when the economy is in a recession," he said. "People cut back on durable goods and put more into repair services."

Jim McFarland is spokesman for the Shoe Service Institute of America, a trade group whose members are retail shoe repair operators, their wholesaler trading partners and suppliers health insurance plans. To hear him tell it, his business is the business to be in.

"Shoe repair is nuts," he said.

McFarland, who owns McFarland’s Shoe Repair in Lakeland, Fla., said there are about 7,000 repair shops in the United States. At his store, there are so many pairs to be fixed, he’s run out of space.

"They’re all over the floor," he said.

This "run" on repairs has pretty broad reaches — from fixing up appliances to getting clothing mended.

At Authorized Appliance and Repair, 2355 Hampton Avenue, service manager Dave McCormick said business at his store also was up. Previously, a consumer might pitch a $300 microwave that needed a $150 repair, but that’s not as likely to happen now, he said.

Darko Simic, a tailor at Sadie Alternations at 7612 Wydown Boulevard in Clayton, said he had been seeing an increase of older clothing coming in for alterations recently.

"We are busy," he said. "When the economy is up, you see new clothes. When the economy goes down, we alter older clothes. I can definitely see it."

James Morley, an economics professor at Washington University, said it would make sense that when there was a pickup in repair services there would be a corresponding decline in the purchase of new items.

U.S. retail sales fell for a record fifth consecutive month in November, and the tumble continued this month. Sales at stores open at least a year fell 0.4 percent in the seven days through Dec. 13 from a year earlier, the International Council of Shopping Centers and Goldman Sachs Group Inc. said Tuesday.

"It’s cheaper to get things fixed," Morley said.

And that’s what folks are doing at Meyer Appliance in Belleville. Business has been increasing in the past few months, said owner Bill Meyer.

"This time of year, around Christmas, it’s usually a slow time, but we can’t say that’s so now," he said.

gappleson@post-dispatch.com

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The fairy tale tram rattles along Bahnhofstrasse, Zurich’s posh shopping street, beneath the twinkling Christmas lights as if this was just any other year.

Inside the tram, children listen to tales of Santa Claus, outside their parents rush from shop to shop, loaded with bags, ignoring the tales of global economic doom and gloom.

Retailers are rejoicing about record sales and a table in restaurants is as hard to get as a hotel room in ski resorts.

While recession has already turned into the nightmare before Christmas elsewhere, the Swiss are still enjoying the benefits of a five-year long boom which has added thousands of jobs and boosted wages in the already prosperous country.

“I am still shopping and will continue to do so,” said Edith Weibel Sovilla.

“I, personally, have not felt any impact from the crisis, but I am watching it and will watch it in the future,” the communications worker said whilst browsing in a posh Max Mara shop in Zurich.

The Swiss will ultimately not be able to just shop away the recession, which the government expects to be the worst since 1991 as demand from elsewhere in the world slows, weighing on exports, the country’s main driver of growth.

But the $490 billion economy, which some feared might face an Iceland-style meltdown after the subprime-related write-downs of its largest bank UBS of some $50 billion, appears to be in pole position to make it through the crisis as a winner no fax pay day loans.

“Switzerland has got almost everything right over the last five years,” said Holger Schmieding, European chief economist at Bank of America. “They are now well placed to weather the recession and to be at the forefront in the next recovery.”

The Swiss economy has grown faster than the euro zone over the last five years and while the Swiss government sees the economy shrinking by 0.8 percent next year, many forecasts for the euro zone and the United States are much more depressing.

“The recession in Switzerland will be less deep than in the euro area,” said Andres Fuentes, the Organization for Cooperation and Development’s (OECD) expert for Switzerland.

The 7.6 million Swiss are among the world’s highest per capita earners and the country of snow-capped mountains and crystal-clear lakes tops international rankings when it comes to quality of life as well as economic competitiveness.

Even 18 months into the crisis, the country is close to full-employment with a jobless rate of just 2.7 percent.

