Paul Craig Roberts: A Banana Republic By 2012?:
[Paul Craig Roberts [email him] was Assistant Secretary of the Treasury during President Reagan’s first term. He was Associate Editor of the Wall Street Journal. ]
President Obama has presented the most irresponsible budget in US history. His fiscal year 2010 budget projects federal spending of $3.5 trillion and a federal deficit of $1.75 trillion. In other words, 50 percent of the government's budget consists of red ink.
And Americans are angry that sub-prime borrowers took mortgages they couldn't afford.
The bald fact is that the US government is going to have to borrow--or print--half of the money it intends to spend in Obama's first budget. This fact has fallen through the cracks as New York Times headlines proclaim "A Bold Plan Sweeps Away Reagan Ideas." It certainly does sweep away Reagan ideas. No Reagan budget ever presumed that the federal government could borrow half of its annual expenditures. Indeed, Obama's budget deficit for 2010 alone exceeds the totality of "Reagan Deficits" for Reagan's two terms of office.
As presidential budgets are marketing devices rather than financial statements, they are imbued with optimistic assumptions. Obama's budget is based on optimistic assumptions about the extent of decline in GDP. A more realistic projection of GDP decline would reveal that Obama's budget is the first since World War II in which more than half of the government's expenditures must be financed by red ink. I suspect that the red ink component of the FY 2010 budget will surpass World War II budgets.
To whom can the US government turn for $1.75 trillion for FY 2010, on top of $1.2 trillion for FY 2009?
Not to taxpayers. Obama's net tax increase comes to $170 billion over 10 years, or $17 billion a year, a drop in the bucket. A supply-side economist could have told him that not even these paltry revenues will be realized.
Not to private savers. Americans are over their heads in debts.
Not to foreigners. Thanks to Clinton/Bush financial deregulation and Wall Street and bankster greed, the rest of the world is in financial turmoil and hasn't $1.75 trillion in savings to lend. Possibly, the stock market will collapse further, and whatever remaining wealth Americans have will flow into "safe" US Treasuries.
The only other alternative is the printing press. Printing press finance would destroy the dollar as reserve currency and ignite high inflation. The US would be unable to pay for its imports, and Americans whose incomes do not rise with the rate of inflation would be plowed under....
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Craig Michael Loftin - 3/6/2009
Indeed, Republicans are tripping over themselves trying to blame Obama and the Democrats for all of the current economic problems, and for their sincere efforts to deal with these problems. GOP icon Rush Limbaugh even calls it "the Obama recession" on his radio show. Bottom line: Clinton balanced the budget. Bush dug the financial hole, largely because of the Iraq war (the cost of which was roughly equal to the TARP program). The Republicans enjoyed total power to implement any policy they wanted for six straight years. Now we are living with the consequences of those policies and decisions. The Republicans love to boast about people taking personal responsibility for their actions, but sadly they never apply this to themselves.
Michael Green - 3/6/2009
For a Reagan administration treasury department official to complain about spending and deficits in any other administration, especially one following the most economically and constitutionally profligate one in American history, is like Bill Clinton giving advice on marital fidelity. In fact, it's worse.
James W Loewen - 3/6/2009
Where was this author when the G.W. Bush administration, to say nothing of the Reagan administration, ran huge deficits during times of plenty? Where was he when Vice-President Cheney said to then-Treasury Secretary Paul O'Neil, "Reagan proved proved deficits don't matter." If Bush had kept Clinton's deficit-reduction policies in place, we would be entering this recession with a big surplus. Like any good Keynesian, Obama knows government SHOULD run a deficit during a recession. The problem was, Bush ran a deficit during the boom.
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