This is a rush transcript from "Special Report," January 5, 2012. This copy may not be in its final form and may be updated.


PRESIDENT BARACK OBAMA: Our milit ary will be leaner, but the world must know, the United States is going to maintain our military superiority with armed forces that are agile, flexible, and ready for the full range of contingencies and threats.

LEON PANETTA, U.S. DEFENSE SECRETARY: But make no mistake, we will have the capability to confront and defeat more than one adversary at a time.

DOV ZAKHEIM, FORMER DEFENSE DEPT. CONTROLLER: If they're not going to give anything up, they don't have the resources to do all the things they say they want to do. It just doesn't add up.


BRET BAIER, ANCHOR: Well, the president making a historic trip to Pentagon briefing room to out -- to lay out rather, defense cuts that will be coming, focus shifting towards Asia-Pacific, away from ground wars toward air and sea power. The Army and Marine Corps will get smaller. The F-35 fighter jet production will be slowed but not stopped. Military retirement and health benefits will be overhauled.

Before the break our question of the day asked you, what do you think of President Obama's defense cuts. 93 percent of you say they cut too much in our unscientific poll online. We're back with the panel. Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: The poll is correct. This budget strategy is a roadmap of American decline. It's going to reduce our capacity, that's exactly what the president had said he was not going to do today, which is it will adapt our strategy and our capacities to fit a budget, and remember, this is a budget without any cuts in entitlements, which is essentially what's killing us and adding to our deficits, instead it takes it out of defense.

He says we don't want to have a new large ground wars. Well, I agree. That is fine. But sometimes a Pearl Harbor happens or invasion of South Korea or a 9/11 and then a ground war is thrust upon you. It isn't as if it's a choice. So the strategy is to reduce the ground forces, increase Navy and Air Force, and yet, huge cuts in the joint strike fighter, which is the fighter of this new century. This is a budget that is going to reduce American capacity. It's going to make it extremely hard to carry the role that we have for the last 70 years.

BAIER: We don't have a lot of specific numbers. We have specific strategies. The joint chiefs are saying that they can do this and fight two wars. There's a lot of people that are very concerned about that possibility.

JUAN WILLIAMS, SENIOR EDITOR, THE HILL: Well, legitimately so. But I think a lot of people are not necessarily looking for it. You go back to Donald Rumsfeld in the last administration. He, too, was talking about making the military leaner, more agile, more effective, but looking to do so, again, by reducing the footprint of our ground war capabilities, the Army and the Marine Corps.

I think the president made a point here that is very important, which is that after 9/11, there has been a tremendous increase in defense spending in this country and that there has to be some balance, especially at the time when budgets are tight and there is a need to reinvest in the United States in terms of our domestic issues here. That is to me totally legitimate. And it is not at all the case that I hear from any of the critics that somehow our military has been decimated or that we have been weakened.

BAIER: Are allies affected by this play?

BILL KRISTOL, EDITOR, THE WEEKLY STANDARD: Yes. And this would decimate our military. And it would weaken the United States of America. Let's not kid ourselves. There is no magic. You have don't cut the ground forces he wants to cut, cut our capacities to intervene around the world, tell allies, whoa, you know, you thought in the past ground troops could land if there was really a problem. I'm not so sure anymore.

Look at how much trouble we had doing the surge in Iraq. Look at how much of a strain that put on our military. What? Five years ago or so, we had to have 15-month tours for the army, we're now going to have a much smaller Army and Marine Corps. But luckily, nothing's ever going to happen anymore. You know what, there's never gonna be a case we're gonna have to intervene, we're never gonna be attacked. Al Qaeda is never going to set up safe havens, there's never gonna be a surprise like Korea. And so we can go ahead and blindly do this.

It's unbelievably irresponsible. The savings are tiny when it comes to the actual budget deficit. The highest number was, you said $40 billion a year when he is running $1.5 trillion deficit, when he wasted $800 billion on a stimulus, none of which went to the military. Doesn't that tell you everything, $800 billion in '09, every cabinet secretary coming to see the president, hey, spend more money, spend more money. Secretary Gates, you begin cutting. You know, incidentally these cuts are on top of earlier cuts that the Defense Department was supposed to -- has absorb. So I'm very unhappy about it. It reminds me of why we need a new president in January of 2013.

BAIER: It does not take in to account the sequestered possibilities if you don't reach this deal with Congress as it stands currently, another $500 billion would have to be cut, Juan.

WILLIAMS: Right. I think, though, that, you know, I just disagree strongly with Bill. You seem to think that we should just put more and more money, keep our capabilities at the current level or higher. Again, what you are seeing is even with these cuts, the defense budget is going to continue to grow. So I don't understand. You just want to us be totally investing in the military at a loss to every other part of the American government and to the American people at a time of economic need.

KRAUTHAMMER: It grows in nominal dollars which is meaningless. It shrinks as a percentage of our economy. Under John Kennedy, whom I don't remember liberals ever attacking as a man who overspent on defense, half of the budget of the federal budget was on defense. Today it's a fifth. Under Kennedy, we spent 9.5 percent of our economy on the military. Today it's headed to four percent and shrinking. As a percentage of our economy it's going to get a lot smaller.

And the fact is, even if you don't want to work with the numbers, Obama has said himself we're gonna be shrinking our capacity on the ground. And the fact is that you can't simply announce and hope that there is not going to be incidents in the world with China arming itself hugely, Iran about to go nuclear, instability in the Middle East. How do we know that we are never going to have to be forced in to another land of confrontation in the next decade? We are not going to be prepared.

BAIER: This will not be the last panel on this topic for sure. That is it for this panel, however. But stay tuned for interesting prognostication.

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