Many of its high-quality products ranging from watches, chocolate and medicines to solar cells and machinery, look better positioned to weather the downturn than other branches such as Germany’s and America’s car industry.

BANKING COMEBACK 

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As dismal as 2008 has been for solar stocks, next year doesn’t look any brighter.

Funding for solar projects and factory expansions remains scarce, prices on panels are falling faster than expected as supplies jump, and a dramatic drop in oil prices has tempered investor appetite for renewable energy stocks.

There is palpable optimism, however, that the new U.S. presidential administration will move rapidly on legislation to boost demand for alternative energy sources. Still, it remains to be seen how quickly that would get done and what form it will take.

“It will be a tumultuous year for most solar companies,” said Karina Funk, an analyst with Winslow Green Funds in Boston.

The WilderHill Clean Energy index, whose components include SunPower Corp, First Solar Inc, Suntech Power Holdings Co Ltd and other solar companies, is down about 70 percent so far this year. That far surpasses the nearly 40 percent decline in the Standard & Poor’s 500 index in 2008.

The gloom over solar stocks followed a sharp run-up in 2007 as investors banked on increased concerns about climate change and rising oil prices to spur demand for clean energy sources.

Those trends still make solar a good long-term bet, say analysts, who also expect the weakened global economy to shake out an industry that has scrambled to ramp up new production lines and factories in recent years.

“We need to see some folks go bankrupt,” said Wedbush Morgan analyst Al Kaschalk. “There is too much in the marketplace, and too much noise. I wouldn’t be surprised to see folks as they come out of Q4 looking a little less stable cheap pay day loans.”

Large, well-funded U.S. players such as Energy Conversion Devices Inc, SunPower and First Solar will survive the turmoil, added Kaschalk.

Winslow’s Funk also said she favors Energy Conversion Devices, the maker of thin solar products that can be integrated into buildings, and First Solar, which does not use the high-priced polysilicon that dominates the industry in its panels, because their technologies set them apart from rivals.

WHAT HAPPENED TO DEMAND?

Even before the dramatic tightening of credit markets and broad market turmoil, investors had cooled to solar after a pullback in Spanish and German government subsidies that threatened to leave the fast-growing market awash in solar panels next year, driving down prices and profit margins despite overall global demand growth.

In recent weeks, the prospects have dimmed as tight access to credit clouds the demand picture.

Last week, the world’s largest solar cell maker, Q-Cells, cut its outlook and said the solar market would stay subdued well into 2009. That announcement has been followed by revenue warnings from companies all along the solar supply chain. Chinese solar cell maker JA Solar Holdings Co, U.S. solar installer Akeena Solar Inc, and MEMC Electronic Materials Inc, which makes the solar industry’s key raw material, polysilicon, have all revised their sales outlooks for the current quarter.

In its statement on Wednesday, MEMC said a lack of available credit had limited customers’ purchasing ability. 

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Lee Enterprises Inc., the parent company of the St. Louis Post-Dispatch, said Monday that its independent auditor would probably raise concern about the future of the company when Lee files its annual report by year’s end.

KPMG has told the Davenport, Iowa-based publisher that it will file a "going concern" statement unless Lee can refinance $306 million in debt by the end of December. Typically, auditors issue such a statement as a warning that a company may fail.

Lee also said it planned to write down at least $180 million in assets for the fourth quarter of its fiscal year ended Sept. 28. That move, unless lenders agree otherwise, would trigger a default on the $306 million in debt that Lee assumed when it bought Pulitzer Inc. in 2005. That default, in turn, would trigger a default on credit agreements Lee renegotiated in October. The company said that it was talking with lenders to restructure the $306 million debt, due in April, and that it continued to pay down the liability.

"Lenders have shown a willingness to work toward acceptable solutions to help us avoid violating performance conditions in our debt agreements," Lee chief executive Mary Junck said in a statement Monday wired payday loan.

