Bush's Deficit May Doom America
EEditor’s Note: The financial catastrophe being left behind by George W. Bush is moving the United States from its old status as one of history’s great republics into a new reality as a “banana republic,” or perhaps a “banana empire.”
In this caustic guest essay, the Independent Institute’s Robert Higgs lays the blame for this sorry development far and wide – and sees little hope that the incoming Obama administration can set things right:
According to a recent report by the Congressional Budget Office (CBO), “the [federal budget] deficit this year will total $1.2 trillion, or 8.3 percent of GDP.” This seems about right for a banana republic.
The bad news is that neither commercial banana cultivation nor a republican form of government has proved viable in this country.
Bananas, of course, must be imported into this country from Latin America and other places where their commercial cultivation has proved profitable.
As for the republican form of government, the American people have progressively repudiated it almost from the time they won their independence from the British Empire, and during the past century, they have increasingly favored a form of electoral dictatorship cum empire in which, every four years, the people cast ballots for one of the candidates put forward by the two wings of the one-party political apparatus.
This system, vigorously promoted by the imperial running dogs known as the mainstream news media, brings great delight to the masses, who love a good horse race, even if it has been fixed. They are also kept contentedly semi-comatose by the bread and circuses their masters provide in the form of the welfare-nanny-therapeutic state and its Hollywood adjuncts.
The few who object strenuously are tased or shot dead by the police, who are ever ready to serve and protect the state that employs them.
The CBO’s projection does not take into account any addition to the federal budget deficit that may arise from enactment of a “stimulus” bill after the Obama gang takes charge of administering the empire.
If the magnitudes now being discussed for this so-called stimulus should prove to be in the right range, the deficit for fiscal year 2009 may turn out to be not $1.2 trillion, but something in the neighborhood of $2 trillion, perhaps 15 percent of GDP.
If so, the deficit will be as large in amount as the entire federal budget was as recently as 2002. This prospect may be what cranky commentators such as yours truly have in mind when they speak of “out-of-control federal spending.”
The 2009 deficit arises in part from the CBO’s taking into account outlays of $238 billion as the net subsidy costs for Fannie Mae and Freddie Mac, plus $18 billion of cash infusions from the Treasury to Freddie and Fannie.
It is entirely possible that the estimated net present value of Fannie and Freddie’s future earnings will prove to be too large, and therefore that the subsidy will be greater than projected and the overall federal budget also greater by that extra amount.
With little fanfare, the CBO report ventures to mention that “foreign lenders, who have recently been willing to lend to the U.S. government on very advantageous terms, may become less willing to do so in the future, which would tend to raise interest rates in this country.” To be sure.
Indeed, if the Japanese, Chinese and Arabs, who have been carrying a major part of the load in covering the federal deficits in recent years, should substantially reevaluate the risk of dollar depreciation (or even U.S. repudiation of its debt) and greatly reduce their purchases of U.S. Treasury securities, then drastically higher interest rates and, in response, hyperinflation (with or without price and wage controls) might well be the next chapter of this unpleasant story.
Meanwhile, my advice is: eat bananas while they are still available from producers who will accept U.S. dollars in exchange for them. If the U.S. dollar is totally destroyed, as recent and impending government actions suggest it might be, then we may be reduced to barter, at least for a while.
I wonder if we can trade Hollywood films for bananas. And, most important, I wonder whether I can get a job in the movie business, perhaps as an extra for the crowd scenes. I think I have the talent needed for that role.
Robert Higgs is Senior Fellow in Political Economy for The Independent Institute. He has been a visiting scholar at Oxford University and Stanford University, and a fellow for the Hoover Institution and the National Science Foundation. He is the author of many books, including Depression, War, and Cold War. To send Higgs an e-mail, click here.
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