...I'd like to get a little bit serious here for a few minutes and just talk to you about some of the challenges facing the men and women of our Armed Forces and, frankly, the country.

Now, as has been said already, we've been at war for eight and a half years. And, a week or ago, I read that we had passed the combined duration of World War I, World War II, and Korea. And, in that time, almost 5,500 [service] men and women have given their lives, and over 30,000 of our men and women have been wounded. In addition to that, more than 13,000 have been decorated for valor. So, you can be very proud of what your men and women are doing. They are the heart and soul of this country, and what we're celebrating here tonight is a great partnership-a partnership between the American people and their all-volunteer force. It is a critical partnership because we could not have sustained ourselves over the last eight and a half years without your support, and we thank you immensely for that.

Now, I would like to talk about where we are as an Army, and where we are going in the future. We have been at war for eight and a half years with a global extremist terrorist network that attacked us on our soil. I know I see a lot of uniforms out there [in the audience] and these servicemen and women understand that this is a ruthless group and that they're not going to quit and they're not going to give up and they're not going to go away easily.

And when we began that struggle in 2001, we had a great Army, but it was an Army designed to fight large armored battles on the plains of Europe or in the deserts of Saudi Arabia, and it was too small to do what the nation asked us to do over the last eight and a half years. So-as a result of that-our Army is out of balance.

We're so weighed down by our current commitments that we can't do the things that we know we need to do to sustain this All-Volunteer Force for the long haul, and to build the capability to do other things besides what we're doing in Iraq and Afghanistan.

Three years ago we put ourselves on a program to get ourselves back in balance. It was centered around four imperatives.

First, we said we had to Sustain Soldiers and Families. They're the heart and soul of this force, and we can't go on without them.

Second, we had to continue to Prepare Soldiers for success in the current conflict. We're sending 150,000 men and women over to Afghanistan and Iraq every year, and we can't flinch on providing them the equipment and training and people that they need to get the job done. We've been doing fairly well at that.

Third, we had to Reset them effectively when they came home, and this is hugely important because we have been turning them quite quickly-in less than 18 months. It's imperative that they have time to rest and [it's imperative that] the equipment they take back with them is repaired.

And lastly, we have to Transform for an uncertain future, and let me just say a couple of words about each of those.

On sustaining our Soldiers and Families, the most important thing that we can do for our Soldiers is to increase the time that they spend at home. To do that, we had to do two things. We had to increase the size of the Army, and we had to reduce demand in Iraq and Afghanistan.

Over the past three years, we have increased the size of the Army by almost 90,000 Soldiers. You'll recall President Bush said in 2007 to grow the Army by 74,000 folks, and Secretary [of Defense] Gates said last year that we would continue to grow it by another 22,000. That, plus the drawdown in Iraq, has allowed us to meet the demand in Afghanistan without having to go back to 15-month deployments, while still increasing the time Soldiers spend at home. We'll be at the 18-month range this year, and-by 2012-we expect to have one-year out, two years back for our Active Forces.

We've just finished a study that tells us what we intuitively knew: that it takes 24 to 36 months to recover from a 12-month combat deployment. That's the reality, and so it's hugely important for us to get there. We're making great progress toward that.

On the prepare side, we're getting much more agile in the Department [of Defense]. It took about three years to get the full complement of up armored Humvees into Iraq. We put some better vehicles in in about 18 months and we put some even better vehicles in in about nine months and that speaks highly of what the capabilities of the Department are.

On the reset side, we have said that we'll need money to continuously reset the force and for two or three years thereafter. So, as the drawdown in Iraq is completed at the end of next year, we'll still need about two or three more years [of reset money] so the equipment that comes out of Iraq gets repaired and put back into units.

And then, lastly, transform. We do an awful lot of thinking about the future because my job is not just to meet the current demands, but it's to make sure that in 20 years, when something else happens, the country has the Army-the land forces-that it needs.

Now, thinking about the future is difficult, and as my old friend Yogi Berra likes to say: "Predictions are hard, especially when you're talking about the future. So I'm going to talk a little bit about the future, but I do it with great humility and understanding that the best we can do is get our view of the future "about right." If we get close, we're good.

So as I look at what's facing us, I start from the fact that we're at war and the war that we're in is a long-term ideological struggle. We are at war with an extremist terrorist network that attacked us here and those folks aren't going to quit or go away easily. Against that backdrop, we look at the trends that we see in the global environment. They seem to us more likely to exacerbate that situation than to ameliorate it.

What am I talking about' Globalization. Globalization-at least until about a year or so ago-was bringing prosperity to countries all over the world. But, the benefits of prosperity are very unevenly distributed and we're creating a "have" and "have-not" culture. If you think about it in places like South America, Africa, Middle East, Southeast Asia, and South Asia, the benefits of prosperity are very unevenly distributed and the populations of the countries in those regions are much more accessible to recruiting by extremist groups than those of the "have" countries.

Technology. [It is] another double-edged sword. The same technology that's being used to export terror around the world is being used to bring knowledge to anyone who has a computer.