Like most newspaper companies, Lee has been hit by falling advertising revenue and circulation as customers and advertisers have migrated to the Internet and cut back because of the weak economy.

"Even in this recession, Lee continues to generate substantial cash flow, and we continue to believe that Lee will emerge strong when all the national economic turbulence ends," Junck said.

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Belgian ministers were to meet later on Monday to decide what action to take after a court ruling derailed a state-led break-up of stricken financial group Fortis (FOR.BR: Quote, Profile, Research, Stock Buzz) and part sale to France’s BNP Paribas (BNPP.PA: Quote, Profile, Research, Stock Buzz).

Prime Minister Yves Leterme has said a cabinet meeting on Monday evening will determine what action the government will take after the appeal court’s judgment in favor of some 2,200 angry shareholders.

He said on Sunday that an appeal to the Supreme Court, only possible in the case of a procedural error, or a bid to reopen the case as an affected third party, were the likely options.

Trade in Fortis shares will be suspended for two days, Fortis announced on Monday, pending a statement on the financial impact of the ruling. It would not have a significant negative impact on its current cash position, Fortis added.

A planned December 19 shareholder meeting in Brussels would go ahead, but it would now vote on whether to postpone the main agenda point — on continuing Fortis’s activities.

The court’s decision late on Friday has thrown a huge spanner in transactions to carve up the troubled financial group by the Dutch and Belgian governments and the latter’s deal with BNP Paribas.

BNP shares were the weakest in the FTSE Eurotop 300 .PGL.FTE3, down 8 low fee payday loans.5 percent at 40.095 euros at 0950 GMT.

The Brussels appeal court froze for 65 days decisions taken by the Fortis board at the start of October on the company’s carve-up, and ordered that Fortis shareholders be allowed a say by February 12.

The deals came within a week of an 11.2 billion euros ($14.86 billion) cash injection by the Belgian, Dutch and Luxembourg governments which failed to calm investors.

Under the court decision, the Belgian state would be forbidden to sell Fortis assets to BNP Paribas before February 16, 2009, and would face a 5 billion euros penalty if it did.

BNP was expected to have closed its deal to buy Fortis assets this week, but Fortis said that would be postponed.

The Dutch state could face a similar penalty if it tried to sell the Dutch businesses it took control of for 16.8 billion euros on October 3.

EXPERTS TO REVIEW DEALS

The court also ruled that a panel of five experts should determine whether the Belgian, Dutch and Luxembourg governments were right to get stakes just short of 50 percent for their capital injections at the end of September.

They should also assess the legality of the sale to BNP and whether shareholders were fairly treated. 

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Global miner Rio Tinto, saddled with nearly $40 billion in net debt, said it would cut 13 percent of its workforce, slash capital spending and sell more assets as it battles a collapse in commodity prices.

Rio, which mines a range of metals and minerals from aluminum and copper to gold and diamonds, has been under pressure to detail plans to cut borrowings since its share price slumped after larger rival BHP Billiton scrapped a $66 billion takeover bid for the company last month.

“What they’ve done has more than allayed fears in the market that they were going to come and have an equity issue,” said Tim Schroeders, portfolio manager at Pengana Capital in Melbourne.

“Drastic times call for drastic measures. They’ve addressed all parts of the equation. They’ve definitely gone into survival mode, which is appropriate given the market circumstances,” Schroeders said.

Rio’s London shares jumped 11.3 percent to 1,400 pence by 9:15 a.m., outperforming a 4.2 percent increase in the UK mining index. Its Australian shares closed up 12 percent as investors had anticipated its announcement, said UBS analyst Glyn Lawcock.

The group’s shares had dropped 54 percent in the past month, more than five times the drop in the broader market.

Rio said it would reduce its global headcount by 14,000, including nearly 6 percent of its own employees and more than half its contractors, and increase the range of assets it was looking to sell, but said it was too early to be specific cheap car insurance.

