Massive US
Deficit
Spells Austerity Policy For Next Administration
By Jerry White
03/08/08 "WSW" -- 30 July 2008 -- The Bush administration this
week predicted that the US budget deficit will hit a record $482
billion in 2009. This means that the next president, whether
Democrat Barack Obama or Republican John McCain, will follow a
policy of unprecedented austerity, including gutting entitlement
programs, such as Medicare and Social Security.
Although the deficit figure is $74 billion higher than what the
White House predicted just two months ago, it is widely
acknowledged that it severely underestimates the real scope of
the coming shortfall. The amount announced by White House budget
director Jim Nussle includes only $70 billion for the wars in
Iraq and Afghanistan—which could cost at least three times as
much.
Moreover, the estimate ignores the $100 billion—or hundreds of
billions, which could be the eventual cost—being allocated for
the Treasury Department’s rescue of the mortgage finance
companies, Fannie Mae and Freddie Mac.
The estimate was based on projections of better-than-expected
economic growth, corporate tax revenues, unemployment and
inflation estimates and a slowing down of the fall in housing
prices. These were quickly discredited by news that real estate
prices had fallen by a record 15.8 percent in 20 major US cities
over the past year. The same day that the White House released
the estimate, Merrill Lynch was forced to write-down $5.7
billion in mortgage-backed assets and was essentially bailed out
by investors from Singapore.
“That’s not the real number,” former Bush Treasury Secretary
Paul O’Neill said of the deficit in a comment cited in the
Washington Post. “It’s upward of $500 billion and counting. It’s
a mind-boggling number.”
This staggering rise in government indebtedness—which has more
than doubled in the current 2008 fiscal year to $389 billion,
from $162 billion in 2007 and will be nearly half a trillion in
2009—further undermines the international creditworthiness of
the US and places even greater downward pressure on the US
dollar.
According to the New York Times, “When Mr. Bush took office, he
predicted that federal debt held by the public—the amount
borrowed by the government to pay for past deficits—would shrink
to just 8 percent of the gross domestic product in 2009. He now
estimates that it will amount to 40 percent.”
There is an overwhelming consensus in the economic and political
establishment that ordinary Americans will have to pay for the
crisis of American capitalism and a budget deficit that has been
fueled by massive war spending, tax cuts for the wealthy and the
provision of unlimited public resources to bail out major
financial institutions.
“This is going to make it extraordinarily difficult for
whoever’s going to become president,” Senate Budget Committee
Chairman Kent Conrad (Democrat-North Dakota) told the Washington
Post. “I don’t care who the president is—when they come and meet
with their secretary of the Treasury, the Federal Reserve
chairman, their top economists, it will be a sobering moment.”
If he wins the November elections, whatever minimal spending
proposals Barack Obama has made during the campaign—including
his so-called universal health care plan, tax credits for middle
and low-income families and miniscule increases in
infrastructure spending—will quickly be shelved in the name of
“fiscal responsibility.”
Moreover, the political groundwork for major cutbacks in vital
social services is already being laid. In their reports on the
budget deficit, both the New York Times and the Washington Post
complained of “fiscal pressures” due to the growing Medicare and
Social Security costs—a thinly veiled suggestion that the next
president will have no choice but to gut these programs, upon
which tens of millions of seniors depend for income and health
care.
Nowhere is there a suggestion that military spending—which at
nearly $700 billion consumes well over half of the US
government’s discretionary spending and is more than the rest of
the world’s military spending combined—should be cut, let alone
eliminated.
For his part, Obama has pledged to expand the military by nearly
100,000 soldiers and marines and increase spending. Given the
costs of the ongoing wars in Iraq and Afghanistan, as well as
new weapons systems, “ It’s hard to see how we could spend less
on the military in the near term,” Richard Danzig, a former Navy
secretary who advises Obama on national security, told Reuters
in an interview last week.
While McCain calls for the extension of Bush’s tax cuts for the
rich, Obama would only raise the top tax rates to the levels
that existed under the Clinton administration—to 36 percent and
39.6 percent, from the current 33 percent and 35 percent. He has
repeatedly rejected any return to higher tax rates on the
wealthy as “confiscatory” and has told the Wall Street Journal
he would also consider cutting corporate taxes.
On Monday, Obama held a Washington meeting with leading figures
from corporate America and both Democratic and Republican
parties. These included billionaire financier Warren Buffett,
the CEOs of JPMorgan Chase, PepsiCo and Google, as well as
Bush’s former Treasury Secretary Paul O’Neill, now a special
advisor to the private equity firm Blackstone Group.
Also participating were top Obama economic advisors Robert
Rubin, chairman of Citigroup and Clinton’s former treasury
secretary, and Paul Volcker, who served as Federal Reserve
chairman under the Carter and Reagan administrations. Ruben
played a decisive role in the deregulation of the financial
markets that helped create the mortgage and real estate bubble
and made billions for wealthy speculators.
Volcker spearheaded the attack on the working class in the early
1980s by driving up interest rates to record levels and
deliberately provoking the worst recession since the Great
Depression of the 1930s in order to use unemployment as a hammer
to drive down wages and living standards.
With bureaucrats from the AFL-CIO and Change to Win union
federations present to perpetuate the fraud that Obama speaks
for the interests of workers, the Democratic presidential
candidate said, “There were some irresponsible decisions that
were made on Wall Street and in Washington. In the past few
years, I think we learned an essential truth that in the long
run we can’t have a thriving Wall Street if we don’t have a
thriving Main Street.”
Bipartisan measures were needed, he said, to “stabilize
financial markets” and encourage entrepreneurship and the free
market.
On Tuesday, Obama held discussions with current Federal Reserve
Chairman Ben Bernanke and Bush’s Treasury Secretary Henry
Paulson, where he signaled support for the government’s bailout
of mortgage giants Fannie Mae and Freddie Mac.
While unlimited public funds are being made available to bail
out wealthy investors, there will be no relief for masses of
working people in the US facing layoffs, home foreclosures,
unsustainable levels of personal debt, declining wages and
skyrocketing prices for basic necessities.
Once again, both parties will use the lie that there is “no
money” to meet social needs, while hundreds of billions are
squandered on imperialist wars and channeled into the pockets of
the wealthiest one percent of the population.
This guarantees that under the next administration, the working
class occupants of “Main Street” will continue to face
unprecedented levels of social distress and economic insecurity,
while the country’s infrastructure—its roads, schools, bridges
and public services—continue to crumble from neglect
Meeting the basic needs of the population—for decent paying
jobs, high quality health care and education and affordable
housing—requires a complete reorganization of economic life.
Social and political priorities must be turned inside out,
rejecting the anarchic prerogatives of the capitalist market and
placing the needs of working people first.
This underscores the need for a break with the Democratic and
Republican parties and the building of a mass political movement
of the working class based on a socialist alternative to the
profit system.
Copyright 1998-2008 -World Socialist Web Site
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