Demographics. Demographics are also going in the wrong direction. Studies that we look at tell us that the population in some of these developing countries is expected to double in the next decade. Could you imagine the population of Pakistan doubling in a decade, and the problems that brings to an already-strapped government'

The other problem of demographics is the population of the world is moving increasingly toward cities. There are studies that say that by 2030, 60 percent of the population of the world will live in cities. And, some of you here, I'm sure, have fought in Sadr City-a 3x5 mile area in Baghdad where two million people live, and let me tell you that's a tough fight.

The other thing about demographics is the increased demand it'll present to resources. The middle classes in China and India are already larger than the population of the United States. That's a lot of two-car families.

So as we look at the fact we're at war and the trends are pushing us in the wrong direction, we believe that we are in for a decade or so of what we call "persistent conflict:" protracted confrontation among states, non-states, and individual actors who are increasingly willing to use violence to accomplish their political and ideological objectives. That's how we see it. That's what we're preparing ourselves for.

The other thing: It's not enough to say, okay, we're going to be doing this for awhile. We have to look at what war is going to be like in the decade ahead. Certainly, Iraq and Afghanistan are harbingers of what's in front of us, but we can also look at what happened in Lebanon in the summer of 2006, as an example.

In Lebanon, you had a terrorist organization, Hezbollah, supported by two states, Syria and Iran, operating inside another state, Lebanon, fighting yet another state, Israel. This terrorist organization had the instruments of state power. They began the war with more than 13,000 rockets and missiles, not just the small rockets they fired at our bases in Iraq and Afghanistan, but large missiles that they fired at Israeli cities.

They had modern state-of-the-art anti-tank guided missiles and they used improvised explosive devices to channelized the attacking Israeli Armored Forces into kill zones where they inflicted 40 percent of the Israeli casualties.

They had state-of-the-art surface-to-air missiles and they shot down Israeli helicopters. They hit an Israeli ship in the Mediterranean with a cruise missile. They had unmanned aerial vehicles that they used to target the Israelis. They had secure cell phones and secure computers for command and control, and they got their message out on local television.

Now that's a fundamentally different and more complex environment. It's what we call a "hybrid" threat. Diverse combinations of conventional, irregular, criminal, and terrorist capabilities, and all arrayed against us in different ways. That's a much tougher challenge than what I grew up planning to fight.

And so as we look to the future, we see the complexity of the future conflict presenting great challenges. So we've been working toward that really since about 2004. And since 2004, to transform this Cold War Army to the Army we need today, we have adapted all 300 brigades in the Army to modular designs-designs that are tailorable for different situations. We've rebalanced about a 160,000 Soldiers away from Cold War skills to skills more relevant in the 21st Century. For example, we have stood down about 200 tank companies, artillery batteries, air defense batteries, and we've stood up a corresponding number of Special Forces, Civil Affairs, Psychological Operations, and Military Police.

Taken together, that's the largest organizational transformation of the Army since World War II, and we've done it while we're deploying 150,000 Soldiers over and back to Iraq and Afghanistan.

The other huge transformation in our Army is what's gone on with our Guardsmen and Reservists. Today, more than half of our Guardsmen and Reservists are combat veterans. That's a fundamentally different Army than it was 10 years ago. Ten years ago, the Guard and Reserve were a strategic reserve, one designed to be fully mobilized and deployed to Europe in the event of the big one. We're not using them like that today.

Today, we have 70,000 to 80,000 Guardsmen and Reservists mobilized on a given day. We could not have done what we have done as an Army in this war without the contributions of our Guardsmen and Reservists. And, I would thank employers and family members here who support our Guardsmen and Reservists because they couldn't do what they do without your support and your support is both recognized and appreciated.

The last huge element of transformation for us is to put the entire Army on a rotational model, much like the Navy and the Marine Corps have been on for some years, and we're doing that because we believe in an era of persistent conflict we will have to deploy forces for combat for a decade or so and we have to do that at both a pace and a tempo that's predictable and sustainable for this All-Volunteer Force and so we have to get at least one year out, two years back, and then expand that to one year out, three years back. That's the direction that we're headed.

So your Armed Forces today are a magnificent professional combat-seasoned force, but they have suffered the stresses and strains of eight and a half years at war. We're not quite out of the woods yet, but you can be very proud of their accomplishments, and you can believe that we will continue to work to accomplish our Nation's objectives in Iraq and in Afghanistan.

Now I'd like to close with a quote from the President in his Inaugural Address because it speaks to the spirit that inhabits the men and women our Armed Forces and it's the spirit of service that must be embodied in this whole country.

Here's what he said: "As we consider the role that unfolds before us, we remember with humble gratitude those brave Americans who at this very hour patrol far-off deserts and distant mountains. They have something to tell us, just as the fallen heroes who lie in Arlington and whisper through the ages. We honor them not only because they are the guardians of our liberty but because they embody the spirit of service, a willingness to find meaning in something greater than themselves and yet at this moment, a moment that will define a generation, it is precisely that spirit that must inhabit us all." As I said, it's that spirit that inhabits the men and women of the Armed Forces. You can be extremely proud. And, it is precisely that spirit that makes the United States of America what it is today: the greatest nation on earth.

So thank you very much. God bless you.