“Given the difficult and uncertain economic conditions, and the unprecedented rate of deterioration of our markets, our imperative is to maximize cash generation and pay down debt,” Rio Tinto Chief Executive Tom Albanese said.

“We will minimize our operating and capital costs to appropriately low levels until we see credible and meaningful signs of a recovery in our markets, but will retain our strategic growth options.”

SLASHES 2009 CAPEX

Rio said it would slash capital spending next year by more than half to $4 billion from the previously forecast $9 billion.

Some projects would be deferred and others canceled, with details provided at year-end results due in February.

The group also canceled plans to boost its dividend by at least 20 percent this year and next.

In August, as Rio was fighting off the hostile BHP bid, it raised its interim dividend by 31 percent, but on Wednesday it said the total 2008 dividend would remain flat at 136 cents.

Rio took on huge bank debt to fund last year’s $38 billion acquisition of Alcan, and pledged to raise $15 billion, most of it this year, from selling non-core assets, including Alcan’s packaging business and Rio’s U.S. coal business. 

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The Obama administration and Congress should order a two-year “strategic pause” in major new Pentagon procurement to allow development of a more sustainable national security plan, according to a study by a nonpartisan think tank with close ties to key Democrats.

“The current financial sector crisis and the associated cost to taxpayers make large-scale increases in defense spending unimaginable for the next several years,” said the report, prepared for the Center for National Policy and due to be released on Tuesday.

The Washington think tank is run by former Democratic Rep. Tim Roemer of Indiana, a member of the 9/11 Commission who may land a top intelligence post under President Barack Obama.

A copy of the report was obtained by Reuters.

“The resources are too limited and there’s really no room for error anymore,” Scott Bates, who coauthored the report, told Reuters in an interview. U.S. defense spending grew 86 percent over the past eight years, with unclear results, the report said.

Bates said it was a good time for a strategic halt in weapons spending, given the start of a new administration, plans to wind down the U.S. war in Iraq, fresh faces in Congress, mounting public frustration with business as usual in Washington and the worsening global financial crisis.

“We’ve been operating in emergency mode for the past seven years and it’s time to collectively catch our breath and develop the force structure we need for the future,” Bates said.

The U.S. military’s current weapons are already a generation ahead of other possible enemy states, he said.

Several Washington think tanks have issued recommendations for the Obama administration in recent weeks, but the Center for National Policy (CNP) is the first to call for a two-year pause in spending on new weapons.

The Center for Strategic and International Studies released a report for a congressional commission on Monday concluding that cybersecurity is now one of the major national security problems facing the United States, but any solution needed to respect American privacy and civil liberties values fast payday loans.

The CNP report urged the new administration to focus on winning the wars in Iraq and Afghanistan, rebuilding U.S. land forces, increasing the size of the Marine Corps and the Army, and phasing out the use of private security contractors by 2014, as well setting up a joint command to work on cybersecurity.

The Obama administration should review all major arms programs and set clear priorities about which should continue to be funded, and take steps to cut costs across all military branches, it said.

Specific recommendations included ending production of the Lockheed Martin Corp (LMT.N: Quote, Profile, Research, Stock Buzz) F-22 fighter; scaling back purchases of the F-35 fighter, also being built by Lockheed; focusing more on unmanned aerial vehicles; and increasing the size of the Navy, but with more submarines and lower-cost, smaller ships.

The think tank also raised serious concerns about the Army’s Future Combat Systems $230 billion modernization program, led by Boeing Co (BA.N: Quote, Profile, Research, Stock Buzz) and SAIC Inc (SAI.N: Quote, Profile, Research, Stock Buzz), and said none of the 14 separate weapons under the program should move into production until they meet tough technological readiness standards.

Obama has underscored the need to reform Pentagon spending, which has been plagued by cost overruns and chronic schedule delays. Defense Secretary Robert Gates, who has been asked to stay on by Obama, has told the armed services to focus more on winning today’s wars than developing weapons for future conflicts. 

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